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Developing Effective Customer Retention Programs

10/29/20 – Larry Brown

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Co-authored by Mac Franzen, Staff Accountant

In the current competitive banking market, it’s important to recognize that customers need more than the typical products and usual services as an incentive to choose your bank over another. What does your bank have that others don’t — whether it’s a personal touch, customized advice and solutions, or a history of local community service?  In other words, what strategies can you implement to help attract customers — and retain them over time?

Analyze your customers with a core deposit study

A good first step is to identify your core deposits and develop an understanding of customer behaviors. Which depositors are loyal, long-term customers? Which depositors are motivated primarily by interest rates? A core deposit study can help you distinguish between the two and predict the impact of fluctuating interest rates on customer retention. Banking regulators have been strongly encouraging banks to conduct these studies as part of their overall asset-liability management efforts.

Core deposit studies assess how much of your bank’s deposit base is truly interest rate sensitive by examining past depositor behavior. They also look at factors that tend to predict depositor longevity. For example, customers with multiple banking products (such as checking and savings accounts, mortgages and auto loans) and higher average deposit balances are less likely to switch banks.

Encourage relationship building

To build customer loyalty, it’s critical to ensure that customers are engaged. According to research by Gallup, engaged customers are more loyal, are more likely to recommend the bank to family and friends, and represent a bigger “share of wallet” (that is, the percentage of a customer’s banking business captured by the bank).

Recent retail banking studies show that fewer than half of customers at community banks and small regional banks (less than $40 billion in deposits) are actively engaged, compared to a smaller percentage at large regional banks (over $90 billion in deposits) and an even smaller percentage at nationwide banks (over $500 billion in deposits). That’s the good news. The bad news is that 50% of customers at online-only banks are fully engaged.

So, how can community banks do a better job of engaging their customers in order to compete with online banks? The answer lies in leveraging their “local touch” by knowing their customers, delivering superior service, and providing customized solutions and advice. And to do that, banks must ensure that their front-line employees — tellers, loan officers, branch managers and call center representatives — are fully engaged in their jobs.

Encouraging employees to engage with customers has little to do with competitive salaries and benefits. Rather, it means providing employees with opportunities for challenging work, responsibility, recognition and personal growth.

Incorporate online tools

An increasing number of customers — Millennials in particular — use multiple channels and devices to interact with their banks. These include online banking, mobile banking applications and two-way texting. To build loyalty, banks should enable customers to use their preferred channels and ensure that their experiences across channels are seamless. And don’t overlook the importance of social media platforms, such as Facebook and Twitter. Younger customers are more likely to use these platforms to recommend your bank to their friends and families.

Make your mark

Obviously, the best way to satisfy customers is to learn what they are seeking from their banking experiences and provide it as much as possible. A bank that identifies, and meets, current and potential customers’ needs is ahead of the game — and will generate a stable customer base. A true emphasis on the strategies outlined above should pay off in a profitable bottom line for many years to come.

For any questions or guidance related to financial institution accounting and advisory services, contact Larry Brown at lbrown@vlcpa.com or 800.887.0437.