Friday, July 2, 2010

Cross-Selling is Key to Bank Revenue Growth

As the banking world is shifting from a supply-side, product-driven environment to a demand-driven one, the focal point of this new model is the customer. As a result, banks are going to need to change their operating models to adapt and align to this new reality. Only then can banks deliver a truly innovative and compelling customer experience.

Part of this transformation will be to develop key performance indicators (KPIs) that measure long-term performance such as loyalty as well as shorter-term measures such as cross-sell effectiveness, customer satisfaction and household profitability. With as much as 30% of the bank's customer base potentially being vulnerable and 'in play' according to an Accenture survey of banking customers, banks must commit the resources needed for actionable customer segmentation, new pricing models, needs-based solutions and a way to reach customers effectively and efficiently to grow relationships.

As returns on equity have dropped precipitously, banks are now focusing on cross-selling to replace some of their profits and solidify relationships. In a recent Bloomberg Businessweek article entitled, Wells Fargo Pushes Cross-Sales to Replace Lost Growth, David Henry and Dakin Campbell discuss how the emphasis on cross-selling (which is not new) could be more effective at many organizations today since acquisitions by many banks have added millions of new customers to sell. For instance, Bank of America is hoping to persuade its 12 million customers to move funds to their newly acquired Merrill Lynch or for the Merrill Lynch clients to use more bank services. In addition, Wells Fargo is focusing on improving cross-selling at its Wachovia branches, where customers average 4.85 products per household compared to the much higher historical average at Wells.

As Stephen Steinour, CEO of Huntington Bancshares, said in a recent interview with analysts when asked about the importance of cross-selling at his bank, "there are not a lot of options". In fact, as the focus of the lead story in the most recent U.S. Banker magazine entitled Back from the Brink, Steinour and his team place cross-selling as the top priority at the bank, with a new CRM system being installed, additional employees being hired, Sunday branch hours being introduced, marketing spending increased and new incentive and measurement plans being put into place to reward customer relationship growth performance.

A number of banks I visit and clients of our company across the country have integrated cross-sell initiatives into marketing programs done quarterly, monthly or even daily based on customer behavior and events. Unlike the product-push promotions of the past, these programs leverage the modeled needs of the customer and flexibility of digital print to deliver messages to the customer that are based on their product propensity and recent activity. So, instead of promoting equity credit in September, many banks will be promoting a wide range of their services to individual segments of their customer base most likely to respond at a given time. Many of these banks are also leveraging all available communication channels (direct mail, email, phone, online banking, etc.) to support these efforts.

The key in all of these initiatives will be to make sure cross-selling is done for the benefit of the customer as opposed to simply reaching desired metrics. As many banks found out in the past, profitability is not automatically enhanced with an additional product sale. The focus needs to be on finding the correct solution for customer's needs which, in turn, will lead to an expanded relationship in dollars, services, and share of wallet.

How is your bank balancing the investment in cross-selling vs. acquisition marketing? Has there been a shift to either strategy in the past couple years at your bank? How do you view the future of acquisition and cross-sales?

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