How to lose customers in five easy steps
Common banking practices that result in anemic customer profits
We all know that banks are large, complex organizations that engage in a long list of customer interactions across a broad range of products and services. Combine that complexity with product-centric organizational structures and measures, and you’ve got a recipe for unwittingly acting in ways that drive away valuable customers.
As most marketing executives in the banking world already know, losing valuable customers is all too easy. It’s so easy that we’ve laid out the steps for you right here. Follow along and determine whether you’re engaging in any of these common practices that lead banks away from the quest to maximize profitability.
STEP 1: Don’t collaborate. Let each group worry about its own customer interactions.
Traditional retail banking has been “product-out” rather than “customer-in.” Separate lines of business – mortgages, credit cards, etc. – work independently to make their numbers. My success might undermine yours, but I don’t care.
Why should product/segment managers care about increasing total customer value across the institution if they are rewarded on how well they perform in their own niche?
The traditional business model focuses inwardly on what the bank wants to sell, not outwardly on what the customer really wants or needs out of the relationship.
This approach will no longer fly. Thanks to deregulation and the Web, customers can click to the competition on demand, and they can publish opinions that sway millions of others. You must earn their good will with every encounter.
You can’t differentiate yourself on the basis of interest rates, fees and loyalty programs. You have to create a uniquely satisfying customer experience – and that doesn’t happen when the left hand doesn’t know (or care) what the right hand is doing.
STEP 2: Don’t find out what customers value. Just squeeze more value out of them.
Banks still count heavily on cross-selling to build “share of wallet,” but they actually undermine value 75 percent of the time, according to research by First Manhattan Consulting Group and SAS. Sound improbable? These examples might look familiar:
A major national bank runs a successful credit card direct mail campaign that generates many applications for new credit cards. The very next week, the company’s home equity department appeals to the same customers, urging them to cut up their credit cards and consolidate debt with a home equity loan.
Couldn’t happen? Without a customer-value focus, it did.
The credit card division of another bank decided to charge a user fee to its unprofitable customers. Many then closed their credit cards. Initially, the campaign was called a success because the target customers either paid the fee or left the bank. Too bad many of the ones who left were actually the bank’s most profitable customers – when the entire customer relationship (beyond just the credit card business) was considered.
In both cases, the lack of an enterprise customer view prevented the bank from maximizing customer value.
STEP 3: Don’t consider the customer experience. Just push price and product.
Business strategists agree that differentiation is key to competitive advantage. Trouble is, traditional competitive strategies based on pricing and product innovation don’t result in sustainable differentiation, for several reasons: The bank next door can quickly copy your good deal. Product and service lines, however innovative or competitive they may be, can quickly become copied commodities.
Not all customers are equally price-sensitive. Many consumers are willing to sacrifice price for convenience. Think about valet parking. In any event, do you want to be the bargain brand?
Price is but one of many factors in choosing a bank. Customers really want a sense of familiarity and trust, the sense that the bank knows their total relationship and financial needs.
Tiered services can help or hinder. Implement bronze, silver and gold levels of service based on a customer’s value to the institution, and they will be delighted, right? Maybe, maybe not. The practice can backfire if customers who want luxury service are not eligible for it – or if it costs the bank too much to fulfill those gold promises.
You really can’t win on product or price. Your only enduring edge will be your ability to use superior customer insights to deliver a superior, value-driven customer experience.
STEP 4: Don’t measure anything. After all, marketing is more art than science.
In simpler times, if you suggested performance management, a marketer would say, “Hey, I’m all about creativity and concept – and you can’t measure those things – so you have to give me free rein, let me run with my budget, and leave me alone.”
That’s a self-destructive attitude to take when CEOs and CFOs are looking at how much money goes to marketing – and how little they can prove ROI.
The quantifiable proof is rarely there. Metrics, where they do exist, often do not favor the marketer. Or they are measures of results outside the direct control of marketing. And they undervalue the “soft” results that marketing does directly influence.
Face it, measurement is inevitable. But it’s not a death knell on marketing budgets and creative latitude. It could be quite the reverse. Rather than being a “CYA” strategy to defend your position, marketing performance management can be a powerful tool to solidify it. You could get richer insights about the real sources of customer value, the real impact of marketing costs, and the future behavior of customers – all of which can be exploited for powerful results.
STEP 5: Don’t worry about tomorrow. Just focus on making this period’s targets.
Why waste time and resources on trivial accounts? The institution is too important to act as a computerized piggy bank for individuals with modest accounts, right? Wrong, maybe. The present value of a customer is only part of the picture.
The struggling graduate student might someday be a really big fish. So might the young medical professional, the entrepreneur and many other customers who look like small fry right now. Banks routinely alienate good customers because they focus too closely on present value rather than potential.
Reconsider the traditional focus on past behavior and present balances. It’s time to adopt a comprehensive view of the customer as part of a continuum, not just a sale – and manage the holistic value of the relationship over time.
With a customer value management perspective, you would know which customers have the greatest potential value, and which ones will likely never be profitable. Then you’ll know where to focus your actions.
Time for a new approach
Of course, it doesn’t have to be this way. Learn how smarter customer interactions and more customer-centric measures can help you deepen and grow relationships with your most valuable customers. Download our e-book now and start redefining how you build value – for your customers and your enterprise: www.sas.com/sascom-ebook.