The credit crunch has made customer retention more important than ever. Statistics show that it is typically five times cheaper to retain a customer than acquire a new one. Furthermore, a single disgruntled customer may tell up to 12 other people about their concerns, thus damaging your brand.
But loyalty is not just about customer satisfaction. Lenders have to realise that many of their customers can no longer afford to be loyal.
Furthermore, knowing your customer is not just about preventing money laundering and reporting suspicious transactions – there are strong commercial as well as regulatory reasons why a business should strive to know its customers as well as it can.
Nobody wants to lose a customer but when it happens a firm can learn from the experience. Customer service staff should ask departing customers why they want to move their business to alternative providers.
As a lender, you’ll have a few fortunate customers who are in a position to pay their debts off, but most will be looking for a better deal and many are likely to already have an offer on the table from one of your competitors (or a range of options from a broker).
You might contest that the deal on offer is not better for them and that you can match or even better it, but you may never get the chance to have this conversation. All too often, a customer has already made their mind up about moving their business and might even give you an untruthful reason for leaving.
The only way of achieving an effective customer retention programme is by proactively managing customer relationships while continually reviewing your customer database for opportunities and issues.
Such a programme should be built on an analysis of accurate historical information such as customer behaviour, account activity, source of business and demographic trends. This information is likely to be stored in system databases and tables that have been designed and optimised for transactional processing, making a data warehouse an essential addition to an organisation’s infrastructure.
A well designed data warehouse provides an efficient overlay to existing data structures that could span multiple systems, enabling you to make intelligence out of data.
Just as importantly, a robust data warehouse can be structured to support the demands of your business as it changes and grows, particularly in key areas such as arrears management.
Data warehouses are typically populated by periodically synchronising data from transactional databases in a process often referred to as ETL – extract, transform and load.
A data warehouse not only provides a comprehensive view of key business performance metrics but can support trend analysis and reporting on snapshots of data over specified periods of time. Analysing trends in this data will help you identify the likelihood of customers moving their business.
Of course, you need to identify the customers who simply move with the best offers but you also have to be able to differentiate between those who want a better deal and those who need one.
Not all customers who are feeling the pinch will necessarily default on their repayments, and these may not even be picked up by pre-delinquency tests. It is these customers who need to be managed with special care.
Similarly, customer retention is as much about knowing which customers you’re happy to lose as those you’re keen to keep.
As defaults increase there will inevitably be some customers who you won’t be unhappy to see leave, as they represent too great a risk to your portfolio. Solid management information will allow you to make decisions based on hard evidence. Then you can take appropriate steps to deal with these customers fairly.
Stringent measurement must be put in place so future activity can be predicted. Trend analysis should allow you to identify the customers who are likely to move before they even consider contacting the competition.
Successful involves this analysis continually evolving to cater to customers’ changing demands.
In future, the businesses that win through will be the ones that know their customers better than the customers know themselves.