Why financial institutions are focusing on customer loyalty over new business acquisition
Sponsored by Franklin Madison
Financial institutions spend thousands to tens of thousands of dollars every year on getting new consumers (an average acquisition cost of $200 per new consumer). However, in recent years, consumer habits have changed for a multitude of reasons, and financial institutions are starting to follow a new trend of focusing more time—and money—on building relationships with existing customers or members. Why is this trend changing for financial institutions, and how can you capitalize on it to increase revenue?
Focusing on Existing Consumers for Revenue
Our recent article, Ultimate Guide to Member Retention in a Tough Market, discusses the fact that it costs five times as much to attract a new customer than it does to retain current ones. That figure alone should be enough to convince credit unions to put more time and budget into building member loyalty. Aside from the cost of attracting a new consumer, increasing customer retention by just 5% can grow a company’s revenue by more than 25%.
The more trust a customer has in a financial institution, the more likely they are to add additional services to their existing relationship. In fact, current customers spend 67% more on average than those who are new to your business. This is certainly the case in retail but also with financial institutions, which are more likely to upsell existing customers on both interest income and non-interest income products so long as they have built trust with them.
In a bank case study run by Franklin Madison, non-insured customers show an average lifetime tenure of 9.2 years, while customers who received complimentary or paid supplemental insurance along with their other offerings show 15 and 15.5 years respectively. The complimentary and paid supplemental insured customers extend the lifetime over the non-insured bank customers by 63% and 69.3% respectively.
By retaining customers for 63% longer, financial institutions can increase revenue without having to spend an additional amount to attract new consumers.
Why Consumer Loyalty Matters More Now Than Ever
Focusing on boosting existing consumer loyalty may seem like common sense, but the fact is, it is proving to be more important now than ever.
What has changed?
You’re not the only game in town. Banking options have increased exponentially with the improvement of technology, which means financial institutions need to work even harder to gain customer loyalty.
The cost of gaining new customers is higher than retaining current ones; so rather than working harder and spending more money to compete for new consumers, standing out as the place your current customers should grow with may be a smarter focus.
Consumers want simplification. Most consumers want simplification because of the large number of financial accounts they typically have. If your financial institution doesn’t provide an easy, one-stop shop for products your customers value most, they may find another one that does.
Consumers want deeper relationships. According to Web Marketing Pros, “Businesses are three times more likely to sell a product to an existing customer than to a new prospect…The probability of selling to an existing customer is 60 to 70%. The probability of selling to a new prospect is 5 to 20%.” With these odds, focusing on customer retention is more profitable in the long run.
What Do Consumers Want?
Part of building long-term relationships with members is offering what they want so they want to stay with you.
Simplicity and relationship-building are crucial, but what else are members looking for in their ideal financial institution?
1. Education. Providing opportunities to learn can show members you want to help them grow financially and that you want to be the institution that grows with them.
2. Understanding and personalization. The right data and using it effectively aids in understanding which members are most likely to purchase products. Using it to personalize marketing helps show your members that you know them. It can turn a list of members you may not have heard from for years into satisfied consumers and increased revenue.
3. Flexible communication. By giving your members a variety of communication options (such as digital, social, mail and phone), you are telling them that their financial well-being can be on their terms rather than forcing them to conform to yours.
Combining Data-Proven Marketing With What Consumers Want
When your credit union starts allocating budget to retaining existing members, it’s important to make sure you do it right. Increase your ROI and revenue by utilizing data-driven marketing campaigns to get in front of the consumers who are most likely to buy.
Brittany Ferrara researches, writes and strategizes promotion of long-form content for Franklin Madison, a CUES Supplier member based in Franklin, Tennessee. She also creates content to aid in financial health education for Franklin Madison partners. Ferrara graduated from Kent State University with a Bachelor of Arts in English and acted as marketing manager and content manager in her previous positions for more than 10 years, including owning her own content marketing company. By utilizing Franklin Madison’s 50-plus years of industry experience, data expertise and marketing proficiency, you can engage your existing consumers, making them feel valued and protected by your financial institution.