DM follows the money – DIRECT Magazine

The big banks are all talking about how they can better serve you, their customers. But is it all just marketing hype? In a world where the customer is king, Amanda Lohan urges the financial services industry to put its money where its mouth is.

These days, you may be forgiven for thinking those big, evil banks have gone all warm and fuzzy. All of a sudden, they are talking about putting customers first! In some cases, they are even adopting warm and fuzzy mascots … think talking sunflowers and hand-knitted teddy bears. However, with the big banks recording record profits just three years after the global financial crisis, it seems that customer experience may not necessarily be front of mind in the boardrooms. That may be fine for now, while the Big Four oligopoly maintain their dominance of the market. However, with the Federal Government determined to introduce new competition by encouraging smaller players like credit unions and online only banks, it is time for the banks to begin seriously wooing those fickle financial services customers.

Making it stick

The financial industry is waking up to the fact that customers often have many relationships with numerous financial services institutions. The goal now is to become the customers’ Main Financial Institution (or MFI). While the precise definition varies between the banks, to become a customer’s MFI, you generally need to provide a combination of core products, such as day-to-day transaction, mortgage and credit card accounts. The goal is, of course, to leverage that position of power to get an ever-greater proportion of the customer’s financial activity.

Unfortunately, this product-centric approach does not always sit comfortably with the notion of improved customer experience. Grant Stewart, director of direct marketing consultancy, Vectis, says the banks are facing a challenge here, particularly since, “There is no agreed definition of ‘customer experience’ or how activity in this area should be influenced or measured. A Net Promoter Score, for example, helps to measure the macro impact of various activities but it’s the role of the tactical interactions that can make or break a relationship,” he said.

In the absence of a useful definition then, Stewart recommends that marketers observe the general rule of thumb that, “improving customer experience involves any customer interaction where the customer comes out feeling more informed, more empowered, happier, or more loyal.”

Just the facts

An emerging component of a customer-centric approach is a renewed focus on customer adoption pathways. This entails a shift away from point-in-time product targeting models towards techniques that embrace the ever-shifting nature of customer preferences. According to Stewart, this uncovers internal stresses within a financial organisation. “A challenge within financial services is that the environment is usually driven by product owners who hold most of the budget and a significant amount of power within the organisation. There might be teams built around the customer and one-to-one relationships, but the real power is held by the product owners, who lean towards viewing the customer base from a product perspective rather than a customer perspective,” said Stewart.

Further complicating this dynamic, is the relative power of portfolio profitability among these product owners, “When you have a very profitable portfolio, for example credit cards, and you are incentivised and rewarded on the success of this portfolio, you are more likely to market credit card offers as often and as widely as possible, because the product has priority over other it’s less profitable product peers.”

The customer adoption pathway steers marketers away from this product-based view, and towards an approach more aligned with natural customer product interactions. These pathways look at the customers themselves and what product is best for them. This offers opportunities to market all products to customers simultaneously.

According to Stewart, with traditional modelling, the danger is in focusing too much on a single point in time to determine customer preferences. “When viewing a customer base more fluidly or holistically, it becomes clear that lots of customers may want lots of different products at any one time, meaning it is not only critical to know what is important to the customer, but also when,” he said.

This is where fact-based marketing comes in. There is no shortage of discussion around fact-based marketing, and programs in this space are working really well. Nevertheless, according to Stewart, the big players are yet to take full advantage of fact-based marketing, not in the least because a lot of resources are still dedicated to the older product-driven approach. Triggers such as the expiry of a term deposit are straightforward for seasoned financial marketers looking to boost the performance of their portfolio. However, other discrete transactional events such as the payment of a baby bonus, a significant deposit or withdrawal, or even purchase activity with a new merchant, have failed to grab marketers’ collective attention.

Interrogate the database

Building direct marketing programs that are fluid and focused on customer needs and the timing of when they might buy a product, involves pushing beyond the status quo and developing more sophisticated data modelling. This means interrogating the database, not only to determine, Where were you on the night of the fifth? But also, Where will you be on the sixth, seventh and eighth?

According to Stewart, “An ongoing challenge for financial services is to use more and more data. As the performance of the programs improve, the risk of failure dramatically drops. But more importantly, the reliance on data ensures far more timely and accurate campaigns, resulting in a happier customer. Some large businesses within the challenging financial services industry are doing this very well. However, often you will see more evidence of truly remarkable work coming from smaller, more nimble institutions than from one of the Big Four.

“The Big Four banks have, of course, made investments in people and processes, but when you look at the majority of DM campaigns, they are still at a product level and primarily driven by a product agenda. Some programs are changing but it’s fair to say that the majority are still based on a product the institution wants to sell at any one time,” he said.

“Large players may not necessarily want to hear that their program is less effective than, say, a Newcastle Permanent, but there’s an element of truth in that. That’s why the smaller guys are doing well relative to their size. And it’s not just the financial indicators that point to success, market-leading satisfaction indicators for credit unions and building societies prove they’re onto something”.

Only with accurate data can marketers ensure they are sending out relevant communications. Marketers within the financial services industry may not have direct access to core transactional or billing data, particularly data that spans a period of time. They may have access to summarised versions of transactional data, but granular transactional data offers the greatest opportunity in direct marketing, regardless of the delivery channel selected.

The other side of the coin

It is not just the banks and moneylenders facing this customer revolution. Within the financial services industry, superannuation, insurance and health insurance companies are also suffering from customers defecting to non-traditional, online only or niche providers.

Stewart says cultural changes are also presenting new challenges for financial services players. “A large proportion of homes don’t have English as their first language. How do you communicate with such a divergent customer base?” In addition, companies are diverse customer lifestyles that they have never had to contend with before. “Much older singles, high rates of divorce, and large numbers of dual income households don’t have the same needs as young married couples.” It is easy to see why mass marketing struggles to communicate appropriately and the huge potential for direct marketing to pick up the slack.

“In the health insurance sector, you would think one of the challenges for organisations is to limit claims, but ironically members who don’t claim are usually the ones who leave – they look at what they’ve paid over the year in premiums and ask ‘What did I get for it?’ Direct marketers need to help customers determine what services they qualify for but haven’t used to help change the overall value proposition. The trick is to assist customers to claim on things that make them happy, but that do not cost a bundle to service,” he said.

In the superannuation sector, the focus will be on growing funds under management. “The biggest challenge – at least until the phased 12% compulsory contribution kicks in over the next 10 years – will be to convince members to contribute more than the legislated 9%. It’s about making sure customers understand how much they are going to end up with, how much they hope to end up with, and how far short they are, and then building that into communications to generate a win-win,” says Stewart.

So what to do next?

If one thing is certain, it is that to stay competitive financial services institutions need to evolve their marketing strategies to better meet the needs of customers. We need only look to the current focus by the big players to see evidence of this new customer-centric style of thinking. These institutions are moving away from a one-size-fits-all national campaign towards taking the meet your local bank manager message in suburbs and catchment areas.

A higher reliance on data to drive smarter up and cross-sell activity, a focus on non-traditional products, and communications that reinforce the value of the business relationships will result in a surge of direct marketing activity in the financial services industry over the next few years. In this dynamic environment, the institutions that get the mix right stand to gain the most.

Amanda Lohan is a freelance writer with degrees in Business Administration and Law. Amanda is currently working in the marketing team of a large customer communications group.