Customer attrition has become
a key issue in a low-growth retail banking environment, so
best-practice banks have taken a methodical approach to managing
customer loyalty. While a number have successfully adapted their
offerings, two leading vendors argue much remains to be done.
Douglas Blakey reports.
The annual report, Retail
Financial Services, Strategic Insights and Best Practices from
the European Financial Marketing Association (EFMA), marks out 2010
as a turning point for its financial services members.
Although the sector continues to
face major challenges, the report makes the valid observation that
the retail financial services market continues to show many
examples of innovation and growth.
Improving customer service and the
overall customer experience in an increasingly multi-channel world
is one area where European banks, which make up the majority of
EFMA’s membership, can claim some progress.
But as the report observes, banks
and insurers need to re-double their efforts.
Notable retail banking initiatives
flagged up by the report include:
- KBC: retention
strategy building blocks. As a first step, KBC identifies
those customers with an intention to reduce the relationship which
might be done by looking at sleeping accounts.
- Early warning systems of
changes in account status are also analysed. Proper on-boarding of
new customers is a priority as is increasing cross-selling to bind
customers with, for example, mortgages or pensions.
- Pro-active contact
management, and appropriate initiatives at key life time events
(such as death, divorce etc.) and moments of truth also help with
customer retention. Finally, if a customer does try to end the
relationship, a process of exit interviews is arranged.
- National Australia
Group Europe: customer retention programme. The customer
retention strategy of NAB’s UK subsidiaries – Clydesdale Bank and
Yorkshire Bank – has delivered an improvement in customer
engagement scores and reduced customer attrition; in 2009 there was
a net gain in customer numbers.
pricing strategies for customer retention. Arguably, one of the
most interesting initiatives is being pursued by
- Spain’s largest lender is
moving from one price for all, to one price for each customer. This
involves deciding what should be considered as part of the ‘price’,
then using techniques like conjoint analysis to identify sensitive
customers, and integrating price sensitivity with other metrics
such as attrition rates.
- Santander then sets a price
interval instead of a fixed price per customer, giving more price
flexibility to senior employees. Product bundling is a good
strategy for dealing with very price sensitive customers, and can
make it difficult for them to compare with other banks.
RBI spoke with leading
executives from two of the largest loyalty consultancies to the
retail banking market – The Logic Group and Collinson Latitude
– about how banks can ramp up their efforts to improve their
RBI: What is your
take on banks’ current approach to loyalty, rewards
Mark Jones, Global
Financial Services Specialist, Collinson Latitude (MJ):
Banks need to move away from the view that loyalty means points and
prizes. Banks need to start looking at a complete relationship
programme – and some are. We are working with two banks in the
Middle East who are doing just that.
In the UK, there is something like
£4 billion ($6.6 billion) worth of rewards from about four million
customers sitting in unclaimed points. So banks need more effective
segmentation and need to treat premier customers differently.
Anamaria Chiuzan, customer
insight and loyalty specialist at The Logic Group (AC): In
the past, the main drivers have been built around customer
retention. Banking loyalty programmes have been built around siloed
products and the need to retain customers.
The financial services sector has a
lot to learn from other industry sectors, especially the retail
MJ: Banks need to
look at doing the flip of what Tesco has done. Tesco has been the
most successful retailer in gathering data; now it has the data
they are using it effectively, such as insurance renewal dates.
Banks need to wake up. They could
go to merchant partners as they know what customers are doing on a
daily basis and develop a truly world class rewards programme.
Current schemes, where you have to
spend £15,000 every year for 10 years to qualify for a free flight
to the Isle of Man, are hopeless.
AC: Tesco and
Boots are good retail examples and John Lewis the retailer, has
also been very successful. I do not believe that banks have a good
grasp on what consumers expect from a loyalty programme.
There is scope for banks to use
rewards and loyalty across different strategies including customer
acquisition.I think that banks have, quite simply, failed to
understand consumer retail behaviour.
RBI: In terms of
product offerings, what about the packaged or valued added account.
How can banks improve the loyalty aspect of such a
MJ: Banks need to
take the account to the next level, so that the customer is able to
select what is included in the account. Do people living in London
really need car breakdown cover, for example? Give customers the
option to create their own bundles.
RBI: Looking ahead,
what are the prospects for banks to redefine their approach to
loyalty and rewards? Are you optimistic?
MJ: One of the
most exciting areas in financial services is the scope offered by
the new generation of smartphones, with the next Android and iPhone
models having NFC technology built in. There is scope for much more
exciting loyalty programmes than cashback or points. There will be
scope to provide customers with a live update on their handset.
No one leaves home without their
phone. You will have a contact point with the customer telling
them, not only, that they have just earned 50 points but that they
have redemption opportunities within 50 metres. It will keep
customers engaged and answer the key question: ‘What is in it for
AC: Loyalty as a
strategy is increasingly being raised by the banks at boardroom
level. We are seeing banks waking up to the issue and placing much
more focus on how they can use loyalty to reposition