Dan Geller Apr 8, 2014

Strategic Matrix for Customer Acquisition and Retention

Financial institutions are facing extreme polarity in the financial needs and wants of the baby boomers, on one side of the spectrum, and the millennials on the other. The shift in demographics and advances in technology are forcing financial institutions to make difficult strategic decisions on product and services moving forward.

The post-World War II baby boomers grew up with traditional banking services and perceive the relationship with their financial institution as the focal point of their financial life. This generation is slower to adapt to using alternative financial services and is likely to be intimidated by drastic changes in the way those services are offered.

By contrast, the up-and-coming generation of millennials, born in the 1980s and 1990s, grew up with the Internet, mobile devices and a new perspective on financial services. For them, the notion of having a bank account for the purpose of making basic transactions, such as buying coffee or going to the movies, is unimaginable.

And, of course, there is the middle, which is currently the largest segment of financial services customers. This group is “sitting on the fence” as far as their preference for banking services. As such, any drastic change in the current structure of their financial services might sway them to look elsewhere for what they consider “a better fit” for their financial needs.

Financial institutions can use our Strategic Matrix to consider the various options available to them. The goal is to choose the optimal combination of strategic options for your client base without alienating any major segment. One thing you can be sure of: you can’t be all things to all people because you end up alienating everyone. While reviewing the matrix, here are some of the implications of choosing various options:

Options 1 and 2: Offer a value-added checking account bundled with emerging financial service such as identity-theft alerts and credit-score reports as one option, and a free-standing prepaid card as another option. By providing both options, yet not combined, you cater to both baby boomers and millennials and have the best chance of fending off intrusion by alternative financial services.

Options 3 and 4: Offer traditional checking with reduced or no fees on activities such as overdraft protection transfer along with a low-cost “checkless-checking” account with no overdraft option. This combination of options will be attractive to the more transitional banking customers and may attract some low-end users but leaves the majority of the alternative banking customers out of the picture.

Options 1 and 3: Offer a value-added checking account bundled with emerging financial service and a traditional checking account with fewer fees. This combination of options will promote loyalty and longevity among the value-added customers and the more budget-oriented customers. However, it leaves out the majority of the alternative banking customers.

Options 2 and 4: Offer a free-standing prepaid card and a “checkless checking” account. This combination of services will be very appealing to current users of alternative banking services but is likely to alienate customers who are looking for value-added bundled services.

Options 1 and 4: Offer a value-added checking account bundled with emerging financial service and a “checkless checking” account. This combination of services will be very appealing to customers who seek bundled banking services but is not likely to retain customers who seek transactions with no checking accounts.

Options 3 and 2: Offer traditional checking with reduced or no fees on activities such as overdraft protection transfer and also offer a stand-alone prepaid card. This combination of services will be very appealing to current customers who are “price sensitive” and those who are most likely to migrate to alternative banking services. However, this option is likely to alienate customers who are looking for value-added bundled services.

Choosing the right combination of strategic options is a challenging task because the option of satisfying the financial needs of all customer types is impossible. However, the option of not doing anything can be much more damaging to your customer acquisition and retention efforts.

Mr. Geller is the executive vice president of San Anselmo, Calif.-based Market Rates Insight, which provides competitive research and analytics to financial institutions. He can be reached at dan.geller@marketratesinsight.com.


 

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