Customer retention in the digitized world: Not just a point scoring exercise

By: Sudhir Nikharge
March 2015



Sudhir leads the Field Consulting team for Financial Services and Digital & Communication Services at SunTec. He has worked with banks and various IT product vendors for over 17 years and brings wealth of experience in transaction banking as well as revenue management domain. He has conceptualized, developed and implemented products for various global organizations. He continues to engage with various customers to evangelize solutions for their specific business needs and help them create internal business cases. He has authored various whitepapers and articles in the Payments and Revenue management domain.

Digitalization, for all its benefits in improving customer experience of products and services, is about to land a knockout blow to traditional banks and telecoms companies. Consumers of these services are less than happy. A report by TNS found that the main driver for switching remains customer service, cited by 23 percent of respondents as a reason for leaving. The top reasons for choosing a new account, all scoring 15 percent were reputation, convenience and rewards.

Conventionally, these companies think about customer retention as an afterthought. Most of the products or promotions are focused on acquiring customers. Heaps of offers are showered on customers at the time of acquisition and existing customers feel ignored. In a world driven by new technology organizations need to stop hiding and offer deals that keep their customers loyal.

Customer rewards can be commoditized 

If internal data warehouses and Customer Relationship Management (CRM) systems held ideal customer information, they could devise cost-effective customer retention strategies. This requires technology to match and supply data relating to individual customers to build new offerings. However, an effective IT architecture does not automatically mean customer retention becomes easier.

Most organizations tend to use new products, promotions and internal incentive policies to acquire new customers. Not much focus is placed on the process of customer retention. Strategies such as Loyalty programs have risen out of the need to keep customers.

In the financial services industry, customer retention began with credit cards. These cards generated data which showed where, why and what consumers were buying. This new information gave marketing and product departments an idea of who you are but not who you or your family are going to be.

Historically, product management teams spent the majority of their time managing reporting processes, rather than understanding how end-users interact with their products. To be competitive, they must employ data analysis solutions that allow them to quickly correlate changes in user traffic patterns in the context of events such as new releases. Armed with insights from the analysis, product management teams can focus on increasing value and accelerating new product models. Product design should include benefits such as differential pricing based on customer behaviour, a personalized product offering and service priority.

Conventionally, these companies think about customer retention as an afterthought Most of the products or promotions are focused on acquiring customers.

Human beings and their behavior are dynamic – the products offered to them should be the same. For example, take a University student Living abroad for a year; her bank should know what services to offer her for a short period of time through the process of dynamic segmentation. Being dynamic in this example means the bank may offer a special remittance rate every time the student’s parents send her funds.

Dynamic segmentation is very important for organizations, but the devil is really in the details. Challengers, not held back by outdated technology, are often more innovative around segmentation and customer lifecycle management. This indeed is a threat traditional players need to address.

Short term gain, long term failure 

Organizations need to start thinking “inside-out”. They have to realize that today products are already commoditized. Hence they have to create differentiation to retain their customer base. Topping up commoditized product with fancy loyalty program is not going to help. To do this effectively, they have to start thinking about customer retention as part of their product design. Term loyalty program should be extended into benefit programmes whereby various benefits should be bundled as part of the product design. Product design, as part of a customer acquisition programme, is the key to the customer retention lifecycle.

Organizations have to create differentiation to retain their customer base. Topping up commoditized product with fancy loyalty program is not going help. To do this effectively, they have to start thinking about customer retention as part of their product design.

Traditional players are investing in marketing and R&D into new bank accounts with rewards. An example of this is the Santander 123 Account in the UK which offers special savings rate and perks depending on how much the customer pays each month. Although exciting for consumers in the beginning, this excitement is only temporary and may only appease customers until they have used up all the perks. Instead of adding value, the one-size-fits-all products will ultimately commoditise these services. Generic offerings are not suitable for long term retention of customers.

A change of mindset 

Today, customer acquisition is only the first barrier organizations would need to overcome. Currently, the average customer Lifespan for a bank is eight years and customer churn is a tell-tale sign showing banking products are simply not innovative enough. There are however, innovative organizations that are creating products which are more inclusive and with embedded customer benefits within the product design.

Lip service pays off 

According to EY research, the decline of consumer confidence is down to fees (66%). Although vital to the bottom line of any organization, fees are perceived as having little added value by consumers. Value lies in what was communicated, regardless of whether the customer is being alerted by digital or social communication.

Communication is important in retaining customers. Organizations have to think about how they would communicate value and more relevant offers back to the customer. With social media and other channels, a lot more information is available about the customer. This can and should be used for creating deeper bonding with customer.

When it comes to designing customer centric offers, telecom players lead the rally. Airtel, one of the largest telecom service providers in India has launched “myPLAN for family” where complete flexibility is given to the user to decide services required and number of members to be included in the plan.

A South African Bank has launched value bundles that bundles together Saving Account, Home Loan, Credit cards etc. a service they have also extended to spouses of customers.

Repositioning themselves as advice centres, organizations should recruit advisors with the right skillsets and set accurate incentive structures for them to work within. They must rewire their DNA and learn how to cultivate emotional loyalty from customers. In doing so, not only will they minimize customer churn but can spend more time on customer acquisition.