KQ Article

According to a new J.D. Power and Associates study, more people are switching financial institutions right now. Are you positioned to be their next obvious choice?

The financial crisis has begun to recede. The difficulties of the past few years have subsided. But according to the recent J.D Power and Associates 2011 Retail Bank New Account Study, a perfect storm of new challenges has emerged: reduced deposit growth, increased attrition and intensified shopping around by consumers.

So as bankers turn their attention from managing capital, credit and costs in the short term to growing revenue and profits over the long haul, what lessons can be learned from our research regarding why customers switch financial institutions and how they select new ones? According to the study, it boils down to optimizing three primary functions within every bank or credit union: 

1. Acquisition. The opportunity here rests in efficiently acquiring new customers and members at a faster rate than the competition. The problem is that the banks currently winning at the acquisition game are doing so using the “blunt instruments” of advertising spending, branch density and promotional offers. All of these approaches are relatively easy for competitors to replicate. 

So how do financial institutions establish a defensible competitive advantage without having to launch big, expensive ad campaigns and promotional offers? By delivering a differentiating experience that results in repeat business and positive word-of-mouth. Do this and the strong acquisition numbers will follow.

2. Onboarding. As we all know, onboarding involves optimizing share of wallet at the initial point of sale and in the months following, being particularly mindful of capitalizing on high-potential opportunities – i.e., affluent households – whenever they present themselves.

Keys to onboarding success include thoroughly assessing customers’ needs and having products and services on hand that meet them. Yet, barely half of new customers we surveyed reported having both their needs identified and products recommended that fully address those needs, resulting in lower satisfaction and a reduced likelihood of repeat business in the future. To make matters worse, affluent customers were significantly less satisfied with the new account opening experience than those at other income levels.

3. Ongoing cross-sell. Ideally, when an existing customer or member need arises for the next product or service, they would turn to their primary financial institution to fulfill it. Or, after shopping around, he or she would return to the current bank or credit union to buy the product.

However, existing customers actually choose their primary bank for that next product purchase less than half of the time. Here again, customers choosing another bank report being lured by advertising and promotional offers. Those who decide to stay with their current bank, on the other hand, do so as a result of positive past experiences and their institution’s reputation for putting customers before profits.

Capitalizing on the Opportunities
In an environment where overall growth of 5% is the norm, even modest progress in improving success at each stage of acquiring customers and deepening relationships can have substantial impact.  Across new customer acquisition, onboarding and ongoing cross-sell, the 2011 Retail Bank New Account Study underscores the need to take these concrete steps:

• Fully leverage the branch network. Build awareness, maintain the condition of each location and ensure branch hours are convenient and competitive.
• Make staff aware of the mission-critical nature of new account interactions. Train, coach and practice needs assessments and identifying solutions to match.
• Offer simple products and services. This is a theme that runs through customer decisions to shop, consider and select. Make sure your offering is competitive, but more importantly, make sure it’s easy to understand — for both the people buying and the employees selling. 
• Make the best use of advertising. Employ messages that resonate and channels that stretch the dollar. Ads that focus on specific products and promotional offers carry the most weight in driving purchases.
• Build your reputation one transaction at a time. Eliminate systemic problems and seamlessly resolve the individual ones that sometimes occur. Provide superior personal interactions, particularly at critical moments of truth.

Although it is clear that short-term gains in acquisition can be achieved through investments in advertising, promotional offers and de-novo branching, banks that can outperform competitors in the areas above will be equipped to grow revenue at a higher rate — and lock in that superior performance over the long term.

_{© 2010 Rocky Clancy}

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