By Christopher Evans, Director, The Collinson Group

Today’s consumers are bombarded by an increasing number of marketing campaigns and offers, through the proliferation of communications channels. They are also becoming more discerning and savvy, influenced by and using online reviews and promotions to compare products and brands.

This, coupled with the European Parliament’s attempts to limit credit card interchange fees mean lower run-rate revenues from day-to-day retail banking activities. This has resulted in banks facing an increasingly difficult and disruptive business environment.

Meanwhile, the end of free banking in the UK is being touted as a tactic which could boost competition. At the same time, increased global competition, as well as non-traditional competitors, such as supermarkets, is luring customers away.

In this near-perfect storm, adopting a more customer-centric focus across the organisation by understanding more about your customers will be key to maintaining customer loyalty.

Research commissioned by our global loyalty marketing and CRM specialist ICLP and industry analyst Forrester, identified that out of all the different loyalty programmes available, 68% of consumers said they would value a banking loyalty programme the most. However, only 15% of this group are actually members of programmes operated by their bank. That the gap between consumer need and bank action is so wide, is clear evidence of untapped potential and strong opportunity for the banking industry.
Over the past two years Grant Thornton’s Insight and Peer Analysis practice has produced an annual customer experience and customer loyalty index. This shows how the top 21 players in retail banks are performing in the eyes of their customers. The latest report demonstrated that the best performers are the ones that can show they are tangibly ‘caring’ for their customers. The four top performers are considered to project this, but the largest players are not yet living up to the expectations of their customers.

Finding an effective way to identify, understand and nurture an organisation’s most valuable customers in the long term has a real impact on the bottom line. In the airline industry, analysis has revealed that the ‘best’ customers are 60 times more valuable in terms of revenue than the least frequent travellers and five times more valuable than those in the mid-tier of its customer database.

Financial institutions need to cultivate and serve their customers at every interaction opportunity, rather than just at key sales times, such as acquisition and renewal.
Below we have outlined some recommendations for financial institutions looking to drive engagement, loyalty and increased value from their customers:

1. Understand and adapt to different motivations and passions: being able to understand consumer motivations and intent is as important as understanding the products they buy. Understanding customer needs and preferences will provide the foundation for building stronger customer relationships. In banking, rewards and incentives tend to be largely points-based or focus on material benefits, such as cashback. This can be attractive to some customers, but global research undertaken by Collinson Group has shown that for example, the majority of affluent middle class consumers are motivated by spending time and providing for families, by saving for the future and by experiences.

Creating ways of engaging and rewarding customers, which offer more altruistic benefits, which are shareable between friends and family or which offer unique experiences can be hugely valuable to these consumers. Deriving consumer insight starts with being able to meaningfully analyse data from different interactions and channels.

2. ‘Keeping it Relevant and Real’: is a good motto for building customer relationships at brand level, rather than attempting to do so solely with promotions around individual products. By ‘real’ I mean to suggest that banks need to reach out to their customers through new channels where brand engagement is increasingly powerful, such as mobile and social.

Real-time data and predictive analysis can improve the way we offer products and services to consumers — delivering relevance in communications and incentives for loyal behaviour. Consumers are willing to share their data if they trust the communication from that brand will be relevant and the brand will ‘make better decisions’ on their behalf using this information.

3. Value is king: it is well proven and documented that there is a direct correlation between high levels of customer engagement and profitability. As loyalty experts we know that engagement is driven by the value a brand can add at the various points of interaction.

It is important to identify value drivers that provide the depth and breadth needed to keep customers locked in for longer and also provide the structure to make your programme sustainable and scalable.

Looking forward, we recognise the viability of ‘self-selected’ loyalty, comprising tailored initiatives driven by the value consumers themselves want to derive from their brand interactions.

4. Think beyond your sector: banks have been criticised in recent years for an extreme focus on profit at the expense of customer service, as well as for offering better deals to new rather than existing customers.

We are now seeing shifts in the way they engage with customers, offering benefits and services well beyond their core inventory.

For example, Barclays has introduced ‘Features Store’, so that customers can choose their own benefits, which include mobile broadband access, anti-virus software, a homeowner property database and a range of travel packages.

Lloyds Bank has introduced Club Lloyds, where members can choose a range of value added services. Clearly these ‘choice driven’ services demonstrate thinking beyond sector specific offers and find ways to appeal to the customer’s personal motivations and lifestyles.

5. Immediate reward vs long-term gratification: our research highlights different expectations from consumers in terms of when and how they receive promotions and rewards from companies.

A large proportion of middle class affluent consumers are focused on saving for the future and are unlikely to redeem points quickly, opting to save for the higher value rewards. This audience will be far more engaged if they feel companies are helping them achieve their longer term goals.

In contrast, younger generations in the highest income brackets from markets such as China and the United Arab Emirates want to see more immediate, personalised rewards which give them an instant benefit.

Banks need to work harder to know their customers, retain them and drive loyalty and advocacy. They need to develop a deeper level of customer engagement, by gaining more detailed insights about their profitable customers and adding value consistently.
It is especially beneficial for financial institutions (offering multiple products and services to their customers) to establish a single customer data view to capture - and reward - transactional and social behaviours. In so doing, banks will increase their opportunity to up-sell and cross-sell. Only when we think in terms of brand value to the customer, will we realise the potential of longer customer lifetime value.