Selling the One-Stop Shop

By Robert Stowe England

Consumers generally resist the concept of one-stop shopping for financial services, but segmentation strategies can identify and serve the select clients who are receptive.

It's no secret why banks love the concept of one-stop shopping in financial services. Selling more products to each customer, when accomplished intelligently, should improve an institution's overall profitability. The sticking point has been a perception by consumers that purchasing all their financial services at one company is not necessarily a good idea for them, in terms of price, selection and risk.

"Financial supermarkets are like the Holy Grail," says consultant Ed Furash, chairman of Monument Financial Group, Arlington, Va. "Banks have been trying to create them for years, but haven't done very well. The chief stumbling block seems to be overcoming consumer resistance to the idea of putting all their eggs in one basket."

Even in the face of this general resistance, however, there are some signs of industry progress with the one-stop concept. Bankers are refining their understanding of when the approach is appropriate. Accelerating convergence in financial services, exemplified by last year's Citigroup merger, has made it at least theoretically possible to market banking, insurance and brokerage services through one institution. And managers are slowly mastering the packaging, organizational, marketing and sales skills needed to sell more products to that segment of consumers predisposed to the convenience of a single provider.

The key to this effort, bankers and analysts agree, is improving the bank's knowledge and understanding of the customer, as well as the customer's knowledge and trust of the bank. Segmentation strategies can then enable institutions to pitch the right offer to the right customers, i.e., those who demand the convenience of one-stop shopping and can really afford it. "Some people think one-stop shopping means being all things to all people," says Jack Kopnisky, president of Key Bank in Cleveland, Ohio. "But that's not it at all. We want to be all things, or nearly all things, to a target group of clients."

Surveys show that many customers are looking for a trusted financial advisor to help guide them through the difficult maze of personal finance choices. Banks, because of their reputation for probity and operational efficiency, are well placed to assume that role.

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Companies such as KeyCorp and Wachovia Corp. try to meet this need by providing relationship managers, or personal bankers, for their most promising customers. The hope is that customers will benefit from improved service while the banks attain higher cross-sell ratios. BankBoston Corp. has adopted a bundled approach, offering packages that combine, for example, a checking account, overdraft protection and savings options at discounted prices. If customers have a need not covered by one of these package deals -- brokerage or insurance, perhaps -- they are then referred to a licensed specialist in those fields. One way or another, customers can find most of what they need at the bank.

To be sure, one-stop shopping has a long way to go before it attains mass acceptance. A majority of consumers perhaps will always prefer to conduct their financial transactions through several different providers. Managers attempting to craft a single provider strategy have to formulate a value proposition that can overcome this deeply ingrained tendency. They also must focus their efforts on the select minority of customers who want more out of their bank. Then, within this segment, they must meet the standards set by demanding customers, who want above-average service and high-quality, brand-name products.

Recognizing customers' desire for choice, some managers have adopted a "portal" strategy that allows them to augment their basic product set with certain categories of non-proprietary offerings. KeyCorp, for example, offers its customers access to Charles Schwab Co.'s mutual funds supermarket known as One Source and insurance products through Jefferson-Pilot Insurance Co. This also helps overcome one of the major stumbling blocks to one-stop shopping: customers' fear of relying on just one provider. Institutions using a portal strategy can show customers that their funds are, in fact, spread around in many baskets with the added advantage of having all these baskets tracked on a single statement.

Fragmented Relationships

While the one-stop shopping model does appear viable when used selectively, its near-term potential should not be overstated. Judging by consumer preference surveys, the assembly of a universal product set can almost be viewed as an act of faith, because the concept apparently has actually lost some of its appeal in recent years. "Financial relationships are becoming more fragmented," asserts Anne Morgan Moore, president of Synergistics Research Corp. in Atlanta. "Consumers are going one place for the mortgage, one place for their credit card, one place for the checking account, and one place for their brokerage services."

Synergistics, in an April 1998 nationwide survey of 1,011 consumers, found only about 15% using a single provider for "most" of their financial services. This includes checking/savings accounts, auto and personal loans, credit cards, home mortgages, investments, auto and homeowners insurance, and life insurance. Synergistics further concluded that the potential for gaining new single-provider customers appears limited to just 41% of the customer base, with less than a third of that group indicating strong receptivity to the single provider approach.

The key factors behind the appeal of a single provider include a consolidated statement, easy fund transfers, a clearer presentation of one's financial situation and better pricing, according to Synergistics. But a large group of survey respondents -- 38% -- rejects the idea of a single provider outright. They say they can get better pricing by shopping around. They also express worry about putting all their eggs in one basket and being bombarded with unsolicited cross-sell offers.

Annual surveys by PSI Global of Tampa, Fla. show a gradual five-year decline in consumer support for the idea of one-stop shopping. In 1994, for example, 61% of survey respondents expressed openness to the idea of "having all financial needs met by one institution." By 1998, that percentage had fallen to 53%.

However, a recent report by Mentis Financial Services asserts that convergence trends in financial services are beginning to change this consumer outlook, setting the stage for an upward inflection in the one-stop trend. Based on annual surveys that include feedback from more than 500 financial institutions, Mentis concludes that over half of U.S. bank customers are gradually consolidating their financial relationships, reducing their number of providers from about eight to five. Research analyst Brad Adrian foresees this consolidation accelerating in the next few years as more providers like the new Citigroup offer a full menu of financial products.

"It's going to be a gradual process," Adrian says. "Most consumers are not going to say, 'Gee, tomorrow I think I'll switch over to Citigroup because I can do everything with them.' But within the next two to three years, the trend will be significant. A large segment of consumers consider their bank to be their primary financial services provider. So banks will have a better opportunity to pull in brokerage and insurance business than brokers or insurers will have in providing core banking services."

Personal Bankers

Faced with a growing complexity in financial products, more and more consumers are expressing a need for a "trusted financial advisor" to help manage their financial affairs. As the primary financial services provider to most consumers, banks are particularly well positioned to capitalize on this need, which promotes a greater receptivity to the one-stop shopping concept.

Wachovia, for example, has long operated a "personal banker" program, which segments customers and assigns them to specific relationship management channels. Affluent customers, those with $150,000 in annual income and $300,000 in net worth, are assigned to "private" licensed financial advisers. These advisors become the "quarterback" of a team of experts and specialists who can anticipate and meet the needs of each of their customers.

Wachovia also identifies a larger, more diverse group of "responsive, high-value households" which are assigned a personal financial adviser. These households include people in all age and income groups. The Wachovia advisers interview those customers to determine their current and future needs. Based on results from this diagnostic interview, customers are referred to an appropriate sales person.

For the larger mass market, Wachovia utilizes data mining techniques and then aggressively cross-sells its products via direct mail or phone solicitation. As a relationship grows, some of these mass-market customers might be assigned to a personal financial manager or a private licensed adviser. The bank's approach is fluid and responds to changing situations among its clients, according to Lynn Brown, executive vice president of corporate marketing at Wachovia. "Our driving strategy in the retail part of the business is designed to attract those kinds of customers who value personal relationships and will switch all of their business to us," Brown says.

KeyCorp also believes in the personal banker approach to cross-selling, having previously discovered that uncoordinated selling by various business lines "is a recipe for failure," according to Kopnisky. KeyCorp addressed that problem by assigning certain customers a "relationship manager" -- a branch-based sales person -- who can proactively assess customers' future needs and then match them with solutions provided by experts within the bank. The focus of this program is households with annual incomes ranging from $50,000 to $100,000.

Portal Strategy

The key element in any attempt to become a one-source provider is trust. Banks already enjoy a high level of consumer confidence for their ability to execute financial transactions efficiently and safely. The next step is to shift those feelings of trust to the bank's new role as financial advisor. According to consultant Furash, banks need to show consumers that they understand their needs and can be counted upon to recommend appropriate and competitively priced products. This can help in convincing consumers that a single provider, in some circumstances, can actually reduce risk, Furash says.

One way to address this issue head-on is to curtail the practice of simply cross-selling one's own proprietary products and instead transform the bank into a portal to a variety of brand-name products and services. "Consumers don't want to feel handcuffed to an institution's products, if they see that something they want is only available elsewhere," says Kirk Rudolph, research manager at PSI Global. Rudolph recommends the portal approach as a way to help overcome consumers' reluctance to concentrate their resources. Their money will be in many baskets, and the bank simply provides the portal to those baskets.

KeyCorp, for example, sells insurance from a third-party provider. Since the bank was unable to make the insurance company acquisitions it needed, due to regulatory prohibitions, the company entered into a joint venture with Jefferson-Pilot. To provide "best-of-breed" mutual funds, KeyCorp allied itself with Schwab. Kopnisky says customers appreciate the ability to purchase brand-name products through KeyCorp branches.

Of course, this approach still is hybrid in character. At the core of each menu is a set of proprietary banking products that anchor the relationship -- checking and savings accounts, household and business loans, etc. To use a shopping metaphor, some aisles are stocked exclusively with the provider's products, while other aisles are stocked with competing brands that plug gaps in the provider's basic product set. Will the day come when a bank will be so bold as to completely uncouple manufacturing and distribution, and assist the customer in obtaining any type of financial service, including core banking, from any number of brand-name providers? Perhaps not. That means one-stop aspirants still must find ways to convince customers that proprietary services are fully competitive.

Another way to attract customers is with bundled products -- an approach that is especially appealing to younger, upper-income consumers if the products and services are priced right. "Get 'em young," advises Moore at Synergistics.

BankBoston views bundled products as a way to "deepen the customer relationship," particularly for mass-market customers, according to Tish Capello, director of consumer product management. Such packages might include, for example, a checking account, overdraft protection and a savings option. In addition, BankBoston promotes "multiple cross- selling." When customers inquire about one particular service or product, they are interviewed to ascertain whether they might benefit from something else. If they do, and no pre-existing package deal includes that product, the customers are then referred to specialists, such as licensed insurance and investment professionals.

While mass acceptance of one-stop shopping in financial services apparently is still a long way off, Capello argues that many consumers are quite prepared to expand and integrate more of their activity with their primary household bank. "The opportunity is there for the taking," she says.

But this is not an indiscriminate exercise. Care and skill are needed in segmenting the market, assembling and presenting the universal product set, and fulfilling the larger promises and expectations inherent in an all-encompassing financial services relationship. To this, add a large dose of patience. While the migration to one-stop shopping perhaps can be coaxed, it decidedly cannot be forced.

Mr. England is a freelance writer based in Arlington, Virginia.

Copyright © 2003 by Banking Strategies, published by BAI.

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