The Financial Industry's Customer Loyalty Tactics Must Change - Again
By Stephen Schwab, SVP of Professional Services, Loyalty Matrix, Inc. Costly customer retention calls for deeper relationships to keep loyal customers. But first companies must identify their most loyal customers
(PRWEB) July 2, 2004
Costly customer retention calls for deeper relationships to keep loyal customers. But first companies must identify their most loyal customers.
It costs up to seven times more to acquire one new customer than to retain one, and in the financial industry, the costs reach another stratosphere: acquiring one new customer can exceed $350. Of these, 20 percent are very profitable, 20 percent cost money to retain, and the remaining 60 percent pay for themselves while generating marginal revenue, according to Harvard Business Review.
With statistics like these, a customer engagement and retention plan based on extensive data collection and analysis is imperative for the long-term health of companies in the financial industry.
Financial institutions must find a way to retain profitable customers, turn marginally unprofitable customers profitable, and reduce marketing dollars spent on costly customers. However, before firms can address these issues and take action, they must closely monitor customer behavior to develop insights that enable them to target the right customer segment with a relevant, compelling offer at a time when the customer is most open to receiving the message.
To determine which customers to keep, which to try to move to a profitable customer segment and which to let go, financial institutions must turn to new marketing strategies.
There are new customer relationship rules for the financial industry:
1.Identify customer segments and define how the firm interacts with each segment
Loyalty Matrix has developed a robust set of proprietary models that build a “Customer Engagement Index,” which accurately reflects the breadth, depth, and quality of interaction between a company and its customers. Index data allows firms to understand and predict customer behavior. Examples of data -- pulled from corporate internal and external sources -- are a customer’s total number of financial services, frequency, and volume of use, and his or her level of satisfaction with each service.
2.Communicate only relevant, compelling offers to customers
Leading companies dramatically increase customer value by sending customers information based on past purchasing behavior and on marketing insights derived from predictive algorithms. Robust customer intelligence models with sophisticated rules engines can deliver the kind of detailed customer insight that enable firms to communicate effectively with customers based on variables such as their life stage, product usage, and consumer attitudes.
3.Adopt comprehensive customer relationship solutions
Leading financial firms already are moving away from pure points-based programs. A credit card-based rewards program is no longer a competitive advantage; it is simply a routine offering customers expect. TodayÂ’s industry leaders have developed customer relationship programs that incorporate regular communication of relevant offers, in addition to points. However, any real longer-term competitive advantage depends on a comprehensive relationship program based on data from a Customer Engagement Index.
Financial firms that incorporate these rules will deepen their relationships with customers -- and ultimately increase the value and revenue they reap from all customer portfolios.
The first step is to create a Customer Engagement Index rich with customer data. The resulting marketing insights enable companies to invest their marketing dollars wisely.
Detailed, comprehensive analysis of customer data (“customer intelligence”) generates an average five-year return on investment of 431 percent compared to a ROI of 55 percent generated from a pure customer strategy, according to a recent study by research firm IDC.
Case Studies:
Here is how two financial industry leaders leveraged a Customer Engagement Index from Loyalty Matrix to provide customers with relevant communication.
Credit Card Issuer: focus on high-potential customers who are “at-risk”
Loyalty Matrix created a Customer Engagement Index for one credit card issuer that revealed customer needs, demographic variables and the likelihood that certain customer groups would leave or reduce their spend. The company quickly found it was spending millions of dollars to retain high-value customers who would keep the credit card regardless of the attention and special offers they received.
Result: The credit card issuer drastically reduced the money spent on special offers to retain this specific segment of loyal customers and instead extended offers to customers more inclined to cancel their credit cards. In the end, the Customer Engagement Index helped the credit card issuer retain loyal customers and gain new ones in a more cost-effective way.
Leading Commercial Bank: Optimizing campaign effectiveness:
Another leading financial institution asked Loyalty Matrix to use its MatrixOptimizer® software to analyze the firm’s customer data to ensure future marketing campaigns were the most effective and resulted in the greatest possible return on investment.
Result: The financial institution determined when to intervene with special offers to prevent customer attrition; defined specific marketing strategies for specific customer segments; identified cross-sell/up-sell potential among its customer groups so marketing dollars had the greatest impact; and developed “quick-hit” tactics to sweeten offers for customer segments nearing attrition.
Industry Experience:
By working with financial institutions, Loyalty Matrix has gained some marketing insights of its own:
• The key to profitable customer management is to identity the primary motivator that will lead to a more profitable company-customer relationship.
• Customer attributes, when tested and refined, can allow companies to develop direct marketing programs that can increase breadth and depth of communication with existing account holders by more than 18 percent.
• Extending special offers to the appropriate customers can increase retention of top-tier customers by more than 12 percent.
To increase customer loyalty, financial industry firms must constantly monitor their customer portfolio and actively mange their marketing efforts based on the changing behavior of their customers.
LOYALTY MATRIX as partner in customer intelligence
Loyalty Matrix is the leader in transforming complex customer data into actionable insights. Loyalty Matrix combines strategy, analytics, and technology to optimize communications, pricing, features and distribution for clients. Loyalty Matrix applies proprietary, customer-focused models in the areas of customer segmentation, attrition & migration, and value & growth.
For More Information:
Please contact Stephen Schwab at perspectives@loyaltymatrix. com
