At a time of frustration in relationship expansion, much of the blockage stems from flawed assumptions about customer needs categories and the stages of cross-sell.
As customer acquisition rates have plummeted, cross-sell success has increasingly become a swing factor in retail bank performance. Banks simply need to capture as much share of their customers’ wallets as possible. However, the quest to build revenues by selling more to current customers often manifests itself in very customer-unfriendly campaigns, product-oriented and fragmented on a channel-by-channel basis.
All too often, the wrong things are presented at the wrong time, even the wrong place, representing a significant misdirection of effort and resources.
Along with being ineffective, such efforts can be off-putting to customers, appearing haphazard or worse, irrelevant. This gives rise to the complaint among executives that “We are pulling all these levers but cross-sell isn’t improving enough.”
In many cases, much of the ineffectiveness traces back to a series of flawed assumptions about how customers buy products and how relationships evolve. For example, the purchase of a wealth-oriented product greatly depends upon the brand equity a bank has established with a customer. Trying to sell some form of wealth management to new customers before they have demonstrated any loyalty to their new checking account is not consistent with systematic relationship building.
Looking across the retail banking industry, there are six prevalent myths, or misunderstandings, that seriously degrade cross-sell performance (Figure 1: Myth vs. Reality in Retail Banking Cross-Sell). One misdirection is the use of narrow customer acquisition campaigns; another is overly-aggressive product push during the 90-day customer onboarding period.
A third cross-sell trap lies with non-checking customers, both in over-estimating the potential to steer them into cash management products and in missing early-stage sales opportunities. Fourth, high-value offers for revolving credit are often over-supplied to the best deposit customers, who tend to be highly liquid and have far less need.
Performance metrics are a fifth problem area, exacerbated by the myth that the total count of products and services provides adequate guidance on cross-sell success. Sixth, cross-sell expectations have been overly tied to multi-channel sales fulfillment.
The urgency to improve cross-sell and gain profitable share of wallet is undeniable. A key challenge for bankers is how to advance the cross-sell agenda at a time of channel transition, data proliferation and a larger embrace of customer analytics. Cross-sell is not a new objective. However, with the slowdown in new customer acquisition, getting cross-sell right is now a major priority. Understanding how customers establish and expand relationships is fundamental to improvements.
Acquisition and Onboarding
With targeted acquisition, the affluent and mass affluent segments are the most attractive deposit segments for branch banks and have the highest cross-sell potential. However, such customers only constitute about a third of the population.
In the quest for a sharper focus in the market, some bankers believe it might be best to narrow the appeal of general marketing messages so that a greater proportion of priority target customers will be attracted. In practice, however, a segment-tuned campaign typically does no better in eliciting responses from target customers than it does from the broader population as a whole.
Meanwhile, a focus on targeted acquisition ignores the importance of attracting the large volume of customers needed to help “pay for” the high fixed costs of the branch system. Even customer relationships that are unprofitable on a fully-loaded basis can at least contribute to covering fixed costs.
It is better to first get the basics right. Sweep a broad range of customers into basic cash management products that make sense for the customer, such as checking, and then later sort out and sell the most attractive follow-on options.
With onboarding, although it is possible to cross-sell additional products in the 90 days after a customer initiates a checking relationship, it is seldom highly productive. The truism that half of cross-sales happen in the first 90 days is driven by originations at the initial point of sale, right when the new customer relationship is beginning.
The more fruitful onboarding objective is to coax customers into fully using the products initially sold to them. Since the checking account is the product most customers buy first from an institution, the objective is to get customers to make their newly acquired accounts their primary “cash management” accounts.
The larger objective is establishing the bank as the primary cash management provider for a customer, not just checking but also savings, credit cards and sticky services such as online banking and bill pay. For an initial relationship, it is important to sell as many products within the cash management family as possible at the point of sale. One approach to accomplish this is to sell a cash management product bundle whose components can be selectively activated by the customer or, alternatively, promote relationship pricing benefits to drive additional sales at the POS.
The 90-day onboarding period then is the time for the bank to promote activation and usage of what ideally would be an initial family of cash management-related products and services, e.g. setting up direct deposits, online payments, automatic savings, debit and credit card usage, etc.
By building customer engagement in this way, the stage is set for a more informed offer of high-value products. The loyalty created by becoming a customer’s primary cash management bank opens up the best chance to deepen the cash management relationship, drive event-based lending and migrate customers to investment services (and insurance where relevant).
Single-Service and High-Value Prospects
With single-service non-checking customers, in this era of reduced customer turnover and acquisition potential, banks are desperate to more fully serve customers whose first — and often only — product relationship began outside of checking. These are people who become associated with the bank via a standalone product such as a home mortgage, an auto loan, a CD or other items.
Novantas experience indicates that it is an extremely tough proposition to convert such customers into core checking relationships. Even with today’s expanded data sources, response rates are typically less than 2% for direct marketing campaigns to stand-alone customers.
Having said that, there still are opportunities for well-prepared banks to cross-sell checking and household cash management at the point of sale for standalone products, primarily through the use of product bundles and relationship pricing. One example is a linked checking account sold when a home equity line of credit is sold, perhaps with a relationship discount. A second is a high-yield savings account sold with relationship benefits for active usage of a credit card account.
Turning to product marketing campaigns, many banks use purchase propensity and next-logical-product models that seem to highlight opportunities with well-heeled customers. These models make the credit departments happy because the “best” customers are typically defined as those holding high-balance deposit products. Unfortunately, they often have little need for credit.
This leads to oft-seen situations where HELOC and card offers are rained down on high-value households with little result. In this case, the trap lies in not making fuller use of the bank’s composite customer information to clarify household needs relative to cross-sell priorities. The tendency is still toward a series of product-focused, cross-sell campaigns, often with loose coordination at best, resulting in unproductive product push.
Metrics and Sales Fulfillment
With cross-sell performance metrics, there is a continuing perception that a simple summation of products, balances and services provides an adequate measure of cross-sell realization for a given customer or household. This type of math had its place when first introduced a decade ago, but does not consider the progression of the customer relationship with the bank.
A perceived “low” cross-sell count may actually represent above-average penetration for an early-stage customer relationship that has not progressed much further than cash management. Elsewhere a perceived “high” cross-sell count may actually represent good penetration of products in the cash management domain, but zero penetration in other needs categories.
A more customer-centric set of measures is needed, in which the penetration of cash management needs is first quantified and then the penetration of other needs categories is also measured. Ideally this is done through a customer lifetime value lens that prioritizes the highest-value cross-sell possibilities.
Turning to sales fulfillment, while trends in multi-channel banking are indeed profound, a perception has arisen that the ability to fulfill a sale in any channel is a priority. The thought is that any channel that can promote an offer should also be able to fulfill an account origination (especially PC online and mobile).
In turn, banks are funding myriad projects to allow customers to both start and complete applications across all channels. While this is clearly nice, it does not reflect how new-to-the-bank customers behave. Novantas research confirms that about two-thirds of consumers prefer to shop for a new checking relationship online, but that in practice, 85% to 95% continue to open their new accounts in the branch.
To be sure, established customers are much more likely to shop for and open simple savings, card or secondary checking accounts online. But again, seldom is there a need for cross-channel account opening capabilities.
Given the scarce internal technology resources available in many banks today, the returns to these ultra-flexible sales fulfillment efforts are dubious. This is a time when banks should be carefully studying the customer progression from online research and shopping to in-branch fulfillment. This particularly applies to the high-value cross-sell of more complex products such as wealth and/or mortgage products.
The main point in presenting these myths is that a number of practices and initiatives in retail banking need stronger grounding in the end-to-end customer journey.
There is a simple formula for cross-sell. Banks generally need to start by selling “cash management” products at the point of sale, assisted by product bundles and relationship pricing, and use the onboarding period to cement the primary cash management relationship.
The subsequent cross-sell of credit, investments, and insurance products needs to be based on triggers that predict customers’ likelihood to both buy and profitably use a product. Performance measurement should be structured around this journey.
With the benefit of familiarity and the study of account and channel behavioral patterns, the bank can begin to consciously manage the development of the customer relationship in ways that lead to higher cross-sell revenues, higher customer satisfaction and stickier relationships. To do this, the bank needs to determine: 1) which cross-sell outcomes are most desirable relative to customer needs; 2) the appropriate blend of channels, messages and offers for any customer; and 3) which customer interactions are critical in closing the business.
Along with vision, executives will need to bring a degree of skepticism as well, making sure that cross-sell goals do not fall victim to ingrained practices, conventional wisdom and popular perception. Management myths and traps can be very real enemies of success.
Rick Spitler is Co-CEO and Managing Director and Sherief Meleis is a Managing Director at Novantas Inc., a management consultancy based in New York City. They can be reached respectively at email@example.com and firstname.lastname@example.org.