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Stem the customer churn before it gathers momentum

Professor Hugh Wilson, of Cranfield School of Management, and SAS study into marketing by banks and building societies shows customers are widely reached but often ineffectively.

• SAS research finds television advertising by banks is ineffective compared to other sectors

• SMS communication in banking generates positive impact but is under-utilised

• Direct mail communication is used widely but not personalised and poorly received as a result

A recent customer insight report from Professor Hugh Wilson, of Cranfield School of Management, and SAS, the leader in business analytics, identified that relevance and impact of marketing communications is critical to customers yet many banks are still failing to capitalise on the big data that they hold.

Last year’s Vickers Report provided the clearest early warning signal yet that banks will face significant changes in 2012, not only to their overall structure but importantly, they will almost certainly be required to make it easier for consumers to switch bank accounts. As trust has eroded and basic banking services are increasingly commoditised, how can banks prepare for the growing customer churn that may result from simplified account switching?

Barrie Neill, Banking Consultant at SAS UK & Ireland, says: “Only time will tell how far the Vickers Report will influence banking reforms over the coming twelve months, but one thing seems to be clear: consumers will find it increasingly easy to change banks if they are dissatisfied with their services. This presents a huge opportunity for the canny retail bank. Marketing teams should be looking now at how they can most effectively build strong and meaningful relationships with their customers and safeguard against falling retention.

“The most effective tool is already in the banks’ possession – the information they have on customers. By using Big Data Analytics, banks can build an institutional memory of each individual customer: their likes and dislikes; which channels they like to be communicated through and which promotions they have responded to. By putting in place the right people, methods and systems, banks can trawl through the data left by every customer interaction to find the patterns and anomalies that will allow them to treat each customer as an individual, and engage with them in the most appropriate manner.“ The research we carried out with Cranfield School of Management, provides concrete examples of how banks can use Big Data Analytics to improve aid customer insight.”

A considerable amount of banks’ interaction was via above-the-line channels (e.g. television and newspapers). Not only does this not lead to any acquiring of personal data, but the research found that it was not very effective.

Key findings include:

• Nearly 50 % of bank and building society customers were reached via television and yet they tended to simply tune out (making it ineffective in terms of relevance and impact)

• Around 20% were reached via newspapers, and again the overall experience of the interaction was ineffective. While negative press comment was, in part, responsible for this underperformance, bank and building society press adverts also underperformed compared to those of other sectors.

When it comes to below-the-line interactions, SMS is an effective communication channel.
SMS is being used to deliver personalised service messages to account holders – such as balance details, or warning of significant events such as exceeding an overdraft limit. These interactions are, by their nature, very relevant. They’re also made directly with the account holder, giving the channel a very high hit rate. It’s possible that banks could double or treble their use of SMS for an even greater positive effect. By contrast, customers are reacting very negatively to direct mail (DM) and email communication.

Key findings include:

• Only around 5 per cent of customers were reached via SMS yet the experience was described as very positive overall

• Banks deliver far more DM communications than in other sectors, with 28 per cent of participants surveyed having received direct mail from banks over a four week period. However, the finding also showed that customers react negatively to such campaigns.

The research found that banks are not personalising their direct mail, instead using it as a broadcast channel. By using business analytics, banks can bring together all of their customer data to understand which customers would be most likely to buy certain products and which channels would be most effective for reaching them, increasing the relevance of any DM campaign.
Neill concluded: “The report provides more concrete examples of what banks can do to improve their interactions with customers. As with any industry, engaging correctly with the customer is important, but as the recommendations of the Vickers Report find their way into public policy, for the banking industry it is going to become the platform on which customers are won or lost.”