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last activity : 07 06 2010 20:18:04 +0000
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The concept of customer retention has been one of the most talked about subjects in the consumer finance industry in recent years, with many companies advocating the importance and benefits of an effective program. In spite of all the talk, how much progress has the industry really made in this area and is customer retention really a viable concept in such a traditionally volume driven industry?
The largest growth rates to occur in the emerging world, notably in Asia, followed by Eastern Europe, Latin America and the Middle East. Although North America and Western Europe are set to grow at slower rates than Asia, the absolute GDP increases will be higher in view of their size.
The few factors which will lead to growth in this sector are:
- Wealth accumulation: A shift is taking place away from labor-intensive production to more capital-intensive activity. Based on this development, we see a clear trend towards individual wealth accumulation that is likely to continue over the next decade, particularly in Asia. Wealth is expected to grow faster than GDP in developed countries.
- Equitization: This reflects the transfer of ownership of assets from government and private owners to public markets. The corporate sector will also increasingly rely on public equity financing. We believe that the underlying trend towards an increasing role of equity financing and equity investments remains intact.
- Retirement provisioning: In most developed countries will be confronted with major demographic shifts. Thus, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform especially urgent. Although each country will follow its own regulatory agenda, in general we see a gradual shift from public unfunded to private funded pension schemes.
- Securitization: Corporations are now frequently in a position to directly meet their funding needs by accessing the capital markets. This has driven the long-term expansion of corporate bond markets, replacing traditional bank lending services. At the same time, an increase in bank assets such as loans, mortgages and receivables has fuelled growth in the securitization of these assets, increasing the volume of asset-backed securities.
These are a few ways but the most important factor according to me is Customer Retention. This could be achieved by:
In the financial services industry, traditional models are being transformed to create a more customer friendly approach that allows for improved customer segmentation, alignment with the retention strategy and improved brand loyalty. Part of this transformation requires a level of channel integration not commonly achieved in the financial services market-place. To achieve this, an organization needs to take a customer view rather than an organizational view of their portfolio.
In considering retention strategies a company should go through a three stage process:
Level 1—Basic Retention Tactics: Most mortgage companies are here. They need to strengthen this foundation to move forward with a clear knowledge of retention economics and organizational focus. For companies in this category more advanced financial analysis can help drive future retention benefits.
Level 2—Multi Channel Approach: At this level, there is significant opportunity to improve results. Most mortgage companies have call centers and a website that do not realize their full potential. Measuring and analyzing the economics of retention (i.e., which types of customers are profitable and which customers are “at risk”) can help drive the organization to the right strategy and tactics to retain customers. Other examples of understanding retention metrics include understanding which investor programs or correspondents/ brokers are more supportive of retention efforts.
Level 3—Fully Integrated Loyalty Initiative: At present, a few telecommunications and financial services companies are here. CRM systems are underutilized because basic knowledge and business processes are not in place. However, companies are increasingly looking for ways to take advantage of the customer data that these systems are producing. The ultimate goal is to implement an end-to-end strategy that links customer intelligence, technology and financial results.
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