Financial Services Sector Loses Ground By Failing To Consider Customer Retention Strategies
By Ian Horsham, Divisional Director, Promotions and Incentives, Grass Roots Group
According to The Payments Council a massive 306,240 Brits switched banks during the last three months of 2013, an increase of 17 per cent from the previous year. Why then, armed with this information, along with the fact that the cost of customer acquisition is five times greater than keeping an existing customer happy, is the financial services industry not focusing on their customer retention strategy rather than acquisition, and placing the focus back to those loyal to the brand.
The change in current account switching rules which came into place early this year means that people can now change banks in seven days rather than thirty. Financial organisations must take notice of the growing competition in this market and how easy it is now to have a loyal customer one minute and risk losing them the next. Research shows the potential of selling new products to existing customers sits at 60-70 per cent, compared with only 5-20 per cent with a new prospect – this shows existing customers simply cannot go ignored.
Let’s take Marks and Spencer as an example. With reports last week of profit losses for the third year running, the retailer is aiming to diversify and strengthen its financial offering. Earlier this month M&S launched a free current account in a hope to tempt the masses to join its bank and, in turn, receive rewards including loyalty points on purchases from stores and a fee-free overdraft. Alongside this, the company is offering new customers a £100 gift card. This tactic is clearly a clever way of encouraging not only new banking customers but also raise profits in-store; however what is the loyal M&S following set to receive in return?
Lloyds Bank on the other hand has introduced its ‘Club Lloyds’ scheme which offers existing customers desirable incentives to stay put. With exclusive access to 4% AER on savings, as well as three lifestyle reward options each year, it gives people a good reason not to develop that wandering eye.
An industry which does get its rewards and incentives programmes for existing customers right is Telecoms. With Vodafone Freebee Rewardz and O2 Rewards, the financial industry would do well to take notice and ensure customers are rewarded on a regular basis for sticking with them.
The majority of customer retention strategies are driven by reactionary panic. However, understanding the issues your current customers are facing and going the extra mile to maintain their trust in you is paramount. Here are my five key principles in executing an effective customer retention strategy for your organisation:
1. Ease of redemption Rewards must be quick and easy to redeem, without any high level of effort on behalf of the customer. Lloyds Bank is a prime example, by offering customers a choice of three lifestyle benefits with the new ‘Club Lloyds’ current account, it is making the incentive easy to redeem, with the financial benefits instantly available for customers to see.
2. Reward choice There is no optimal number of rewards that should be offered, as this varies on a programme by programme basis and is driven by factors including the spread of customer demographics, budget and programme objectives. New rewards can be trialled on a tactical basis to assess impact on customer behaviour and the most important thing is to remember they must be relevant to the audience and something they really do want.
3. Maintain excitement Customers tend to get used to loyalty programmes quickly, so it is important that a reward scheme does not become too familiar. Customers can also, over time, begin to view loyalty rewards as an entitlement rather than a gift. This can be avoided by regularly refreshing or enhancing a programme so that there is always something new to please and engage the customer.
4. Surprise and delight Providing a reward that a customer isn’t expecting can be a very powerful tool. By giving customers with an incentive to win as they spend, the perceived value and memorability of the bank is amplified. With Lloyds Everyday Offers, current account customers have the chance to earn up to 15% cashback from places they already regularly shop at.
5. Communication and engagement Effective communication is the key to the success of any loyalty programme. It is important to ensure customers understand the initiative and value of what they are being offered. Points statements, reward reminder emails and programme enhancement updates are simple and effective ways to drive customer engagement and cementing the ongoing bond with the brand.
 The Payments Council, January 2014http://www.paymentscouncil.org.uk/media_centre/press_releases/-/page/2798/
 Lee Resource Inc, 2010
Marketing Metrics, 2012