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Banking behemoth aims for mom-and-pop feel

Peppers & Rogers found that Bank of America's use of retention software helped it steal a page from its smaller competitors -- and the customer churn numbers prove it.

Retail banks are no strangers to the key formula of getting, keeping and growing their customer bases. Executives in this industry realize the competitive advantage that can be gained by forming deep relationships with customers. In response, banks continue to turn to devices such as retention programs to develop these valuable customer bases.

In many cases, small banks have been successful over the last several years because they've been close to their customers all along. They've had more consistency than larger banks -- the same platform of officers, for instance -- and tellers seem to stay for long periods of time. As a result, small banks are able to build solid relationships with customers, which in and of itself differentiates them from larger banks.

Bank of America, the third largest bank in the U.S. with customers in more than 20 states, is one large conglomerate determined to succeed with a small-bank approach to relationships.

The company utilizes Fair, Isaac's Strategy Science for Retention software to improve customer retention levels (Marketswitch is a provider of similar technology). Using existing customer data, customer service reps now present personalized, relevant offers designed to help predict both future behavior and the potential for increased profit over the course of the relationship.

Healthy results

The strategy, which began in November 2000, amassed impressive results in the bank's customer service retention unit over a one-year period. The unit handles 80,000 retention-related calls per month, and based on information from those customers:

  • Acceptance rates for offers jumped 33%, which led to a 5.6% increase in accounts saved.
  • Customer churn declined by 13%.
  • Account balances increased by an average of $45 per customer.
  • Seventeen percent more balances were carried at non-promotional annual percentage rates.
  • Annualized profit increased by an average of $9.65 per account.
  • Annualized finance charges increased an average of $4.93 for each account.

Bank of America is clearly positioning itself for continued success with its customers, and that's a good strategy. However, companies must pay special attention to their most "growable" customers -- those with the potential to increase revenue and become most profitable customers down the road.

Royal Bank of Canada (RBC), for instance, generates ROI from this type of strategy. RBC ranks customers by growth potential, then builds relationships with its most "growable" customers, to which it's able to cross-sell products and services. The financial-services institution, which serves 9 million customers, reported a 15% increase in the number of high-value customers from this type of strategy, over the past three years.

In terms of sheer numbers, especially for a firm with the scale of Bank of America, a substantial majority of customers would fit the category of a most "growable" customer. The way the bank will grow profits long term is by nurturing more people at the mid level to move up into the most valuable (and most profitable) category.


To read more articles like this one, visit Peppers and Rogers Group's Web site at www.1to1.com.

All materials copyright 2002 Peppers and Rogers Group - 1:1 Marketing.

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