Why Financial Institutions Are Focusing on Consumer Loyalty Over New Business Acquisition

Financial institutions spend thousands to tens of thousands of dollars every year on attaining new consumers (an average acquisition cost of $200 per new consumer). However, in recent years, consumer habits have changed for a multitude of reasons, and financial institutions are starting to follow a new trend of focusing more time—and money—on building relationships with existing consumers. This trend of “dancing with the one who brought you” indicates the need to build consumer loyalty with those who have engaged with your brand. Why is this trend changing for financial institutions, and how can you capitalize on it to increase revenue?

Focusing on Existing Consumers for Revenue

We recently published an Ultimate Guide to Member Retention in a Tough Market, in which we gave statistics about the importance of existing consumers. The fact that it costs five times as much to attract a new customer than it does to retain current consumers should be enough to convince financial institutions to put time and budget into building consumer loyalty. Aside from the cost of attracting a new consumer, increasing member retention by just 5% can grow a company’s revenue anywhere from 25-95%.

“According to an InMoment survey, 61% of buyers would make a special effort to buy from brands they trust, and 60% would make more regular purchases from those brands. It’s because when customers engage with businesses and form relationships with them, they are more likely to remain loyal to them (Gravy).” Because of this trust, they are more likely to spend increased money and add additional services from their existing relationships. In fact, current customers spend 67% more on average than those who are new to your business. This is certainly the case in retail but also with financial institutions, who are more likely to upsell existing consumers on both interest income and non-interest income products as long as they have a level of trust built with the consumer.

Consumers that feel understood and protected by their financial institution have a significantly higher lifetime value than those that are being offered the basic products and services that other financial institutions are offering. In a case study run by Franklin Madison, non-insured customers show an average lifetime tenure with the bank of 9.2 years, while consumers who received complimentary or paid supplemental insurance along with their other offerings show 15 and 15.5 years respectively. The complimentary and paid supplemental insured customers extend the lifetime over the non-insured bank customers by 63% and 69.3% respectively.

By retaining consumers for 63% longer, revenue increases for the company without having to spend the additional amount to attract new consumers.

Why Consumer Loyalty Matters More Now Than Ever

Focusing on existing consumer loyalty may seem like common sense, but the fact is, it is proving to be more important now than ever. This is showing itself in the trends of banks and credit unions all over the country as many shifts are made in the market that make the new focus necessary.

What has changed?

You’re Not the Only Game in Town

If there’s one thing that has changed in the past few years, it’s that consumers have options—a lot of them. Banking options have increased exponentially with the improvement of technology, which means financial institutions need to work to compete even harder to gain consumer loyalty.

Since the cost of gaining new consumers is higher than retaining current ones, rather than working harder and spending more money to compete for those new consumers, standing out as the place your current consumers should grow with may be a smarter focus.

You’re not the only game in town anymore, and people are in a position where they need to be more mindful about where their money is going, what they’re getting out of it, and whether they can trust the people and the institution. Convenience alone could be a driving factor for most current consumers, including location or the ability to do banking however they want, whether in-person or online. If your financial institution doesn’t offer this benefit or others they want, they’ll find one that does.

Consumers Want Simplification

The KonMari method of decluttering life has stemmed from a recent craving to simplify everyday life. Younger generations are on a path of selling everything that doesn’t fit in a suitcase and leaving home, which brings an overall desire to simplify life and all its processes.

Consider how many accounts the average consumer has. Just considering financial institution accounts alone, any one consumer may have multiple 401k accounts, a checking at one bank, a savings account at a local credit union, a shared account, maybe a business account, numerous insurance company accounts, a home mortgage with a different lender than their car loan, plus three or four credit cards with different issuers.

All of these accounts have different login information and financial experts, all of which need to be regularly checked and managed. The consumers who want simplification may choose a financial institution entirely on the basis of being able to combine as many of these accounts as possible. If your financial institution doesn’t provide an easy, one-stop-shop  for products your consumers value most, they will find one that does.

Consumers Want Deeper Relationships

Even though consumers want to be able to shop via the channel of their choice, they also want to build deeper relationships with the companies where they do business. This has stemmed from a need to trust the financial institutions that are housing their money and accounts, and although much of their business is done online, they want to make sure they can contact helpful people with whom they have built relationships and can handle their business swiftly and effectively.

These deeper relationships build trust, prompting consumers to be more comfortable doing more business with a financial institution and trusting them with more of their money, protection, and the protection of their families. When these deeper relationships turn into financial institutions offering products that address more of what consumers actually value, they feel seen and understood, causing them to be much less likely to go to a different institution.

Consider how patients feel each time they get a new doctor or specialist. Every time they switch, they need to explain their history and their needs, build a relationship, and decide whether they can trust this new doctor. The relationship between a consumer and their financial institution is similar; trust is necessary, and they are relying on that financial institution to be trustworthy, provide value, and protect their family.

The deeper a relationship a consumer builds with their financial institution, the less likely they are going to want to switch to a new one. “Businesses are three times more likely to sell a product to an existing customer than to a new prospect…The probability of selling to an existing customer is 60 to 70 percent. The probability of selling to a new prospect is 5 to 20 percent” (Web Marketing Pros). With these odds, focusing on consumer retention becomes over 40% more crucial.

What Do Consumers Want?

Part of building long-term relationships with consumers is becoming what they want so they want to stay with you.

Simplicity and relationship-building are crucial, but what else are consumers looking for in their ideal financial institution?

1. Education

Whether your financial institution is providing education for consumers to help them get out of debt or educating on options to help cover their family financially in the case of their untimely passing or accident, they want to be informed. The internet provides education everywhere now, but many consumers don’t know where to look and who to trust to get the answers they need—and they often don’t know what they don’t know. By providing education opportunities, you are showing your consumers that you want to help them grow financially and that you want to be the institution that grows with them.

2. Understanding and Personalization

Consumers want to be understood, which means that your marketing and products can’t be one-size-fits-all. By understanding which consumers are most likely to engage with each of your products and services, you can better provide detailed and personalized marketing to show your consumers that you do care about their financial well-being, along with the finances required to care for their loved ones and pets. Data is crucial for this understanding, and with the right data and the right utilization, you can easily take a list of consumers you may not have heard from for years and turn them into increased revenue—without even having to try.

3. Flexible Communication

Regardless of whether you are marketing to the consumer, communicating about their account, or helping to answer their questions, it’s important to meet consumers where they are. Some will want to be able to contact you easily by phone for help walking through processes or getting answers to questions explained thoroughly. Other consumers will want to speak in person, while some want the quick-and-easy answers online or to communicate via mail. By ensuring you are getting in front of your consumer where they most easily communicate and giving them options, you are telling them that their financial well-being can be on their terms rather than forcing them to conform to how you want to do business.

Combining Data-Proven Marketing With What Consumers Want

When your financial institution starts allocating budget to retaining existing consumers, it’s important to make sure you do it right. Increase your ROI and revenue by utilizing data-driven marketing campaigns and getting in front of consumers who are most likely to buy. By utilizing Franklin Madison’s 50+ years of industry experience and knowledge, data experts, and marketing proficiency, your existing consumers can feel more understood and protected knowing your financial institution wants to help improve their financial well-being.