An unprecedented shift in consumer behavior now demands a compensating shift in financial services strategy.
The rise of consumer technologies such as mobile, social and cloud have empowered consumers with on-demand information, real-time collaboration with other consumers and vetted customer opinions of financial services products, policy comparisons, service experiences and a host of factors which consumers use to determine what policy to purchase or where to put their money.
The rise in consumer technologies have contributed to an even bigger shift in consumer behaviors. Consumers — when evaluating retail banking or wealth management programs; life or P&C insurance policies; or capital market, asset management and even investment banking services — are more connected, informed, empowered and demanding.
This sea change in behavior has created a perfect storm for financial services organizations as customer expectations are rising, customers are readily sharing their bad experiences publicly and customers are switching their providers at a dramatically increased pace.
Financial services companies that fail to adjust their business strategy to this new reality will most certainly see their customer share and market share erode. But on the flipside, those financial service leaders that can transition from policy-centric to customer-centric business models, meet consumers in the channels they communicate, engage consumers in ways they find relevant and helpful, and find competitive differentiation in the areas most important to consumers, will increase their existing customer tenure, pick-up those customer defections from flat footed competitors and clearly be the beneficiaries of a changing market.
The Competitive Arena
Competitive advantage must be built around qualities that customers value and apply in their purchase decisions. The below diagram shares the top 9 factors that most influence customer acquisitions and retention in the financial services industries.
The challenge is to pick your battles. Nobody can or should attempt to win in every dimension. Instead, rank these factors relative to your brand promise, target markets and competitive landscape, and then craft the strategy with the unique mix of factors that creates differentiation and competitive advantage. And remember, that advantages must be relevant, measurable and unique to be competitive advantages.
Customer Experience (CX). I focus on this first because it’s become the newest battleground for customer retention, is one of only two sustainable competitive advantages and highly correlates to the most important objectives of the organization (i.e. revenues and profits). But it’s hard. Most financial services executives get the Customer Experience concept, but struggle to define CX in a way that it can be designed, implemented and measured on the financial statements. Customer Experience requires a lot of moving parts – Voice of the Customer analysis, customer segmentation, consumer personas, customer journey mapping and even changes to the business model, which cascade into changes to culture. Make no mistake, consistently delivering rewarding customer experiences which then drive performance measures is no easy task. But also recognize that unlike your locations, branches, products and almost every other consumer evaluation factor that can be quickly copied by your competitors, CX is one of only two factors that heavily influence customer acquisition and retention, and can’t be easily copied.
Financial services is a relationship-based industry and the CX is the top contributing factor to successful and long-term relationships. While CX and Customer Relationship Management (CRM) are often discussed as separate topics, it’s important to recognize that they are symbiotic and should be designed in tandem.
Brand. Brands have long distinguished banks, insurance companies and other financial services firms. However, while far from worthless, they are definitely worth less to consumers who often distrust or otherwise remain highly skeptical of financial services companies and consider other evaluation factors more relevant.
Brands are most valuable with complex financial services products. For solutions which are difficult to understand, consumers turn to credence qualities and consider trust and confidence inspired by the brand as a source of risk reduction.
However, for most other consumer decision making, the brand may add value, but will take a back seat to the particular product offerings under consideration.
It’s also important to recognize that the long time practice of building brands through repeated mass communications and advertising is in decline. Research shows that the high majority of consumers don’t trust vendor advertising and instead develop their impression of financial services companies from social media—be it the comments of friends, the commentary of complete strangers or the reviews on countless websites and social networks.
Having had a recent experience with a major bank that was deplorable, at best, I can readily concur with its tarnishing effect on the bank’s brand: http://customerthink.com/the-bofa-mortgage-service-experience-how-not-to-deliver-customer-value/
Conversely, we’ve seen banks endeavor to build their image through novel marketing and repositioning approaches: http://customerthink.com/td-banks-human-initiatives-marketing-strategy-or-marketing-tactic-powerful-marketing-success-or-expensive-marketing-radar-blip/
I’d add that, to address the changing landscape of retail banking, and also to make certain that all of the 9 influences you identify are appropriately covered, banks would do well to reassess how they approach customer experience research: http://customerthink.com/why-customer-experience-research-has-morphed-focus-on-change-from-cognitive-and-rational-to-emotional-and-relationship-driven/
Finally, as a general observation, banks are other financial services companies have been far more reactive than proactive, fairly commoditized and non-innovative where customer experience and branding are concerned: http://customerthink.com/becoming-more-customer-centric-in-2015-learning-to-take-insightful-stock-calculated-risk-and-positive-action/
Great first hand experiences and supporting examples. Thanks for sharing Michael.