The retention game: it's important for a financial institution to keep those customers coming back—tomorrow and forever. Here's how to play 'finders keepers' successfully

ABA Bank Marketing, June, 2002 by Janet Bigham Bernstel

Depending on which expert you talk to, you'll hear that it costs between five and 10 times more to find a new customer than to keep the current one. It's not exactly classified information. Unfortunately, it's another one of those facts that everyone seems to know, but few are doing anything about, according to business development consultant Richard Wemmers.

"What's keeping bankers awake at night is not the competition, but federal regulations, privacy laws and the new government acts to thwart terrorism that are increasing scrutiny on the bank," says Wemmers, founder of Wemmers Consulting Group in Atlanta. "Banks today are not being aggressive enough about keeping or seeking customers because they've been so profitable for the last 10 years."

Focusing on due diligence while underrating competition may be unwise, as the broad barometers of banking are signaling trouble. Total deposits to financial services institutions are dropping. Mergers and acquisitions have weeded out the weaker players, and the quantity of banks is shrinking. Wemmers predicts, too, that brokerage firms will continue to slice off market share with their lure of higher earnings on deposits.

"Consumers have a herd instinct," he claims. "Once they feel it's safe, they'll move everything. If you give your customers no reason to pause, if they have no loyalty, they'll dump you in a hurry," says Wemmers.

Imagine customers so loyal that they would pay more and travel farther just to do business with your bank It can be done, says Wemmers. In fact, it should be a business goal--achievable with careful planning.

"If I were a bank president today, I would be courting my current customers so that they had second and third reasons to pause before moving anything out of my bank," comments Wemmers. "I would also have in place a positive proactive new business program focused on a specific profitable target and have very unique selling propositions in place."

Retaining the old

Each time new customers enter your bank, they bring with them the potential for a lifetime of profit. Whether you'll keep them for the long term or lose them to another is determined by their banking experience. Before losing these "lifetime opportunities," learn more about what affects your customer retention rates. According to Wemmers, there are four key factors:

* Uniqueness. Ask yourself what your bank does to differentiate its offerings from the others in the same business.

* Competitiveness. It's not all about price, but about how your customer feels about you when they're away from the bank. Can they come up with a reason to continue to do business with you? A positive response means you're competitive.

* Quantity of contact. Too often people assume or take for granted their current customers. Wemmers says the rule of thumb is to communicate with a person every six weeks. Research shows you need that amount of contact to keep your business top of mind.

* Depth of relationship. Examine how many relationships you have with each customer. Three is a desired level, says Wemmers, but banks are more likely to have an average of only 1.5.

"Financial institutions don't do very much toward telling the majority of their best customers how much they're appreciated," complains Wemmer. "They don't try to leverage that loyalty into selling them other services."

What can be done to improve customer loyalty and retention? Jump-start your action plan with these five steps, suggests Wemmers:

* Locate your best customers. "It's the old 80-20 rule, where 20 percent of your customers will give you 80 percent of your business" says Wemmers. "Focus on those that can help you the most."

* Direct your efforts. Don't try to be all things to all people. Spreading the same messages and services to everyone adds up to diluted communications for your current customers.

* Ask, listen and remember. Ask your customers what they think of you and what they believe about your bank. Listen carefully to what they tell you and try to take action on those things that you can. Remember to go back to your customers who expressed concerns and communicate how you solved them.

* Be proactive. Have a written, specific action plan focused on your current customers to tell them how important they are, how much you appreciate them and to stimulate more business.

* Practice value-added selling. Offer the customers something they're not asking for. For example, if they're buying a CD, ask them if they'd like to have some financial planning advice along with the purchase.

Attracting the new

Some strategy overlaps occur when mining current customers for new revenues and seeking entirely new customer prospects. New product offerings, for example, are attractive to both. Before embarking on a new customer quest, though, do some research.

"The first tool I recommend to take business from your competitors and get them to come to your bank is research," claims Wemmer. "Do it properly and you'll find out things you can act on to sell, because now you're dealing directly with what your prospects think about you and others offering a similar service."