Target Marketing reported recently that marketers plan to shift their 2007 media budgets from customer acquisition to customer retention, relative to what they did in 2006.
If this is true for bank marketers, it’s a troubling statistic for two reasons.
First of all, media spending isn’t going to impact banks’ retention rates one single iota. Many banks report 15% to 20% annual attrition among their deposit accounts. Yet the percentage of consumers who intend to switch banks, by closing out accounts, is in the low single digits (Source: Forrester Research). The reasons for this discrepancy aren’t surprising: People move, get married, get new jobs — and, oh yeah, banks screw up from time to time. No amount of media spend is going to fix that.
But there’s another reason. When marketers say they’re refocusing on retention, I think what they’re really alluding to is cross-selling existing customers. But many of these efforts are doomed to fail as well.
Many bank marketers cite research from the BAI published that showed that bank customers were most likely to purchase additional products with their bank within six months of opening their initial account. If that’s true, then trying to sell more products to the vast majority of customers who have more than a year of tenure with the bank is destined to produce a disappointing ROI.
So what should marketers do?
Invest in customer engagement.
Many marketers consider engagement to be a buzzword. But engagement is a valid concept, if you use the term to describe the extent to which your customers interact with you in meaningful, emotional ways. Not just by checking their balances every day, but by relying on you for advice and guidance on how to manage their financial lives and make smart financial decisions.
The payoff is in increased purchase intention. Using market research data, I found that customers who are engaged with their bank are twice as likely to purchase more products from their bank in the near future than customers who aren’t engaged (click here to see how I defined engagement).
While the ROI may not be immediate, an investment in engagement is better than an investment in retention. The key to future profitability isn’t in simply keeping customers — it’s from deepening their relationships. And engagement is a necessary pre-condition for that to happen.
Technorati tags: Marketing, Banking, Customer engagement, Customer loyalty, Customer experience, Marketing ROI
Ron Shevlin's Marketing Whims 
Thanks for this informative post, Ron.
Until recently I certainly did put “engagement” in the buzzword category but as I learn more through posts like this one I can see how emotional connection is increasingly viewed as an intrinsically desirable goal rather than a nice-to-have side effect of effective marketing.
One question, is some form of surveying essentially the best way to get metrics on repeated satisfying interaction or are there other preferred methods?
Also one thing I would suggest about the definition of engagement comes from my drinking some of the Clutetrain Kool-Aid, I would substitute the word ‘consumer’ with ‘customer’.
I like this blog!
-pete
Well said!!
Great post Ron.
Its impossible to disagree with this rational approach. The difficulty for Banks, because of their size, and spread across millions of customers (large Banks’) is, to follow your metaphor, customer disengagement. Customers leave because they are introduced to better alternatives. Those alternatives appear better because of screw ups with their current banks, and the screw up index, exceeds their engagement index, if you get my point.
The real trick is to uncover the right elements for investment that will reduce errors, and also make customers more empathetic when they occur.
The positive outcome of successful initiatives, will be customer engagement.
It’s pretty simple. I like to look at modern marketiing as dating. We used to “go after” certain markets or certain products. In the dating world that has been labeled “stalking” and is illegal in many States.
You need to “attract” people if you want to date them. Same goes for marketing. Attracting (engaging) people is another discipline entirely. It aptly involves “touch points” and are, for the most part, out of the realm of control of the marketer.
Case in point (and Ron, tell me if you have some data on this one). Number one reason a customer MOVES their checking account from one financial institution to another?? They are PISSED OFF with their current relationship. NOT because they have free-er checking.
Has a significant other ever pissed you off? The competition starts looking better, don’t they?
thanks to everyone who’s commented so far. some replies:
Pete: Surveying is one way to get at the information, but I’m a strong believer that the transaction AND interaction data can be relied on. Analytical models can be built to correlate certain types and frequency of interaction with satisfaction. Unfortunately, few analytical groups have the funding and bandwidth to focus on this.
Colin: I’m with Denise. I don’t think “better alternatives” attract that many customers. If that were true, nobody would have a savings account with most of the large banks. Just look at that post from Darren (quoted on Open Source CU) — he fled from a big bank, only to be disappointed by a credit union.
Denise: The dating metaphor is very apt. And it could be extended to…places I’m trying REALLY HARD not to go to. 🙂 Trying to keep this a “family friendly” blog. Now… has a significant other ever pissed me off? I don’t think my wife actually reads my blog….but in the event that she ever should…. my answer is NO. Never, in 25 years has she ever pissed me off. Not once. (Although the reverse might not be true). But, more seriously, I think where many banks/CUs fall down — in keeping with your metaphor — is that they seem to believe that once a new customer has come on board, that they don’t have to keep “attracting” or “engaging”. (And isn’t that so true with real-life marriages, as well?)
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The shift from customer acquisition to customer retention can be owed to market research which has shown that a 5% increase in customer retention leads to a 25-95% increase in company profits. It has been routinely observed that it takes many months if not years to recover the cost to acquire a new insurance customer, with estimates ranging from a low of 18 months to a high of five years. Also, the business that has been on the books for more than a year tends to be significantly more profitable than business that is in its first year of coverage.