The ability to build strong customer relationships, along with being able to deliver highly individualized products and services, is a critical piece of the pie when it comes to enticing and retaining customers. Currently, in the retail financial services sector, non-traditional firms are doing a better job in CRM and one-to-one marketing, according to a new joint study from CRM consulting firm Peppers and Rogers Group and marketing research company Roper Starch Worldwide.
Not building meaningful relationships with customers is costing commercial banks and financial institutions approximately $700 million each year because of missed profit opportunities, according to the study, entitled "Customer Relationship Management Confronts the Financial Services Crisis."
Customers have grown accustomed to the new wave of personalization and customer service from non-traditional companies. Financial institutions now must utilize one-to-one marketing programs to increase customer satisfaction if they want to retain their customers, the study said.
"Customers told us that the non-banks are better at things like making customers feel their business is appreciated [and] using information they already had to pre-fill forms," said Don Peppers, partner, Peppers and Rogers Group. The "non-banks" also have the upper hand when it comes to providing a personal contact to address questions or concerns, following up on problems, having representatives who are aware of the business, contacting customers proactively and anticipating customer needs, he said.
Currently, many retail financial institutions are only delivering one type of customer service, which isn't tailored to individual customers. This often leads to a shift in customer and capital.
"To keep up with the leaders in practicing good relationship management, financial services firms need to ... also provide a high level of more basic service quality, such as friendly and informed representatives, accurate statements [and anytime] access to account information," Peppers said.
A high level of CRM dramatically affects customer loyalty, according to the study. One in four customers, about 26%, who say their financial institution provides substandard CRM said they are likely to switch at lease one deposit product in the next year. In contrast, 1% of consumers that rate their primary provider high on relationship building are likely to switch institutions.
In households with incomes over $75,000 annually, 22% of consumers rate their providers as poor on relationship management and are likely to switch in the next year, as opposed to the 5% that rank their providers high on CRM but are still planning on a switch.
On the other hand, the financial services institutions that provide a high level of CRM are more likely to attract more business from existing customers in the next year. Thirty-one percent of customers surveyed said they are likely to add more services or products from their primary providers. In the cases of unsatisfactory relationship management, only 15% are likely to increase their business.
Meanwhile, the affluent customers that give their providers high marks in CRM are more likely to boost their business, at 22%, in the next year. Only 8% of customers who graded their providers as poor would add services or products to their existing portfolios.
The study also states that strong customer service, combined with CRM, gives financial institutions a very competitive edge. Consumers that rate their primary financial institutions high on both service quality and CRM say they are "very likely" to consolidate their businesses with one provider, at 55%. Those rating their providers low on the scale don't have the same idea, with only 8% planning to consolidate their business.
"Loyal customers are generally significantly more profitable than new customers," Peppers said. "It's usually less expensive to service an experienced customer, and a satisfied, loyal customer is more likely to add accounts. Loyal customers are also a terrific and low cost source of profitable new business through referrals."
For all consumers, credit unions garnered the highest CRM rating at 6.6 out of 10, while community banks hit the charts at 6.1. Commercial banks rated the lowest, at 5.7. (Ratings were unavailable in this category for investment firms and mutual fund companies.) Among the affluent, investment firms received the best CRM scores, with an average rating of 6.9 out of ten. Credit unions came next, at 6.5. Bringing up the rear were mutual fund companies at 6.0, community banks at 5.9 and commercial banks at 5.7.
Meanwhile, 28% of all consumers and 26% of the affluent say that the offers for products and services they receive from financial institutions give any indication that the provider is paying attention to their needs.
"The biggest surprise was the significant benefit CRM provides to financial institutions," Peppers said. Customers who rated their financial services provider high on both service quality and CRM and would consolidate their business totaled 55%. Meanwhile, 44% of consumers rating their providers highly in only one of these categories would consolidate an 11-point difference, he said.
"The 11-point difference is significant, and accounts for several hundred million dollars in opportunity for financial services companies who figure out how to provide an excellent service bundle and are able to build meaningful relationships for their customers," Peppers said.
The study surveyed 1,603 adults in August 2000, and 1,027 have household incomes over $75,000 a year. The data can be projected to 103 million U.S. households, including 23.5 million households with annual incomes of $75,000 and over.