Customer Intelligence Blog

For IBM’s recent Global CMO Study (http://www-935.ibm.com/services/us/cmo/cmostudy2011/cmo-registration.html), 1,734 CMOs were interviewed and asked about their most pressing issues. Their biggest concern? The ever-larger amounts of data which they’re expected to understand and act on – a whopping 71% of CMOs interviewed said they felt unprepared to deal with the massive amounts of data now being captured by their organizations on customers and prospects.

As businesses become more sophisticated in capturing data on every facet of the customer interaction, they’ve accumulated an enormous treasure-trove of information. However, as this study reveals, in most cases they don’t know what to do with it! As we’ve long maintained, although all insight starts with data, it can’t stop there – gathering the data and even analyzing it aren’t enough. It has to be done with intelligence, it has to be done with the aim of generating actionable insight – and it has to be done quickly enough so that the insights are still relevant to the ever-changing market conditions that CMOs face today.

Last Wednesday at PNT’s 6th quarterly Customer Intelligence Gathering, Mary Beth Sullivan (Managing Partner of Capital Performance Group) spoke on making better use of customer insights to drive profitability in banks. Before the financial crisis of 2008, banks basically didn’t have to pay too much attention to customers – individual consumers were all too eager to load up on credit card and mortgage debt, and banks were all too willing to lend to them. It was a volume business with relatively thin margins, so the more the banks lent, the more money they made. We all know what happened after that: housing cratered, consumers walked away from mortgages in droves, net losses piled up on credit card debt, and households in general began a long and painful process of “deleveraging” – getting rid of debt, one way or another.

Now banks face a long, tough road ahead: rebuilding shredded balance sheets, lack of loan demand, increasingly stringent government regulations, reduced fee income, and a lack of customer trust and loyalty (especially among larger institutions), among other obstacles. So what observations and advice did Mary Beth offer to help navigate these untested waters?

1. Customers are redefining value – so customer engagement will become even more important

Customers want security, personalization, simplification, value, and are more comfortable with technology. They are also distrustful of “big brand” banks and want advice from their peers. Given this attitudinal shift, banks need to really engage their customers and differentiate themselves from their competition by listening and responding carefully to the new customer needs – customer intelligence will be key to this engagement.

2. Banks are also redefining value, and have a set of critical financial objectives

Just as customers are redefining value, so too are banks. They have to further diversify revenue streams (even today, fully 75% of bank profits come from lending activities), focus on customer relationships (see above!), create new sources of fee income, improve the efficiency of their operations, and compete on customer experience and not on price. Succeeding now means being responsive to each customer, being efficient, creating meaningful customer experiences, and doing it with a wide variety of services and solutions that address a multitude of customers’ financial concerns.

3. Success, therefore, means adopting a new set of strategic priorities

To succeed, banks must respond to the new competitive pressures in the marketplace (the recent financial crisis, new government rules and regulations, changing customer needs and attitudes, new technologies) and develop new strategies for success over the long term. They need to have more customer-centric (and less product-centric) business models, move away from product commoditization and towards product customization, integrate marketing and delivery, differentiate themselves further through branding, be ruthlessly efficient, and leverage information technology to deliver more process-driven, standardized, and effective sales and customer management activities.

4. Customer intelligence will be a key component of this success

To achieve these new strategic objectives, customer intelligence will be key. According to famed business guru Peter Drucker, a business really has only two basic functions that produce results: marketing and innovation. These both rely heavily on understanding the customer and developing an intimate relationship that drives the products that are developed, the brand, how messages are developed and communicated, and, ultimately, the revenue and profitability that are generated from each customer relationship.  Banks need to pay more attention to the kinds of things customers need to get done, and then develop products and services that will help them – rather than just sell more of the “same old” traditional banking products such as checking, savings, loans, and so on (no customer has ever said they really “need” a checking account, for instance; what they need is a way to keep money safe and to move it around whenever they need to, to and from whomever and whatever they need to). Notice that this implies getting and using customer feedback – a critical part of customer intelligence – to gauge whether the bank is moving along in the right direction in meeting customer needs; the new world is more than ever a two-way street between banks and their customers, as products and services are developed and delivered in a far more interactive and customized way than ever before.

To be sure, this is going to be a difficult transition. Many large institutions are saddled with legacy products, systems,  infrastructure, processes, and culture that are going to make it very difficult to change and adapt to the new environment. Those that succeed will create meaningful customer relationships through the development, delivery, and communication of services and products that are driven by an understanding of customer needs based on true, two-way customer intelligence.

For further information and to register to receive a copy of Mary Beth’s presentation, please visit our website on http://www.pntmarketingservices.com.

Some important and timely reminders on bank loyalty programs:

BAI | Banking Strategies | Marketing & Sales | Marketing and Promotion | Earning Rewards from Rewards Programs.

Another point to consider that we’ve been trying to impress upon bank marketers in our Offer Management practice:

Giving away non-banking merchandise is more like a bribe to stay than delivering on a financial value proposition.

Granted, there’s a lot of competitive pressure now to offer these points programs, it’s important nevertheless to distinguish between offers that are good for acquiring new customers and those that are good for retaining and building the loyalty of existing customers.

Therefore loyalty programs should be carefully crafted to encourage a wide range of use of bank products and services in an ongoing manner – especially “sticky” services that are correlated with retained customer satisfaction. Whereas acquisition offers will typically offer a higher up-front reward for switching. And onboarding offers will transition from that up-front reward to the pleasures of ongoing loyalty rewards.

In other words, customer offers should follow the life-cycle of your customers’ relationship with you, from acquisition to onboarding to nurture and long term loyalty that extends lifetime customer value (for the bank and the customer).

Capital One: Card Rewards Programs Fluster Some Consumers.

Of course Capital One is trying to make a point with their research – they want consumers to note that their program is not prey to the issues that fluster others.

At PNT we support hundreds of these programs and we have long felt that for loyalty programs to actually sustain loyalty they should not take the form of non-bank offers. Essentially, banks are saying to their customers something like,”we know you don’t especially like banking with us but if we throw in an iPad (or  a hotel room or toaster or golf clubs) a year from now, will you please stay with us?”

Furthermore, many customers are probably savvy enough to know that the “free gifts” have a cost which is being passed on to them so, for some segments at least, these programs introduce a soupçon of distrust – never good for building loyalty.

We think rewards programs should focus on bank offerings: reduced fees, better interest, more financial services. That creates a stronger, long-term relationship with customers by providing value from the bank’s core competence rather than bribing them with products and services customers should be able to secure for themselves from the businesses whose competence they are.

Of course by now the banks have dug themselves a bit of a hole – customers expect to be rewarded with points or cash for bringing their business so it will be a brave bank that discontinues their cash rewards in favor of better customer value upfront. They can dig themselves out by shifting their programs to in-kind rewards over time and designing their programs to make loyalty a two-way street.