The financial crisis has led many banks to place an even greater emphasis on cross-selling, both to capitalize on new opportunities and mitigate strains on the balance sheet.
The opportunity to deepen customer relationships is particularly strong now because so many are looking for more financial guidance after the recent upheaval in the markets, experts say.
“People are very much focused on re-building both their savings and their retirement, and this need is one of the major factors driving the opportunity for cross-selling,” says Mary Beth Sullivan, the managing partner of Capital Performance Group, a consulting firm based in Washington, D.C. “Wall Street has gotten a bit of a black eye in the crisis, and that’s working in the banking industry’s favor.”
At the same time, the recent regulatory changes to overdraft protection and credit card fees have forced some banks to adjust their cross-selling strategies to find ways to make up for the anticipated drop in fee income. One common strategy is to be more selective in the customers to whom banks market certain products.
And some long challenges to cross-selling remain, such as product cannibalization – simply moving existing funds from one account to another – and overcoming the silo mentality within various divisions of a bank that can dampen the number of possible referrals for additional products.
Still, the chance to garner more wallet share because of the crisis has spurred banks to find new ways to try to overcome these challenges.
Need for Savings
For many years, Memphis-based First Tennessee Bank has practiced cross-selling under a “needs-based” sales approach, where employees first take the time to have a conversation with customers to determine which products would best serve their financial needs – as opposed to just giving pure product pitches. In the wake of the financial crisis last year, executives decided to test whether the bank’s front-line staff was really following the script, according to Chief Marketing Officer Dan Marks.
First Tennessee, a unit of First Horizon National Corp., mystery-shopped its branches and surveyed customers who contacted its call centers to determine whether the needs-based sales approach was being employed bankwide. Unfortunately, “it was happening more intermittently than we would have preferred,” Marks says.
In addition to re-emphasizing the needs-based approach, First Tennessee now conducts an extensive statistical modeling of its customer base to get a better picture of customer demographics and transactional behavior. This enables the bank to develop targeted marketing programs that match specific offers to particular customers instead of mass-mailing tens of thousands of offers for product, according to Marks. When customers contact the bank to respond to an offer, First Tennessee’s staff conducts a brief needs-based assessment to determine whether they may need additional products as well, he says.
Cincinnati-based Fifth Third Bancorp finds savings accounts to be particularly in demand right now, according to Terry Zink, executive vice president of retail banking. “Before, saving money was a New Year’s resolution much like exercise and weight loss,” Zink says. “Now we’re having a great deal of success in cross-selling savings products, because people realize they need to have a better savings base.”
Fifth Third has been able to accomplish this mainly by bundling its products: when customers open a checking account, the company asks them if they want to automatically transfer a certain amount of money from that account into a savings account on a weekly or monthly basis, Zink says. Existing checking account holders can also opt to do this themselves online, or use Fifth Third’s website to change the amount or frequency of the automatic transfer.
Another popular product at Fifth Third has been the “Goal Setter” account, Zink says. Much like traditional Christmas accounts, customers can open a savings account to accumulate money for a particular goal. Overall, savings account unit sales in 2009 were up over 35% compared to 2008, Zink says.
Banks are also stepping up their cross-sell of debit cards to garner more deposits as well as interchange fees. The $16.3 billion-asset Cullen/Frost Bankers Inc. in San Antonio, for example, incentivizes its customers with “Frost Momentum” high-interest checking accounts to use their debit cards more by promising a higher interest rate per every 10 debit card transactions, says Ericka Pullin, senior vice president in marketing. The maximum amount of additional interest customers can earn each month is 0.25 percent, on 50 transactions.
The company introduced the product in 2007, but Pullen has seen an uptick in debit card usage during the past year. “With the financial crisis I think consumers in general are more cautious, and they are using their debit cards more to control their spending,” she says, adding that Cullen/Frost is considering rolling out the incentive to its other checking account products.
Regulatory changes to overdraft protection and credit card fees have caused many banks to re-think cross-selling certain products en masse, as many of the more-profitable customers under the old regimes will no longer be profitable, says Robert Tetenbaum, co-founder and executive vice president at First Manhattan Consulting Group in New York.
“Tellers will be told not to offer credit cards to every customer who walks in,” Tetenbaum says. “For banks that want to make money, they will have to become highly selective.”
Similarly, free checking will likely only be available to those with high balances, while others will likely be offered checking accounts that carry a fee – though banks will likely bundle more services with the account to make the fee more palatable, Tetenbaum says.
On the flip side, the anticipated loss of revenue from the regulatory changes have prompted banks to cross-sell more products such as investments and insurance products to customers who were not part of the old profit models, he says. Such efforts over time have proved five times as profitable as trying to bring in sales from new prospects.
Cannibalization Challenge
Banks are also trying different tactics to overcome longstanding challenges to cross-selling, such as product cannibalization – when customers simply move their existing money around instead of bringing in new money to the institutions, according to David McNab, president of the Canadian consulting firm, Objective Business Services Inc.
To more accurately identify whether or not this is occurring, McNab recommends that banks should not only measure how many products they have sold to each customer but also measure the amount of new money that each customer brings into the bank over a certain period of time. McNab also recommends that banks measure the amount of revenue the bank makes per customer because even if there is some product cannibalization occurring, banks can still make some money from increased fees on the second product.
To overcome the silo mentality that often afflicts financial institutions, McNab says that banks should incentivize referrals between departments and monitor the success of their referral program by having regional managers within separate divisions routinely communicate with each other to make sure their subordinates are following through.
Laura Ketterling, sales development coordinator at Western Security Bank in Billings, Mont., says that her bank is trying to improve its cross-selling program by instilling in employees’ minds the notion that they do not have to “hard sell,” but rather just give advice on products that they, themselves, feel good about. To accomplish this, Western Security, a unit of the $6.2 billion-asset Glacier Bancorp Inc. in Kalispell, Mont., educates its employees about the merits of its products and encourages them to actually use the products themselves.
“If employees know how the products work, then they are going to be the best advocates,” Ketterling says. “Then they truly feel like they are helping to make the customers’ lives easier, instead of feeling like they are focusing on selling to them.”
Western Security also trains employees to look for “clues” that could lead to cross-selling opportunities. For example, if a mother with several children walks through three feet of snow to come into a branch to cash a check, that would be an excellent time to advise her on the advantages of getting a debit card, Ketterling says.
Ms. Kuehner-Hebert is a freelance writer based in San Diego, Calif.
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