CUSTOMER IGNITION

The Case for Customer Intimacy

A fundamental shift in consumer behavior and sentiment is occurring that is going to impact financial services for the foreseeable future. The downturn and continued uncertainty in the financial markets are forcing consumers to make decisive lifestyle changes and to adopt new values.

Retail financial services firms such as banks, insurance companies, and brokerages face the steepest uphill challenge. Unsure of whom to trust, consumers have become more skeptical and discerning about the financial products and services they choose. Yet to date financial services firms have done a poor job at re-establishing confidence with its customers.

Despite the fact that financial services media spend increased annually an average of 5.26% over the past five years, retail financial services firms continue to struggle with effectively implementing strategies and programs that put customers at the forefront of decisions.

During times of positive market growth, organizations can often survive and maintain market positions with imperfect strategy and execution, but limitations and flaws in strategy are becoming greatly magnified in the current economic downturn. Retail financial services firms are waking up to the fact that to compete in the future they will need to adopt a differentiated strategy, such as customer intimacy. It is the ability to understand and anticipate customer needs by developing internal mechanisms to deliver an experience that leaves customers feeling closer to the brand, increasing loyalty and ultimately long-term profitability. Customer intimacy is a strategy that offers a powerful new paradigm for retail financial services firms in the future.

This paper explores an approach for retail financial services firms to address this opportunity, the reasons behind it and some of the requirements to implementing this strategy.

The Case for Customer Intimacy

One powerful framework for analyzing strategic options was developed in the Discipline of Market Leaders in the early 1990s. In the book, the authors outlined three basic "value disciplines" that can create customer value and provide a competitive advantage. They are operational excellence, product leadership, and customer intimacy (see Exhibit 1).

Each strategic approach requires specific proficiencies that present potential benefits and drawbacks (please see Exhibit 2). The framework is built on the premise that an organization should excel at only one discipline while being proficient at the other two. Attempting to excel on more than one dimension will likely result in an organization not excelling at anything, leaving it stuck in the middle without a clear differentiator, and prone to failure.

Several dimensions of the retail financial services industry make a customer intimacy strategy the best option. Retail financial services firms already count with sufficient customer bases and touchpoints to provide a good foundation for developing customer intimacy. Customers expect more of their financial services providers and are open to a closer relationship if approached the right way. Yet recent research shows that almost 70% of customers don’t feel valued by their retail banking institutions, and more than 50% of insurance policy holders said policies are not tailored to meet their needs. This is a huge opportunity for diversified financial services firms in particular. Capturing this opportunity, however, requires dedication to implement changes that affect the entire organization.

Exhibit 2
Pros and Cons of Value Disciplines



While customer intimacy offers an opportunity for many retail financial services, it may not be the right fit for all of them, especially if there is an existing product or operational advantage that can still be exploited. But as customers become more empowered, as local markets diversify further, and as technology life spans become shorter, more firms will need to consider shifting towards a customer intimacy strategy.

Achieving Customer Intimacy

For retail financial services firms to successfully pursue a customer intimacy strategy and achieve a defensible position in the market, it will need to excel in the following areas:

1. Shift focus and power from product lines to customer relationships
2. Make customer insights a primary driver of your marketing strategy
3. Focus on holistic customer-centric messaging
4. Build a seamless and differentiated customer experience across channels and touchpoints

While these four elements are critical to achieving transformation, how a company implements this change should differ based on each organization’s unique characteristics.

1. Shift focus and power from product lines to customer relationships

Within retail financial services firms, areas such as product, sales and finance can often times exclude or marginalize marketing managers when making decisions that affect customers. These groups can exert greater influence over how products are to be promoted since they typically control the majority of the funding for marketing campaigns and programs. This can lead firms to emphasize internal benefits such as cost savings or product attributes that customers may not want or need.

Following a customer intimacy strategy requires placing customer needs before those of the organization but firms should approach customers with a holistic view. That means the entire organization must prioritize customers, not just marketing. To achieve this, power has to be shifted away from product groups: this creates the opportunity to ensure the company can offer customers the “best” products for their needs – not just the ones they created. What is lost in the “we build better products” mentality of product managers is in many cases these products are simply copies of existing offerings in the market. Many in-house developments simply increase costs to a thinning bottom line and provide negligible strategic advantage.

Making this transition is the first step in focusing more on developing long-term relationships, which is the currency of value as you “architect” the best solutions for each customer.

Potential Challenges

• Historic power dynamics are deeply rooted and hard to break
• Retail channels such as branches or agent offices are historically seen as a source of tactical execution versus enterprise strategy
• Other areas wield financial clout that can influence marketing strategy and tactics
  • Limited customer feedback mechanisms exist within product development cycle

Getting Started

• Assess organizational alignment with particular emphasis on marketing
  • Conduct research among internal stakeholders and external constituents
  • Benchmark findings against performance metrics, including customer satisfaction, accounts per household, product penetration, attrition, etc
  • Identify stages where greater internal coordination and integration is required
• Develop framework for assessing your product development decisions

2. Make customer insights a primary driver of your marketing strategy

Developing a customer intimacy strategy means placing customers at the forefront of decisions. Customer insights should be the key input to inform not only marketing strategy, but also other critical business areas, ranging from customer care to financial investments. One common misstep many companies make is to forgo gaining sufficient customer feedback and market research, which has been shown to be one of the most common pitfalls of new product and services failures.

In order to implement this change, retail financial services firms must first identify what insights are needed, how to effectively collect them and how to act upon them to deliver more value to customers and ultimately to the business. One way to solve identification and collection issues is by adopting the use of financial intelligence tools that provide localization capabilities. Such tools provide better inputs to make more informed decisions about customer behavior.

But implementation is just as critical as insight. Organizations that excel at customer intimacy have developed mechanisms in order to effectively respond to customer issues. Employees who are in direct contact with customers, be it branch staff, care representatives, or sales agents, must be empowered to address and resolve customer issues and not worry about getting bogged down in bureaucratic standard operating procedures.

Underlying all of this must be shared common goals. Without aligning topline goals and incentives, it is highly unlikely that distinct areas will harmoniously collaborate and function to serve customers in unison. Too often organizations face clashes between functional areas, such as marketing and customer care, that block progress towards a better service model. While marketing’s goal may be to retain and cross-sell customers, care may be concerned with meeting its own metrics, such as controlling average handle time per call rather than addressing and resolving customer problems. These misalignments can cause internal tension, lead to inefficient use of limited resources, and ultimately result in poor overall performance.

Potential Challenges

• Aligning areas around common goals requires senior corporate leadership buy-in and active participation to ensure compliance
• Alignment can also be difficult to achieve if product groups are setup to work independently of one another
• Developing incentives that roll up to customer centricity may require significant changes upfront that may not be feasible to enact

Getting Started

• Evaluate quality of customer insights
  • Map out where and how insights are collected, identifying gaps and redundancies
  • Rate relevancy of insights against customer priorities as well as corporate goals
• Determine degree of responsiveness among customer facing employees
  • Conduct customer research to understand perceptions and needs as well as what hurdles exist for greater customer intimacy
• Identify were your company can provide innovative products and services to meet customer needs
• Analyze alignment of goals and incentives across business versus most important areas as identified by customers

3. Focus on holistic customer-centric messaging

One of the first elements that retail financial services firms should adjust in developing a customer intimacy strategy is messaging since it’s how customers and prospects get to know a brand. More and more companies have discovered that uniform messaging is not as effective as tailored communications. Customers respond better to messaging that’s more relevant to them, and retail financial services firms need to understand how to achieve this.

A critical component to effective messaging is having an applicable customer segmentation scheme. For example, a retail financial services firm might use a life-stage approach, one that focuses on the changing needs of customers for retail financial products and services over their lifetime. A messaging platform built around life-stage segments allows for more natural conversations, facilitates a relationship marketing approach, and ultimately allows a retail financial services firm to better understand customer needs and develop the right solution for them. By overlaying additional layers of information such as investable assets or race and culture, retail financial services firms can break down segments into sub-segments if needed.

For many retail financial services firms, adjusting their messaging to be more customer-centric also requires developing communications delivered by channel partners including agents and resellers. Consistency of message and delivery is vital across all mechanisms and channels to achieve a new position in the minds of new and existing customers.

Potential Challenges

• Many retail financial products are said to be sold rather than marketed to customers, which places greater emphasis on the sales process rather than building customer relationships, which makes it easy for customers to be tempted to shop around
• It will take significant time and training to change the mentality of sales channel(s) to focus on marketing to customers based on their needs and not just selling for selling sake
• Adjusting customer segmentation can have significant repercussions; it may require marketing mix, channels and touchpoints to be re-thought or re-tooled

Getting Started

• Assess your customer segmentation scheme based on customer research conducted
  • Map out how changes to segmentation may impact media, channels and touchpoints
• Review your creative advertising agency’s strengths and determine whether it will be able to perform well with potential changes in messaging and segmentation strategy
• For channel partners such as agents:
  • Analyze changes to incentives in order to drive desired behavior
  • Conduct training to reinforce the new communications strategy

4. Build a seamless and differentiated customer experience

Focusing on customer intimacy and ultimately customer loyalty requires the customer experience to support this relationship. Everywhere a customer looks the company needs to be accessible, easy, knowledgeable and seamless. This will likely be the area of greatest pain for many retail financial services firms due to the legacy of their operations, business constructs, and various technology hurdles that exist.

Take the seemingly simple task of writing an insurance policy for a customer. Ignoring the product complexities of auto versus home, channel complications potentially still exist– was it requested online or at an agents office? Was the agent independent or exclusive? Literally hundreds of business rules exist for selling a new policy, which causes delay or hardship to customers as the complex process tracks through to completion. This may be why only USAA was ranked as having a “good” customer experience index in a recent Forrester study.

In addition to operational issues, retail financial services firms will need to create unique surprise and delight moments throughout the customer experience on which to differentiate.

Potential Challenges

• Customer facing channels like customer care and authorized agents often control many of the touchpoints, making it difficult to ensure the brand experience is consistent
• Developing customer experience requires aligning cross-functional areas to focus primarily on resolving issues and serving customers not response times, conversions, and ROI
• Hodgepodge of legacy systems makes integration difficult and keeps different groups from truly sharing information and getting on the same page

Getting Started

• Map the customer experience and understand the behind-the-scenes business processes invisible to the customer
  • Create system to categorize touchpoints, e.g. lifecycle, direct contact, retention, etc
  • Rank all touchpoints in priority order of importance to customer and organization
  • Assess backend systems for ability to integrate and present a single customer view
• Investigate potential conflicts across customer facing channels and look to streamline systems and processes

Achieving Transformation

Getting back to the basics has become a mantra for many retail financial services firms. For some it’s a necessity; cut backs on spending have forced marketing teams to limit themselves to only essential programs. But for those organizations that pursue cost cutting for too long may miss the opportunity to grow their business.

Strategy is about trade-offs, and by choosing the customer intimacy strategy a retail financial services firm is choosing to re-orient the business from products to customers, a power shift internally that should not be trivialized. While the changes needed to execute this strategy may not be easy, they have the potential to be very profitable through increased sell through rates, lower attrition, etc Those financial services firms that seize this opportunity and master the customer intimacy strategy are likely to be well positioned for years to come.