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.