KQ Article

Rapid change is indeed happening in today’s marketplace — and in many cases, banks and credit unions have been behind the curve. Over the last few decades, little has changed in the fi nancial products and services available to customers, namely checking, savings and loan products.

While many financial institutions have substantially improved operational efficiencies, some have become disconnected with their customers and members. In fact, in some cases where banks have improved their delivery channels, added more user-friendly processes and improved their customer service, they have done little to improve customer loyalty and advocacy, which are the primary ingredients for organic growth.

Why are customer advocates so important to organic growth? Advocates, on average, hold 14 percent more products than antagonistic customers, and the profitability of products held by advocates is 21 percent higher. Consumers who are advocates of their bank or credit union are five times as likely to be responsive to offers and communications, and more than 17 times as likely to trust their bank. Further, only 26 percent of advocates believe that their bank’s fees are too high, as compared to 80 percent of antagonists. So as banks look to drive organic growth, determining how to move customers to a state of advocacy should be of the utmost importance.

REACHING THE ENTIRE GENERATIONAL SPECTRUM
Many financial institutions are failing to attract the 18-to-24-year-old age group, with members who do not consider themselves to be part of the masses. These individuals want — and probably expect — banks or credit unions to communicate with them directly, in a way that matches their other lifestyle experiences. When that doesn’t happen, they wonder what’s wrong with us and why we aren’t keeping up with their lifestyle.

On the opposite end of the banking pipeline is the segment greater than 55 years of age. These Baby Boomers are leaving the bank in alarming numbers as some retire and move away, while others switch to institutions that are more in tune with their current lifestyle.

The common mistake that many financial institutions make in targeting the Baby Boomers is that, unlike the younger segments, they tend to treat the older segment as though it was a single, homogenous group. This oversimplified view of this group fails to recognize its diversity, and loyalty falters in consequence.

Leading marketers segment this group by birth years. This method yields two subgroups: the leading-edge Boomers born between 1946 and 1954, and the trailing-edge boomers, born between 1955 and 1964. According to some sociologists, the younger boomers vary so drastically from the older boomers that they constitute another generation entirely.

RESISTING SEGMENTATION
As the global economy shifts from market-driven to consumer-driven, the balance of power has shifted to the consumer. The power of the Internet has put the consumer squarely in control of purchasing decisions. Consumers are no longer content simply with buying our products and services. They want to be collaborators with companies in the creation of the value they want from their lifestyles.

In the old economy, the value exchange occurred on the receiving end. Companies created products and then distributed them to consumers for payment. The business model was to study consumers and predict their demand. Now the value opportunity is not only at the receiving end. There’s a more fundamental value opportunity at the front end, where consumers will pay to get access to a more customized experience that fits their preferences.

Many banks use life-stage analysis to segment their retail customers. They use this analysis to make assumptions regarding lifestyle preferences and product offerings. But today’s consumer is telling us that we don’t know them anymore. Consumers are saying that we are out of touch with how to market to them.

Today’s consumer uses technology to participate. They use it to communicate with other people and navigate through content and information. Technology has put people in control of their life’s experiences. The banking industry has to become more relevant to its customers in a similar way, in terms of the unique experiences they encounter in all other aspects of their lives.

And when people conduct business with us, it had better be worth their time. It’s not that money isn’t important to consumers. Rather, it’s that money doesn’t necessarily define value anymore. Time has become as valuable as money. This is the new currency in today’s marketplace.

REPLACING SACRIFICE WITH SATISFACTION
Some major companies are capitalizing on this new wave of the future. For instance, Toyota and Nike have Web sites that allow consumers to design their own car or athletic shoe, and they can have that exact product manufactured for them. These companies have completely reconfigured their manufacturing processes to accommodate this new business model.

Many banks and credit unions are also creating similarly unique customer experiences that appeal to a wide range of customer lifestyles.

But creating unique customer experiences isn’t necessarily about expensive branch renovations and other highprofile changes. Instead, financial institutions must focus on recognizing the difference between customer satisfaction and customer sacrifice — that is, the gap between what consumers really want and what they have to settle for. Only then will it be possible to create the customized experiences that all consumers in all demographic categories clearly crave.