Where’s the Cross-Product Value Proposition?
BY ANDREW GREEN
Balance loyalty requires integrated account benefits.
Customer service doesn’t necessarily translate into greater share of wallet, since non-banks often capture parts of the customer’s business. One solution: rewards programs targeted to specific accounts, provided multiple accounts are maintained.
In 2005, A.T. Kearney created the Organic Growth Index, a survey of 4,000 customers of retail banks and financial institutions in the top 20 U.S. markets. The objective was to learn which institutions were best positioned for sustained organic growth. In the process, we uncovered two conundrums that will influence the industry’s competitive dynamics for years to come.
First, great customer service doesn’t translate into greater share of wallet. Our research found that while retail banks (particularly the smaller regionals) have demonstrated the ability to form and sustain excellent customer relationships, they have been largely unsuccessful in translating these relationships into a larger share of wallet. The average number of accounts per customer for the 32 institutions covered in our index is fewer than two.
Of course, measures of product penetration are definition-sensitive. Ours is based on the core debt and equity accounts that truly define the customers’ balance sheet. Ancillary services tied to specific core accounts may drive higher fee income, but haven’t driven higher shares of wallet.
Achieving great customer satisfaction is simply the price of entry to generating sustained levels of organic growth. It needs to be done, but does not on its own drive growth.
Second, most “core wallet accounts” and their respective balances are not inherently sticky. We asked customers how much effort it would take to switch financial institutions for 11 different types of core accounts. More than 50% of respondents said switching was somewhat or extremely difficult for only two out of 11 accounts — retirement accounts and personal loans. This means that the other nine accounts are potentially quite mobile and vulnerable to competing offers.
Conventional wisdom holds that most customers are not willing to place the bulk of their wallet with a single financial institution. Yet when one considers the relative weight of investment and retirement in the average wallet, many customers do – just not a retail bank. Instead, investment management firms are the primary beneficiaries.
Retail banks have simply not created the compelling value propositions that facilitate cross-product sales. To grow wallet share, they need to view customer value holistically and create integrated account benefits to drive “balance loyalty” in specific accounts. Citibank’s Thank You Network package, for example, rewards customers by offering improved terms for specific accounts provided multiple accounts (checking, savings, CDs, loans and credit cards) are maintained.
Integrated value propositions represent new territory for most retail financial institutions, which typically are organized in silos around specific accounts. Success requires working across these silos and rethinking product pricing, positioning, marketing and even the traditional measurement and reward systems, which typically focus on one account rather than multiple products.
Given the challenges of working across product-focused silos and effectively managing product complexity, designing integrated value propositions will be easier for most retail banks than actually implementing them. That said, we firmly believe that the first-mover rewards will be significant for those retail banks that can “crack the code” of integrated value propositions.
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Mr. Green is a vice president and head of the North American financial services practice for Chicago-based A.T. Kearney, a global management consulting firm.