Open anyone’s wallet these days and you’ll probably find it’s stuffed full of credit and debit cards, and a handful of loyalty cards too from airlines, supermarkets, DIY stores and all manner of other service providers.But try to find a reward or loyalty card relating to a person’s mortgage and your search could be protracted as mortgage providers have done little to encourage loyalty among their customers. But this looks set to change. This year has been hailed as the year of the customer. Research indicates what has long been predicted is finally starting to happen – a larger proportion of firms’ marketing budgets are being spent on retaining existing customers than acquiring new ones. The numbers suggest 53% of the total marketing budget is now targeted at existing customers. If this is true the acquisition of customers is becoming less of a goal than their retention. Perhaps at last lenders have come to appreciate the theory that increasing retention by as little as 5% can boost profits by as much as 95%. To date, too many mortgage companies have relied on discounts as incentives. These are followed by price increases to boost profits. And these incentives have nearly always been offered to new customers rather than existing ones, causing the latter to feel undervalued. This causes frustration with providers and leads to easier decisions to migrate to competitors. While there was the ability to add new customers relatively cheaply, many brands did not tackle the tougher questions of how to keep customers happy. A recent change in the media landscape has exacerbated this situation. No longer can companies target prospective customers as cheaply as in the past. It used to be the case that 53% of ABC1 men could be targeted by advertising in the former News at Ten ad breaks. Aside from the fact that opportunity no longer exists, dedicated news channels attract nothing like the percentage of the desired audience they used to. Consumers’ media habits have changed dramatically in the past few years. The explosion in the number of TV channels, the huge rise in the number of internet users and increased time sensitivity of consumers have contributed to the costs of acquiring customers. The internet allows consumers to gather huge amounts of information about mortgages, the rates available and the pros and cons. It also allows mortgage providers the opportunity to disseminate vast amounts of information succinctly, quickly and relatively inexpensively. But consumers have to opt into receiving information via email, and detailed and complete lists are thin on the ground. Mortgage companies should look at other industries to see how they have been able to stem the attrition rate of customers. For example, the award-winning campaign by advertising agency VCCP for mobile network company O2 is all about highlighting the benefits of remaining a customer, while the amusing Nationwide campaign is equally targeted at existing customers. Michael Sugden, managing partner at VCCP, says retaining customers is cheaper that acquiring them. In the mobilenetwork market where customer churn of 50% a year is common,this is particularly relevant. But marketing budget realignment will only reap the desired rewards if companies are serious about taking a holistic approach to retaining customers. The message of reassuring existing customers that they have preferential rates over new customers will fall on deaf ears if the service element fails to reflect the image of the brand. Consumers, while exceedingly price sensitive, react positively to better service. Consumers will stay loyal only if suppliers provide an integrated platform of offerings and service that reflect the projected brand image. Too often the reality of companies is a pale imitation of their supposed image and this leads consumers to migrate. To stem the tide, companies need to spend more of their budgets on retaining consumers with a range of initiatives that are not all price led. For example, they could develop programmes that produce real insights into behaviour and buying patterns. Tony Clarke, global director of retention and loyalty at specialist agency ICLP, says initiatives such as reduced interest rates for first-time buyers or new customers over and above what existing customers are offered has encouraged customer churn. Offers of this type are disincentives for customers to stay put. Some finance companies, such as Abbey, are addressing this problem. And ING Direct is running a promotion for existing customers that offers them a higher interest rate for additional savings than that available to prospective customers. Banks and other mortgage lenders are looking at many ways of differentiating their offerings from their competitors. While the allure of cheap money still forms the basis of many promotional campaigns – discounts on the base rate and fixed terms – initiatives such as money off and savings offers are beginning to creep into the marketplace to ensure loyalty. For example, with the proposed introduction of Home Information Packs next year many lenders are already looking at providing free HIPs – thought to be worth anything from 600 upwards – to current borrowers as incentives to remortgage with them on their new properties. The old leaky bucket model of topping up with new customers to replace lost ones is no longer viable. The mass media is so fragmented that it is prohibitively expensive to target certain audiences and competition in the marketing arena has become fierce. Companies are being forced to redress the balance by marketing more positively to their existing customers. While I applaud this change in emphasis away from chasing one’s tail in trying to acquire new customers, often to the detriment of existing ones, there is a long way to go before firms can claim to truly understand and appreciate loyalty.
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