LAS VEGAS — To reap true competitive advantage, retail banks must refocus their strategies on customers rather than on products, according to a study by SAS and Peppers & Rogers Group.
The research was released here yesterday at the BetterManagement LIVE Worldwide Business Conference, which addresses business management issues. The study, “Measuring Customer Value in Retail Banking,” also explored challenges and opportunities that retail banks experience in developing and integrating customer value metrics into their product-based business models.
The study surveyed 48 executives from 18 U.S. retail banks ranging in asset size from $12 billion to $1.3 trillion. It asked participants about the application of customer value metrics, the process for measuring customer value and the impact of customer value metrics on their organization.
Measuring customer value is part of a broader approach to building lasting, profitable relationships called customer value management. This approach includes measuring and understanding the current and future value of a customer, across multiple products, then acting on that knowledge, whether through outbound sales and marketing efforts like marketing campaigns or inbound customer service interactions. The goal is to align the organization to enhance the relationship between the bank and the customer across multiple products.
“Many retail banks have yet to realize the full potential of integrating customer value metrics into their business models,” said Jeff Gilleland, financial services strategist at SAS. “While banks have a good understanding of a customer’s value across multiple products, they have yet to link this insight to ‘customer potential’ and then implement coordinated customer development plans across products and channels. Competitive advantage lies in a bank’s ability to integrate customer knowledge, which only that bank has about the customer, and then to act on that knowledge in ways that create intimacy with the customers that matter most.”
All the retail bank executives recognized the potential importance of measuring customer value, but the way customer value measures are used and the perceived benefit vary among institutions.
On one hand, banks actively calculate customer value, and senior executives at retail banks view and use customer value strategically. Two-thirds (67 percent) said that senior managers at their banks use customer value in decision making, and 78 percent use customer value in strategic planning.
But while retail banks have long known that growing customer loyalty, customer profitability and share-of-wallet are the keys to competitive advantage, the survey found that only 17 percent of retail banks are organized around customer value.
And though most retail banks use customer value to generate insight into customer opportunities, the vast majority of customer value applications tend to be tactical rather than strategic. Nearly three-quarters (72 percent) of the surveyed executives noted that their banks use customer value metrics to help measure the effectiveness of sales campaigns, while only 17 percent use them in measuring the overall success of the organization.
SAS paid part of Melissa Campanelli’s transportation to attend the conference