Banking on loyalty – love the ones you’ve got

By Bethan Cowper | 16 December 2015

Loyalty and the financial sector have a lot in common, both highly competitive environments with customers willing to jump ship when the going gets tough. Marry the two together and it reaches a whole new level. Today’s technological savvy consumer expects a convenient, personalised service with competitive rates and a robust loyalty scheme, and they are not afraid to make their complaints heard if these criteria are not met. In this modern, turbulent landscape, financial institutions seem increasingly focussed on gaining new customers; so much so that their activity is often to the detriment of not retaining those they already have. New customers seemingly get rewarded just for signing up, whilst the most loyal feel they receive no more or less than any other account holder, unless they fall into the overly wealthy category.

This is where things get interesting. Of course, to not have an effective strategy in place to win new customers would be unreasonable and this is not a suggestion that any one person would feel comfortable making, however, perhaps a shift in perspective is in order. According to Gartner, 80% of FI’s future revenue will come from just 20% of the existing customer base, and recent research from Gallup has found that fully engaged customers bring 37% more revenue to their primary bank than those who are actively disengaged. Clearly keeping loyal customers happy and converting existing customers into this segment is a strategy worth considering.

On the other side of the scale, research from Cisco in 2014 worryingly uncovered that 43% of consumers believe that their bank doesn’t know them, and 31% believe that their bank is not helping them reach their primary financial goals. With the probability of selling to an existing customer at 60-70% and the probability of selling to a new prospect at 5-20% (Marketing Metrics), offering recognition to the customers you already have could go a long way to both lowering customer attrition and increasing revenue.

Successful customer retention begins with the first interaction between the FI and the consumer and continues throughout the entire length of the relationship. According to Gallup, customers broadly fall into 3 categories when it comes to loyalty:

· Actively engaged – those who are emotionally attached to the brand and offer friends and family word of mouth referrals;

· Indifferent – those who are emotionally neutral with a ‘take it or leave it’ attitude and;

· Actively disengaged – those who are emotionally detached from the brand, and willing to switch banks at the first hint of bad customer service.

The key issue here is that although the indifferent customers are essentially satisfied with their FI, they are not brand advocates and whilst they should be sitting happily on the fence, these consumers will still take to social media to complain should the need arise. Unfortunately, they are less likely to sing an FI’s praises if the situation is reversed.

Today’s consumer is aware of the competition, comparisons are available at their fingertips and they are quick to publicly complain. However, when emotionally engaged with a brand, they are an excellent investment, easy to cross- and upsell to, happy to make referrals and actively increase revenues. The question is how to move the indifferent and actively disengaged customer over into this more profitable bracket.

An obvious place to start is to offer relevant products and offers that show an understanding of customer behaviour at a personal level and reward customers for using multiple products with preferential rates or discounts. In terms of preferred products and experience, an omni-channel approach and customer-friendly mobile app were at the top of the list in the annual Customer Loyalty in Retail Banking report by Bain. Making sure product development strategies are intrinsically linked to what customers want simultaneously make the customer feel heard and improve chances of successful cross-selling.

Whilst FIs are quick to advertise revenue generating loans and credit cards, the same emphasis is not in place for available loyalty programs and money management tools. Simple offers and promotions can go a long way to demonstrate an FI’s commitment to rewarding loyalty. By implementing the best possible customer retention plan,  an FI can differentiate themselves from their competitors. A brand profile synonymous with well looked after customers is not one to be sniffed at. A clever FI will understand that in the long term customer retention will lead to customer acquisition.

The same study from Bain found that hidden defection of customers from their primary bank is rampant with more than one third buying a product from a competitor in the past year. The irony being that the first place consumers looked would’ve been at the offering their primary bank had available, but this opportunity was completely missed. A survey by American Banker found that approximately one-third of banking products in the US, are sold, not bought – whereby customers did not plan to buy a particular product, but they received an offer and decided to go for it.

There is one additional factor that is becoming increasingly important to the consumer and directly impacts loyalty: system performance. Makovsky found that 73% of consumers would likely switch to a different financial provider should there be a breach of their personal and financial information, and recent press surrounding the downtime of high profile FI systems and services does not help to instill trust. Whilst a bad customer experience could damage a customer’s relationship with their FI, security breaches are much harder to come back from.

As the significance of the long term individual customer value is realised, banks need to become more focussed on customer profitability as opposed to product profitability, and understand that the overall value of their business is based on customer worth. It is important to remember that the wealthiest customers are not necessarily the most loyal, and worth shouldn’t be confused with wealth. Research by Bain backs this up, having found that wealthier customers tend to give lower loyalty scores than people of modest means.

In conclusion, whilst customer acquisition is key for growing business, this alone does not constitute a profitable growth strategy and the value of customer retention should not be overlooked in the battle to gain new ground. When it comes down to the wire, keeping customers happy is much cheaper than the expenditure associated with trying to attract new ones, and once customers are lost, they are very difficult, if near impossible, to regain. It is time to love the ones you’ve got – and make sure they feel valued. 

By Bethan Cowper, Head of Marketing and PR, Compass Plus.

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