Study: Retail Financial Services Should Focus on RetentionFinancial services firms should focus more on retaining customers than on obtaining new ones, according to a survey last week by GartnerG2, a division of Gartner Inc., Stamford, CT.
According to the survey of 117 U.S. retail marketing departments in the financial services industry, the focus was on customer acquisition at 43 percent, followed by cross-selling at 30 percent. Customer retention was top priority among just 9 percent of those surveyed.
"Customer retention should be the first line of defense in a financial services provider's CRM strategy," said Kim Collins, research director at GartnerG2. "However, most financial services companies do not even have a clear definition of customer attrition, much less a way to accurately identify and respond to early warning signs that a customer is likely to exit."
Many financial services providers often miss opportunities to drive retention and loyalty because they focus customer relationship management initiatives on gaining revenue through cross-selling, GartnerG2 said. However, if a company's churn rate is high, cross-selling is not that effective.
GartnerG2 analysts also noted that acquiring a client costs about five times more than retaining one.
"On average, that's $280 spent to find a new customer versus $57 to keep one," Collins said. "If you are losing high-value customers, the costs go up substantially to acquire a new customer and grow that relationship to the same level."
Financial services companies should put more effort into monitoring customers and identifying warning signs such as the removal of direct deposits, declining branch use or the diminishment in accounts over time.
"These events might signal a change in financial status that could put the provider at risk," Collins said. "Careful assessment will determine what is a retention opportunity versus a risky relationship."
GartnerG2 recommends financial services companies develop a retention strategy to identify risks before a customer leaves.
"For example, use event-triggering and state-based technologies to recognize important events or changes in customer behavior that are leading indicators that signal likely defection," Collins said. "Provide enhanced services, advice and better product bundling to boost loyalty among high-value clients. Communicating with the customer on their terms based on their contact preferences about their financial interests will go further than larger marketing efforts."