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Bankers must comprehend attrition factors

Customer life cycle patterns must be understood by banks

Direct mail. Mass media. Telephone solicitation. Mergers and acquisitions. While varied, all of the above are longstanding means by which bankers have attempted to acquire and enhance client relationships.

Increasingly, the industry is also relying on sophisticated databases as vehicles to cross-sell additional products and services to existing customers and to identify new prospects.

While it’s no secret that bankers spend considerable time and effort to attract new and expanded business at a particular point in time, experts say banks should be doing more. While it’s important for bankers to understand why new customers choose to do business with them, it’s equally critical for bankers to comprehend attrition factors.

Marketing experts say this demands a greater emphasis on customer life cycle patterns — how customer needs evolve over time — versus the closing of a sale at a particular moment to meet a bank’s monthly or quarterly sales goals.

One such advocate of this viewpoint is Phillip Wheaton, director of analytical services at Raleigh, N.C.-based MarkeTech Systems International.

In a recent banking magazine article, Wheaton says bankers must examine how attrition varies by product and household, how retained customers vary from lost customers and how customer relationships change and grow over time in order to plan effective sales strategies and performance measurement activities.

Clients choose banks for a variety of reasons. Likewise, they opt to discontinue relationships due to a host of factors. Some of these factors are beyond the control of the bank, while others are not. On occasion, clients bolt because of poor service experiences, changes in pricing or fees or because their bank no longer offers the same convenience in locations.

Certainly, these issues are within the realm of bank control. However, Wheaton states that the bulk of attrition — 70% to 80% — is due to factors beyond the control of the bank, with about half of this due to customer life cycle issues. These factors may include a personal/professional relocation out of the geographic area or the maturation of a product’s defined lifetime where the customer has no need for that particular product in the future because of life cycle changes.

Several Mississippi bank executives say that they agree that the focus on life cycle patterns has become and will continue to be increasingly important in their marketing efforts. Gray Wiggers, a Trustmark senior vice president, concurs that banks must look beyond surface-level demographics in order to comprehend specific customer needs.

“Beyond the more obvious socio-economic patterns, you must look at where a particular household is on that life cycle continuum in order to do your job in matching the best and appropriate product or service to the customer’s needs,” Wiggers asserts. “You also have to understand life cycle patterns in order to effectively match your distribution capabilities — like the location of branches and the skill set of your branch personnel — to the specialized needs of the community that particular branch serves. In all of your trade areas, you find that the regional footprint is a little different. Subsequently, you have to do your homework in order to effectively meet the varied needs of those markets.”

John Baxter, Hancock Bank marketing manager agreed, noting this is also an important factor in a banking company’s merger/acquisition strategy.

While recent history has shown that statistics such as jobs growth and other economic indices are top priorities in identifying merger/acquisition candidates, Baxter says his company also looks at cultural and life style factors.

“We don’t just look at whether a local economy is growing,” Baxter states, “we also look at various commonalities that we share with those communities in order to understand and serve them better.”

Experts say understanding attrition and life cycle buying patterns will become increasingly important in financial services as banks are pressed to improve efficiency and revenue goals, particularly as they relate to branch-banking strategies. MarkeTech’s research shows that the average branch matures in roughly 10 years.

However, Wheaton states that one in a high-turnover market characterized by young, less-established households may mature in seven years, while one in a stable, established market may mature in 12. Given these factors, the product and product-maturation mix will vary from branch to branch and will ultimately determine the location’s viability in the bank’s overall profitability strategy.

Banks that don’t conduct a more quantitative analysis may find themselves investing resources inappropriately, consultants say.

While obtaining an understanding of customers’ changing sales and service requirements may be tedious to bankers, it is also opportunistic. Selling more isn’t always better and surface demographics don’t make all clients in a region or even a neighborhood like-minded.

As Hancock bank marketer Baxter said, “While it’s generally true that the more products a customer has, the tougher it is to leave, that doesn’t mean that you can sit on your laurels and take any customer for granted.”

Contact MBJ contributing writer Karen Kahler Holliday at mbj@msbusiness.com or (601) 364-1018.


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