Retention Path

By Steve Klinkerman

Outstanding success in customer retention rests not on piecemeal tactics, but rather on the quality of interaction over the life of the relationship.

Customer retention has become a priority and no wonder, with growth being generally scarce these days and retail financial institutions experiencing customer turnover ranging from 10% to more than 20% annually. After incurring marketing and staff expenses to acquire relationships and set up accounts, providers are understandably anxious to retain hard-won business. But is customer retention a rescue operation or something more?

The question is worth asking because some of the imagery surrounding retention is of late-stage efforts to intervene with customers just as they are getting ready to leave the bank. That's sort of like waiting until something really hurts before going to see the doctor. By then, things may have progressed to the point where the options are fewer, the remedies more dramatic and the outlook for recovery is less favorable. In customer retention as in personal health, the better approach is to be proactive, and that entails its own set of commitments that extend throughout the life of the relationship.

That's not to downplay the need to respond when customer defections are imminent. There's a growing body of knowledge about the circumstances of customer attrition, including statistical models that interpret account activity and balance fluctuations and identify relationships at risk. Some institutions have found that their ability to generate such lists outstrips their ability to respond. Along with mobilizing staff in the branch and the call center, institutions are revising incentive plans so that people are rewarded for building and preserving relationships, as opposed to pushing products.

Still, this is but one component of customer retention, as illustrated by the work being done in the area of problem resolution. Relationships often are either cemented or forever lost on the basis of how well the institution recovers from mistakes and responds to special circumstances. Broadly in financial services, representatives are being given discretion to make corrections and concessions right on the spot, and some providers are adding dedicated trouble-shooters to assure skilled responses and complete follow-through.

So much for recovering from pressing situations, but what about managing perceptions and strengthening overall ties with the customer? Viewed from this perspective, customer retention comes into play at the start of the relationship. Absent adequate disclosure about fees, for example, there is a distinct risk that customers will revolt when they are assessed charges for items such as account overdrafts. Some providers of "free checking" seem to be walking an especially fine line in this area.

Account orientation and activation also have implications for retention, in that special services, such as online banking and bill pay, increase "stickiness" only to the extent that they are used. A certain level of conversation and coaching is needed at the front line so that new customers are not left completely on their own to figure out how to use sophisticated services.

At the highest plane, customer retention is about a dialogue, about listening attentively and getting people to open up about their needs and concerns and then responding with insights, products and services that are both personally and financially appropriate. Studies repeatedly have shown that customers with multiple accounts are far more likely to stay with the institution than those who have only one account, but to reach this higher level of involvement financial services providers need to become partners with customers in managing their financial affairs.

Putting all of this together, outstanding success in customer retention rests not on piecemeal tactics, but rather on the quality of interaction over the life of the relationship. To focus only on managing the crisis aspects is to miss the bigger picture.

Mr. Klinkerman is editor-in-chief of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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