How to Increase Banking Customer Profitability: Segmentation and Timing of Products and Services

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It is well understood that Customers are a very prized property and having a profitable customer is the most sought after by every Bank. So having a profitable customer is more important than having just a customer.

Realization is dawning that volumes won’t lead to profitability but only increase in market share at the cost of profitability. Quality plays a more important role than quantity. It is in this endeavor to have a sustaining model to keep the customer engaged throughout their relationship with the Bank for growth and profits in the long run.

Managing customer life cycle at banks

Banks at various levels are engaged with the customers during the entire customer life cycle from acquisition to termination of the relationship and this needs to done in such a way that only the profitable ones are with you. It is a well known principal that 20% of the customers give 80% of the profits and value. So it becomes even more important to have/retain these 20% customers.

Once the customer has been acquired using traditional and non-traditional sources, the challenge is keeping them engaged and making them profitable.

Once the customer has been acquired using traditional and non-traditional sources, the challenge is keeping them engaged and making them profitable. Banks need to initiate customer centric initiatives to see that the customer is the centre of all the activities undertaken. Customer segmentation is made to distinguish profitable from non profitable and use strategies to see that the bottom line is enhanced.

Effective channel usage

Once the customer has been acquired and booked, the mode of communicating with the bank plays an important role. As far as possible customer should be encouraged to use the channel which costs the least for servicing thereby reducing costs.

This does not imply that customer will not be attended at other channels which are not cost effective. Clear communication to customers which gives them access to information on where they can contact for any queries, information on products and which are the different channels they can use to contact the bank for any purchase or enquiry makes the banks job easy. Customers to be incentivized to use the least cost servicing channel and this will go a long way in reducing costs. Point to be noted here is that a customer asking for another product using the banks various channels like website, email will actually be beneficial as costs in selling a new product here are very negligible.

Cross-sell timing

When the time comes to cross sell other products of the bank, it normally happens either through direct mailers or when the customers call the call centre. If a customer has a checking account, there is an every likelihood of the customer going in for a credit card, mortgage or insurance product in the coming months. It becomes important now to target this product and this has to be done at the right time. Need of another product by the customer is very important in determining the success of a successful cross sell with less acquisition costs.

Normally mass mailers are sent to customers without gauging whether they really need the same at that time. So segmented marketing with importance given to timing the same will play an important role in making this work. Also when the customer calls up the call centre, based on the customer’s profitability and the segment to which they belong, the agent should be able to offer a competitive offer which will be too hard for the customer to refuse. Backend systems should be able compute and pop up the right offers to the agent at the right time. Here also timing plays an important role. Care should be taken to see that the product to be sold is not complex to understand as these tend to drive away customers.

Customer spend analysis

Once the product (e.g.: credit card) is sold the next thing one needs to do is to see that spends are happening. Based on analytics and metrics customers can be sent mailers on the product which they plan to buy. Based on segments, customer-centric offerings are to be offered. Each customer has their own liking and disliking and proper planning and right time to offer plays an important role here. So this will avoid unnecessary mailers/calls to be made to get the customer to spend.

Customers normally tend to ignore mass mailers and emails which are sent on regular intervals as they feel these are junk. It also important to determine the best channel which the customer like their communication to reach them. Valuable resources and time is saved and also frees marketing resources to concentrate on other customers and plan for newer programs.

Customer-specific rewards

Rewards is another area wherein based on the customer profitability, the points/offer/cash back is rolled out. Customers with higher profitability will get higher rewards thereby inducing them to spend more. This shows that rewards can be customer specific than product or organization specific.

The more value the customer gets in, the more options to accumulate rewards. This will go a long way in targeting customer specific rewards schemes while keeping the relationship and marketing costs in mind. The one size fits all concepts don’t fit in here and this has to be customer centric one with customer segmenting playing a role in identifying which segment wants what and when.

Retention management

Customers tend to compare products/service and competitors are always on a prowl to grab such an opportunity. They will be looking at better offers from others and tendency to attrite is very much there. Here it becomes important that proper models/metrics are in place to see that the profitable customer is not allowed to attrite and if signs of attrition are known in advance, the right methods are used to intervene at the right time to see that the customer is retained.

Customers tend to compare products/service and competitors are always on a prowl to grab such an opportunity.

The point to note here is that timing also plays an important role. When to intervene to save a customer from canceling the relationship and what best to offer without compromising on the costs is important. Working on future profitability of the customer based on their past spends can help in coming up with the right kind of offers. Customers not profitable can be allowed to attrite but it should be known that they be kept in touch so that in future if the bank comes out with a product which it feels can be targeted at that segment, they can be brought back into the system at minimal costs.

Holistic approach

Proper customer segmentation needs to be done to see whom to retain and what product to be sold and when is crucial. The channels to be used to target a customer and how to do it with the least amount of costs plays an important role in increasing the profitability and bringing value to customer. Using the right customer-centric strategies with help of latest systems we can slice and dice relevant customer data and enable institutions to ensure and expand customer profitability.

Disclosure: The opinions expressed herein are my own and do not reflect those of the company

Girish P B
TCS
Girish is a Consultant with expertise in Retail Banking(Cards & Loans) and has extensively worked in the areas of People Management, Operational Management , Contact Centre Management-Voice & Non-Voice, Client Servicing and Relationship Management.

3 COMMENTS

  1. Does anyone have any views on segmentation of call centres and whether this does indeed improve the performance of a callcentre if it works of a segmentated database? I am not entirley sure that is does – but I want to prove that is does!!! Sometimes I believe that it over complicates matters. Is there any stats to prove that segmentation actually works… I would love to speak to someone regarding this as I want to propose this to my work but I need facts to back it up and I can not find anything anywhere

  2. polite behaviour and quick attendence to every customer preference to given to lower starta of people or urgent needed customer also to businessman whos time is presious and for bank deposit from lower intresit seeking customer like casa customer who is profitable for the bank makes
    banking services best amongest the the compititiors and best suits to
    customers

  3. Could you please let me know where can I get the data regarding the demographic and psychographic factors of a customer, this would be very much useful for my academic project.

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