Study targets retail banks' relationship strategy

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By: Wise Marketer Staff |

Posted on February 4, 2004

Banks have a 90-day window of opportunity to cross-sell to new retail cheque account customers, and should capitalise on their relationship development capabilities while still recognising the importance of customer segment-oriented product strategies, according to business performance advisors, BAI.

Eight major financial companies participated in the BAI research study, entitled 'The Quest for Deposits', which offers more than fifty common deposit performance metrics for financial services organisations and banks. Based on those metrics, BAI is launching a major benchmarking project called Deposit Performance Benchmarking this month, with the participation of more than 15 banks, and is planning to further broaden the base of participants that will be included in the benchmarking effort.

"A principal challenge facing banks is to achieve a strategic duality between serving the mass market and specific higher-value customer segments," explained BAI's president and chief executive officer, Thomas Johnson. "The results clearly display that there is not an 'average deposit customer', and that banks that continue to approach the deposit marketplace in a non-segmented fashion are destined to achieve only average results."

Key recommendation
Johnson described the major recommendation suggested by the study: a relationship approach aimed at specific deposit customer segments, and supported by a variety of activities that build on each bank's organic strengths.

BAI's nationally representative survey of over 4,200 US households revealed six distinct segments of consumer demand for deposit services, varying in terms of their attitudes toward deposit providers, the functional characteristics they want from deposit services, and their pricing preferences.

According to Johnson, banks must shift their emphasis from transactions to relationships, and from products to packages. The new packages should be based on the needs of the targeted customer segments. The study's findings also seem to validate the need for banks to deploy relationship-based customer profiling and 'relationship anchoring' activities; in this way the right product packages can be delivered to the right customers, and pricing can be based on a more precise understanding of the value of each relationship.

The 90 day window
The study also indicated that incentives for front-line employees must be aligned with developing customer relationships in order to reinforce the importance of the opportunity that banks have during the first few months after attracting a new customer. As detailed in a recent issue of BAI's own 'Banking Strategies' magazine the study found that 73% of cross-sales of additional products are achieved within the first 90 days of a new retail cheque account customer joining the bank.

"The old adage of not getting a second chance to make a good first impression is obviously important for banks too," noted Johnson. "It may become essential for banks to reallocate capital and resources to these formative days of a new customer relationship, especially given the increased importance many organisations are placing on their cross-selling efforts."

The study was completed with the involvement of five research partners, each of which contributed to the recommendations made by the study. Novantas drove the segmentation and analysis of those factors impacting consumer demand for deposit products based on a national survey of 4,200 customers; MarkeTech Systems International is to spearhead the new benchmarking component of the project; McGuire Performance Solutions conducted an industry study of best practices associated with core deposit treatment in Funds Transfer Pricing; Demos Solutions led those components of the project that generated management programmes to achieve deposit sales and service goals within branches and contact centres; and Xerox Global Services is a corporate sponsor of the research project, and contributed to the formation of strategic marketing recommendations to improve customer cross-selling, satisfaction, and retention.

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