Financial services institutions have made cost efficiency one of their key focus areas over the past couple of decades. Linking marketing activities to shareholder value is thereforee an important consideration for marketing practitioners, especially when viewed as an off-balance sheet activity (Lim & Lusch, 2011). In a study conducted by Accenture in 2011 (Anonymous:1042), 90% of marketing executives in the financial services sector were focusing on price optimisation and cost cutting to drive revenue.
Costs in relation to revenue or income are not only seen as one of the key sustainability factors for market analysts, but also as markers of the future competitive positioning of a company’s product within their target markets and the strategies to attain superior efficiencies, e.g. the adoption of technologies to better serve clients at a cheaper rate (Cooper, 2013).
One of the drivers of this cost-efficiency is to identify prospects that fit the profile of the ideal and optimally profitable customers and that have specific needs and to attract them through communication and a good value proposition and retain their business, cross-selling additional products to them along the way, thereby unlocking additional profits for the company and more value for the client (Symonds, Wright & Ott, 2007).
Putting customer loyalty at the heart of growth poses a big challenge to banks and insurers as they have in the past focused more on processes and cutting the cost to customers than on skills or identifying segments of the market with specific needs that could be addressed by selling the right products to them. This will become more important as customer defection in mature markets such as first world banking and insurance (such as banks in the European region) have started to double the normal annual customer defection rate (Mattila et al, 2010).
The same cost-cutting wonders which have helped these institutions in the past, such as technology, have also empowered the consumer to be able to switch due to the reduced barrier to switching. It is simply no longer so inconvenient to change to another institution.
Customer defection has a big cost impact on financial institutions as the cost of lost future profits on existing clients, taking into account existing product holding and loss of future sales, and the cost of attracting new clients through advertising and direct selling is
enormous. Institutions find it harder to maintain profitability than ever before. Creating the optimal sales and value-extracting experience for customers from the beginning will make it easier to cross-sell other product categories to them while they are still in the honeymoon period with the company (Symonds, Wright & Ott, 2007).
The first step in the optimisation of a profitable customer life cycle is to appeal to the hearts and minds of the identified target segments upfront. According to Cooper (2013), although it may seem improbable that financial products can be seen as exciting rather than grudge purchases, it is possible to package these intangible instruments for specific needs in such a way that it becomes a personal purchase decision. The communication of this personal package must follow suit in the personalisation stakes, as the tone, look and feel, and content of the communication as well as the medium through which the message is delivered and the description of the product must resonate with the intended audience. Some of these packages can have a generic slant as well, focusing on some industry-specific issues and being the consumer champion in that specific regard. In the researcher’s experience, banking fees have long been a contentious issue in the industry and players, such as Capitec, that have packaged all their products and marketing communication around this issue have done very well. Other industry-related issues like linked investment service provider commissions and upfront costs to the customer, as well as the times bank branches are open for business, are other factors where a clever player could make an impact.
Targeting prospects with precision is a skill many players in the financial services industry still have to gain. This skill is centred on turning customer data into customer knowledge and creating the insight with which to identify customer need gaps with regard to products and services (Aquila, 2003). It is not only about the volume of sales but also the quality of the sale that matters, as certain customers are loss-leading at the start of a relationship and only become profitable after initial costs, including acquisition costs, have been absorbed.
Winning over new customers early during the honeymoon phase by cross-selling appropriate products from other categories to them, is critical to maximise the use of the opportunity.
New clients have the highest likelihood to defect to other brands – they came from other companies to start off with – and they need to experience as much value as possible at the start of this new relationship. Another way to lock in clients is to set up communities of
like-provide each other with advice on how to lower fees or obtain as much value as possible from their product holding (Melnyk, Calantone, Luft, Stewart, Zsidin, Hanson & Burns, 2005).
Managing the customer’s experience and not just the profits derived from their product holding will create a new level of goodwill and loyalty, as subtle recommendations on the use of products and lowering of fees through the use of technology will create an emotional as well as economic bond (Coetzee, 2014). Listening to feedback from customers and implementing changes as a result of this feedback is another way to become truly customer centric.
In the researcher’s experience, consumers didn’t view financial institutions as innovative in the past, but in the last couple of years there have been advances in product, process, client experience and interaction platform design over the past few years. Communicating this has posed a challenge to these institutions as they are balancing innovation with credibility and trustworthiness. Being different can be a competitive advantage though and innovations that stand out from the crowd will facilitate cross-sell opportunities.