This implicit ritual of delays, muddling of information and lack of consistent direct contact between customers and their banks has worked well for the latter who experience a fairly mild attrition rate each year compared with many industries. Inertia is perhaps the greatest reason that most people remain with their banks, the sheer hassle of form filling and fear of a bumpy transitional period prevent most people from changing banks. George Smith, the author of 'Upside Down Marketing' says that 78% of people who leave a bank do so because 'they don't feel important' - there is no relationship. These people feel unloved. Incidentally, the other reasons for departure are death, which accounts for one percent, three percent move away, seven percent find another bank, whilst nine percent move for competitive reasons and the final two percent are dissatisfied with the price and service they are given.
However, as the screws are turned to ensure that the banks comply with their
obligations to ensure the smooth transition the likelihood of increased
defection is substantial. Thankfully for the banks and many other financial
institutions they are well placed to control the rate of defection if they so
wish, as they have the raw data that is required to run a Defection Tracker
programme, namely personal data and transactional information.
The new defection trackers have been designed to address the problem of customers leaving a company and ways of enticing them back. A Defection Tracker is an integrated process combining database information and call centre capabilities that tracks past purchasing habits, anticipates likely future purchasing trends and sets in motion a series of highly personalised communications to win over the recipients.
Banks have an advantage over most other financial institutions such as insurance companies, in that nearly every customer informs them when they are
leaving. Thus they can set in motion their defection tracker processes very
quickly, to halt the defection. One of ICLP's UK bank clients ran a programme that resulted in 16% of customers remaining with the bank after specifying the intention to leave just by a trained customer relations team phoning them up and asking the reason for their decision. Each answer was taken and dealt with individually to the satisfaction of the customer, ensuring their eventual retention.
Defection Tracking is the natural progression of the traditional CRM - Customer Relationship Marketing, so prevalent and successful over the last few years. The whole process has become more sophisticated, tracking buyer behaviour and delivering truly one-to-one incentives, whilst helping to maintain a useful dialogue between consumer and company. And as more and more clients have been looking for measurable marketing as the number of products on the market continues to increase, sustainable loyalty programmes have become even more necessary. It seems that those clients that have adopted a dedicated CRM policy are already reaping the benefits of those programmes.
Inherent in the developing nature of the relationship between customer and
company, however, is the need for CRM to develop in parallel. There is a growing realisation that customer profitability is now more important than product profitability. However, even in today's marketing culture of CRM hype very few financial services have defined and track customer profitability. The old adage that the customer is king has a more resolute tone to it these days, so companies are spending vast amounts on customer satisfaction surveys but do little to understand why they defect. The acid test is at the point of defection, probably the only time you will get a true understanding of how your company is performing.
It is well known that it costs five times more to acquire customers than it does to retain them. We also know that 'satisfied' customers defect, so it is
surprising how few organisations use 'lapsers' and 'defectors' as the basis of better understanding the customer's perspective on their business. And there is a good chance they might retain a few along the way, simply by showing they care! CRM programmes were developed to encourage customer loyalty but not to track defecting customers or to encourage lapsed customers to return. Despite considerable investment in the technologies in the past, banks have not been seeing the commensurate improvement in CRM from the customer perspective.
The defection tracker programmes, however, have been designed solely to identify defectors and set in motion a programme of initiatives to entice them back. The programmes are built to specific industry requirement, then further enhanced to meet individual company specifications.
Usually the first prerequisite is to analyse a customer's frequency of purchase to ascertain his or her status. For instance, a customer who purchases every month but has not done so for three months is deemed more likely to be a defector than an infrequent purchaser, who has not bought for six months. Thus, separating defectors from infrequent purchasers is paramount.
The programme may also provide an outbound telephone research pilot to the most valuable customers, whose purchasing history signifies a decline during a defined period, yet who were not influenced by any reactivation triggers. This is for the purpose of understanding customer defection and developing a relevant retention strategy.
In certain industries, customers can be very promiscuous as many are with their insurance, because it is simple to change loyalty, yet other businesses, such as banking, benefit from customer inertia and apathy towards changing.
The more promiscuous a customer base, the easier it is to entice the customer
back. Special offers, promotions, loyalty points and other marketing initiatives all play a part, however, it is the manner in which they are utilised that counts.
For instance, one leading computer supplier treats all customers the same
regardless of status. It will direct mail every customer the same offering
and brochure, repeatedly to a defined time scale regardless of whether that
customer has purchased recently or not. This is in the misguided belief that
their offering is strong enough to ensure a return on investment. However,
were they to analyse their database they would find a considerable number of
customers had not purchased for a very long while. Why? Who knows, probably
dissatisfaction with the service, price not competitive enough or another
supplier has stolen the business. These customers should be treated
differently. They will not respond to the same mailers and touch points as
existing, satisfied customers. This is where the defection tracker proves to
be so valuable.
Banks are not immune to the tougher competitive market forces that are
developing. With the hopefully greater ease of migration from one bank to
another, customers will receive the service they deem appropriate and banks
will have the marketing tools to constantly monitor their customer base,
retain as many as they can and entice a growing number of their defectors
back to the fold.
For more information please contact:
Tony Clarke, ICLP
Tel: 020 8256 9035