Opportunity for Interest

Study shows potential of CRM for retail financial services Forget the Euro. In finance, CRM is the real new currency to watch.

A new study shows that in the retail financial services sector, nontraditional companies like credit unions and investment firms are leading the way when it comes to building relationships and delivering customized products and services – factors crucial to prospecting for and retaining customers.

The study, “Customer Relationship Management Confronts the Financial Services Crisis,” is a joint project of Peppers and Rogers Group and Harrison, NY-based marketing research firm Roper Starch Worldwide.

In August 2000, 1,603 U.S. adults were surveyed. The data, says Jim Fouss, vice chairman of Roper Starch, is projectable to 103 million U.S. households, including 23.5 million with incomes of $75,000 and over. Findings were weighted by gender, age, region and home ownership.

“The results demonstrate that there is tremendous opportunity for commercial banks and other financial institutions to fortify their customer bases and generate more profits,” notes Fouss. “By not developing meaningful relationships with customers and providing them with the best possible customer service, financial service providers in the U.S. are losing close to $700 million a year in profits.”

As Fouss points out, the financial implications are impressive. Using a conservative average annual profitability per household for U.S. retail banks of $100, a reduction in attrition of 9% represents over $700 million in incremental profits for all U.S. households with accounts. If an individual financial institution with 20,000 customers can reduce attrition by 9 percentage points with the help of CRM, profits could be increased by $180,000. For similar firms with an average household profitability of $500, that increase leaps to $900,000.

According to the survey, generally one-third or fewer consumers rate their primary financial services provider as “excellent” on any one aspect of CRM. Overall, the financial services industry rates best in regard to making customers feel their business is appreciated, but worst at anticipating customers’ needs.

“The sweeping shift in customers and capital appears to be the direct result of many retail financial services institutions’ inability to deliver anything beyond traditional, one-size-fits-all customer service,” says Don Peppers, partner, Peppers and Rogers Group.

A high level of CRM has a dramatic impact on customer loyalty, according to the study, which shows that retail financial institutions that treat consumers as individuals are significantly more likely to retain their best customers and increase overall business. One in four consumers (26%) who rate their primary financial service providers as poor on relationship management say they are likely to switch away one or more deposit products over the next 12 months; only 1% of those who rate their primary provider high on CRM say they are likely to switch.

Financial services institutions with a high CRM rating from their customers are also likely to get more business from those consumers, 31% of whom said they’d likely purchase one or more products or services in the next 12 months. In contrast, only 15% of customers citing poor relationship management said they’d likely only increase their business with their primary financial provider.

In affluent households with annual incomes over $75,000, more than one in five consumers (22%) rate their providers as poor when it comes to CRM – and they’ll likely switch at least one product over the next year. But only 5% of affluent consumers who gave their providers high CRM marks said they’d likely make such changes. And of the affluent who rated providers favorably in CRM, 22% indicated they might boost their business with those firms; only 8% of the affluent who felt they had been the recipients of poor CRM indicated they might add to their business.

Superior customer service combined with CRM gives financial institutions a strong competitive edge, according to the study. Over half of consumers (55%) who rated their primary financial institution high on both service and CRM said they were “very likely” to consolidate their business with one provider. When just one of those attributes was rated high, however, only 44% said they would consider consolidation.

Among the affluent, investment firms ranked the highest, with an average CRM score of 6.9 on a 10-point scale. Credit unions were next, with 6.5, followed by mutual fund firms (6.0), community banks (5.9) and commercial banks (5.7). For consumers overall, credit unions scored 6.6; community banks, 6.1; and commercial banks, 5.7.