Boosting Sales Through Loyalty

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It takes two to tango: Boosting sales through loyalty Connecting with the customer: Moments of truth

at the front line Retail strategies in tomorrow’s Europe Making it big in small business Winning three credit card hands Imperatives for success in private banking

3.The Age of

Customer Value

In a world where consumers are comfortable with no-frills airlines and direct retail channels, and drive their luxury car to the discount store for bulk buys, banks have a challenge on their hands. Being trustworthy and reliable is not enough; customers no longer revere their banks. The financial services indus-try has to follow the lead of more traditional consumer sectors and grasp the concept of value – as customers perceive it. Bluntly, banks need to understand consumers better if they are going to serve them effectively and profitably.

The first two articles in this section consider how to engender and capital-ize on customer loyalty, which can no longer be taken for granted. Detailed research and thought into the manner in which the front line interacts with customers are vital if banks are to excite, acquire, and retain customers. The third article looks more broadly at how Europe’s retail banks should set about differentiating themselves in the years ahead – which involves going beyond marketing to examine the very strategy that will underpin the bank. Players will need to decide whether a utility, community, or relationship model is best suited to their aspirations and skills.

The last three articles zoom in on specific products and segments. A com-prehensive dissection of the skills needed in the small business segment is followed by a set of case studies of three contrasting credit card markets: the US, continental Europe, and China. Both articles suggest that banks are failing to capture the substantial opportunities at stake. We conclude the sec-tion with a look at the private banking sector where banks need to step up to the plate with more sophisticated segmentation and advice if they are to give clients the value for money they seek.

Extract from “Banking in a Changing World”

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It takes two to tango: Boosting sales through loyalty

Marc Beaujean, Vincent Cremers, Luis Cunha, and Francisco Gonçalves Pereira

The authors would like to thank Biljana Cvetanoski, Aunia Grogan, Raul Galamba de Oliveira, Ansgar Hölscher, Jan-David Kohrt, Jan Hendrik Kraus, Dieter Roelen, and Ute Schuler for their contributions to this article.

Steve Bossman, retail CEO of Pushbank, was worried. According to the latest figures, sales were leveling out – bad news for a bank accustomed to steady growth. Admittedly, regional executives had been grumbling that it was getting harder to hit their targets, but then they always did. Surely it wasn’t marketing’s fault? In his previous job as marketing director, Steve had invested heavily in state-of-the-art tools and techniques to make the sales force proactive: pro-pensity models, campaign management, sales training, scripts, the lot. Indeed, Pushbank was seen as a leader in its field, and Steve’s efforts had helped land him the CEO job.

So what was the problem? Had the bank lost competitiveness? Did it lack stamina? Did it lack talent? As Steve agonized, his eyes fell on a photograph of himself and his wife, and a cliché came to mind: it takes two to tango. Of course! Here was he thinking about the bank, when he should be thinking about its customers.

Steve Bossman and Pushbank are far from alone in their predicament. By now, much of the banking industry has embraced proactivity and enjoyed the resulting hike in sales. However, banks are starting to find that closing a sale is getting more and more difficult, and sales campaigns are less effective than they used to be. It seems that current models may have reached their limits.

So what now? What will be the next differentiating factor in banks’ go-to-mar-ket strategies? We have a suggestion: loyalty.

The loyalty paradox

As banks concentrated on increasing share of wallet, they neglected to con-sider the impact their actions were having on the health of their customer relationships, namely on customer loyalty. Indeed, many of banks’ push efforts

72 The Age of Customer Value 73It takes two to tango: Boosting sales through loyalty

alienated some customers, who felt (quite reasonably) that their bank didn’t care about them and was only trying to sell them another product. In a recent asset management mystery shopping exercise in Spain (a country known for its high-performing banks), it emerged that salespeople were recommending whatever the product of the day might be, irrespective of how well it matched the mystery shopper’s needs.

But there’s a paradox here. If customers are unhappy, why aren’t churn levels soaring? Banking churn rates in Europe are in fact just 5 percent – very low compared to those in industries such as insurance (15 percent) and mobile phones (15 to 20 percent). The solution to the puzzle lies in the difference between attitudinal loyalty and behavioral loyalty. Even if only 5 percent of customers switch bank in any year (behavior), 45 to 60 percent don’t feel emotionally attached to their bank (attitude) and wouldn’t choose it again, let alone recommend it to friends or family.

This is cause for concern. Large portions of the client base are attached to their bank by sheer inertia – and who would bet a bank franchise on inertia? The bar for attitudinal loyalty is set much higher than mere satisfaction, which is something that banks often measure, but that doesn’t mean very much. Being satisfied is a rather ambiguous state, prone to inertia. What we are talking about here is being emotionally engaged with one’s bank, being loyal to it (Exhibit 1).

The economic benefit for the bank is clear. Those customers that are truly loyal to their bank and believe in what it can do for them – as opposed to simply being too lazy to move to a competitor – can put as much as 78 percent of their wallet with one institution (Exhibit 2). They are much less likely to go elsewhere for mortgages and investments: 30 to 40 percent less likely than an average customer, according to our research, and more than 60 percent less likely than an unhappy customer. This is because a stag-gering 96 percent of loyal custom-ers will discuss a new product need with their main bank, compared to

just under half of disloyal customers. In a nutshell, banks that boost loyalty can boost sales.

Naturally, recognizing that greater loyalty means more sales is not enough. The multi-million-dollar question is whether banks can do anything about it. We believe they can. The first step is to understand that loyalty is created only through interactions between frontline bank staff and the customer. The next step is to manage these interactions so that the customer feels a greater sense of loyalty and emotional connection to the bank. These interactions fall into three groups:

Moments of service. These are the perfunctory everyday interactions be-tween the bank and its customers, such as requests for information, trans-actions, waiting in branches, and so on. Although customers invest hardly any emotion in these moments, getting them wrong can damage attitudinal loyalty, whereas outperforming the competition will bring virtually no reward. Banks should target a solid performance level that meets customer expec-tations, but avoid over-investing in it.

Moments of truth. These are the few interactions where the customer in-vests a substantial amount of emotional energy.1 Just six events account for three-quarters of all these interactions: when the customer gets finan-cial advice, arranges a mortgage, or opens an account, and when the bank approaches customers proactively, communicates price changes, or trou-bleshoots a customer problem such as errors in a statement, a check that

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1 For more on these interactions and how they can be managed, see the next article, “Connecting with the customer: Moments of truth at the front line,” pp. 83–92.


bounces unnecessarily, or something more serious. However rare they may be, the bank’s performance at such moments will have a lasting impact on a customer’s perception. When we surveyed almost 3,000 customers in three European countries, we found out that 92 percent of positive events for a bank (such as a customer’s purchase of a new product or increased spending on it) are linked to a positive customer experience at one of these moments of truth. On the other side, 53 percent of banks’ negative events (such as a customer closing an account or buying a product from another bank) is explained by a bad performance at a moment of truth. So, although they don’t happen often (once every five to seven years on average), these crucial moments provide an opportunity to outperform customers’ expecta-tions and make a strong and lasting impact on their attitudinal loyalty.

Moments of intimacy. These are the interactions that establish a closer and deeper professional relationship between the bank and its customers. Since moments of service do little to excite customers and moments of truth are few and far between, banks seeking to build loyalty in a systematic manner need to engineer these moments of intimacy. They can consider possibilities such as introducing tiered loyalty programs (like the bronze, silver, and gold cards that airlines offer frequent flyers); calling a branch’s most valuable 150 customers at least twice a year; and organizing events outside the bank for the best customers. Fostering a more intimate relation-ship can greatly improve customer loyalty. We found that when an adviser feels comfortable calling his or her customers, the success rate of commer-cial campaigns can rise from a mere 2 percent to more than 45 percent.

Armed with an understanding of how these interactions can affect customer loyalty, leading institutions are starting to develop loyalty campaigns to sit alongside more traditional sales campaigns. These can target clients at risk of defection and try to boost their emotional link to the bank. The KeyClub operated by UBS is a good example of a loyalty campaign. Launched in 1994 and revamped ten years later, KeyClub enables customers to collect points through their interactions with the bank, which they then redeem with a variety of partners and at UBS-sponsored events. We all know intuitively that loyalty matters; the innovative insight here is that it can be purposefully created and managed in a banking relationship.

Banks should not undertake loyalty programs in an ad hoc fashion, but should target those customer groups that are likely to bring the greatest benefits, and intertwine their campaigns with traditional sales efforts. We are certainly not suggesting that banks should abandon the proactive mindset they have built up over the past few years; rather, they should add a new element that will increase their overall prospects of success.

First get to know your partner

One way of intertwining sales and loyalty is to use them as criteria to segment the customer base – specifically, by level of loyalty and by share of wallet held with the bank. This produces five clusters of customers, each of which requires a distinct course of action from both the commercial and the loyalty standpoint (Exhibit 3).

Manage approachable skeptics. These are customers with average loyalty towards the bank; perhaps they are new customers, have had few interactions with the bank, or simply feel little emotional connection with it. This cluster typically represents 30 to 60 percent of the total customer base. Banks should carefully manage every interaction with these customers: although they wel-come proactivity, they need to be convinced that any offers are in their own personal interest. Consequently, banks must link propositions to customer needs at every single moment, paying particular attention to any signs from the customer that they are being too pushy. Failure to do so, especially at mo-ments of truth, could damage the relationship beyond repair.

Often banks need to create stronger moments of intimacy before they can propose more advanced product offerings that can be sold only to the most loyal customers. This is especially true if banks want to become a customer’s adviser, which is where the big money lies.


Target expectant high-potentials. These are customers who have a high level of attitudinal loyalty but a low share of wallet. Consistently across Europe, most banks still have up to a quarter of their customer base in this cluster, although the proportion can be as low as 5 percent in some cases. For banks, these customers represent an opportunity there for the taking. The customers will welcome a more proactive approach, as many of them believe their banks should have contacted them more often. As a first step, banks should pro-pose existing products and services that could be relevant for these custom-ers; later, they can use the customers to test new or more advanced product offerings. While doing so, banks should pay close attention to maintaining relationships by excelling at moments of truth and avoiding bad experiences at moments of service, otherwise loyalty levels will start to fall.

Rescue apathetic non-believers. These are customers with a low level of attitudinal loyalty but a high share of wallet, usually for historical reasons or because the relationship has been tarnished by the bank’s excessive proactiv-ity. The only things keeping these customers with the bank are inertia and the lack of a compelling competitive offer. Some banks have as many as a quarter of their customers in this cluster, although there are wide variations between countries. For this segment, banks should abstain from sales activities (by removing customers from target lists, ensuring they don’t receive sales calls from call centers, and so on) and urgently engage in relationship building, taking steps to create moments of intimacy. Initiatives as simple as calling to check whether customers are happy with the bank and find out if they have any problems can help to regain trust (naturally, any problems reported must be followed up). Failure to act results in plummeting customer satisfaction and increased churn as customers feel more and more disconnected from the bank.

Turn around uninterested sleepers. These are customers with a low level of attitudinal loyalty and a low share of wallet. They typically make up 5 to 15 percent of banks’ customer base, and often have dormant accounts. Sleep-ers are very difficult to turn around, and institutions should think twice before embarking on heroic loyalty-boosting attempts; the economic impact is likely to be minimal in the short to medium term because of the limited assets these customers hold with the bank. If banks do decide to engage in a turn-around, they need to create some level of intimacy before launching any new sales activities. Inviting these customers to the branch solely to discuss the banking relationship and clear up any lingering problems can be a good first step.

Sustain happy devotees. These are customers who have a strong relationship with their bank and have put most of their assets with it. Although they can be

approached to test more sophisticated products and services that the bank is considering launching more widely, pushing sales to this group will have very little impact as the bulk of their money is already with the bank. These customers typically make up 10 to 15 percent of a bank’s total customer base but can represent as much as 50 to 60 percent of its profitability, so much of its success will rest on ensuring that they continue to be served well at mo-ments of truth and that nothing bad happens at moments of service. These customers also tend to like interacting with their bank, so it need not hesitate to include them in moments of intimacy campaigns.

Step out on the dance floor

If banks are to dance the loyalty tango with any hope of success (let alone with any flair), they need to make sure they are completely in time with their partners, the customers.

First of all, they must monitor customer loyalty levels just as they track profit-ability and share of wallet. However, that doesn’t mean asking a statistically representative sample of customers a series of standard questions. This may be adequate when a bank is trying to understand its starting situation, or even craft its commercial strategies, but when it is seeking to define the precise loyalty level of any given customer, individual information is needed. We’ve experienced three ways of getting this information:


Survey all customers up front using simple questions such as those we used in one of our market surveys (Exhibit 4). This is probably the best method as it provides complete and accurate information and can be done by a bank’s call center. The chief drawback of this approach is its cost – possibly too high for mass-market customers, though justifiable for more affluent groups.

Ask one or two simple questions at the beginning of key interactions (such as moments of truth and proactive commercial campaigns) to identify broadly where the customer stands. The bank employee can then use the answers to judge what behavior to adopt: for example, refraining from proactive sell-ing if the customer refers to an unresolved problem that has damaged his or her relationship with the bank. This method obviously requires the bank to train its sales force appropriately, but it is perfectly achievable.

A more ad hoc approach is to talk with customers after a moment of truth to ascertain its effect on their loyalty level. The information gleaned can be fed back into the organization to improve future interactions.

Once a bank develops a systematic approach to monitor individual customers’ loyalty levels, the next step is to embed this information in the sales machine. This will have repercussions for the marketing function as well as the front line. The pendulum will swing to one side or the other depending on the bank’s starting situation. Two specific tasks are vital:

Getting inside the customer’s mind

To boost and then capitalize on customer loyalty, banks have to understand what really drives customers’ attitudes towards them: what makes some customers true advocates while others are indifferent at best, staying with their bank only through apathy.

To obtain customer insights that are fresh, nuanced, and perceptive, banks have to throw away their old ideas about talking to customers and do more than fire off a bunch of questions or run a few focus groups. They need to apply appropriate (and often innovative) research methods.

Qualitative exploratory techniques such as diary keeping, in-depth inter-views, ethnographic sessions, and accompanied shopping (observation) can capture insights that would never otherwise come to light. To give an example, we asked a group of 28 people to keep a diary for two weeks to record their experiences with a particular product purchase (Exhibit). We used in-depth interviews to explore their mindset before and after the actual purchase, and identified astonishing shifts in their attitudes. The insights we gained went far beyond anything we could have discovered simply by asking questions. Take mortgages. When they first approach a bank, many customers are concerned only with getting a rough idea of how much they can borrow. They have no intention of actually applying for a mortgage; indeed, they may not even have found a house to buy. Yet if they feel the bank is empathetic at this stage, they may well go back to it later when they are ready to take out a mortgage.

Quantitative research can benefit from using state-of-the-art modeling to uncover the latent needs and preferences behind customers’ deci-sions, as opposed to their stated reasons for their actions (which tend to be based on what they think should have driven their behavior, not what actually did). Techniques include the increasingly common conjoint analysis, as well as more innovative paths such as structured equation models.

We recently used these new approaches on 2,500 customers in Germany and Italy to determine what drives them to be truly loyal and to deepen their relationship with a bank, as well as to understand how they buy invest-ments and mortgages. The results proved enlightening. In time, we expect more banks to abandon their traditional comfort zone of surveys, focus groups, and the like for the new terrain of innovative research techniques.


successful sales meetings per officer by more than 80 percent, and the as-sets under management per employee by more than 40 percent. Not only that, but frontline staff were much more motivated.

So, for all the Steve Bossmans out there, the message is clear. It does indeed take two to tango.

Upgrade central intelligence. Normally banks have a process to define their commercial priorities. Some are based on sophisticated propensity models with tools that feed contacts to call centers and the wider network; others take a simpler common-sense approach, with names sent around in spreadsheets. The concept and implications of loyalty must be woven into the existing central intelligence machine, since building something sepa-rate will only create confusion and sap credibility. Hence, target lists that were previously based solely on performance indicators (such as customer profile, propensity to buy a certain product, or existing share of wallet) will now incorporate loyalty indicators to generate the optimum method of maxi-mizing sales potential. The end result will be that the bank can identify and implement the best concrete strategy for each individual customer. That will mean restricting efforts for some segments, strengthening them for others, and investing in customer intimacy campaigns beyond pure sales campaigns for clients at risk of defection.

Transform frontline mindsets and behavior. Since it won’t be feasible to rank all customers by their loyalty level at the outset, especially for mass-market segments, it will be important to involve the front line. Two areas are critical. One should be part of the toolkit of any bank looking to improve customer loyalty: namely, operating properly at basic moments of service, excelling in detecting and performing at moments of truth, and being com-fortable in dealing with moments of intimacy. The second area involves training the front line to shape their interactions so that they are able to ascertain a customer’s loyalty level and then decide whether to continue with a sales pitch or use the occasion to improve loyalty instead. It is much more of a challenge to get a sales force of several thousand performing at this level.

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At first glance, these ideas may seem to be not that far removed from current practice. We disagree. The days of tinkering with the old system are rapidly fading. We urge banks to embrace these new ideas wholesale. Winning institu-tions are starting to recognize that the pure push model is nearing the end of its life-cycle, whether because it is no longer distinctive, because consumers are increasingly cynical, or because it is time to put the customer back at the heart of the business. It is a model that has undoubtedly served banks well, but the next wave of growth will, we believe, come from taking an economic approach to loyalty and ingraining it in the institution and its actions.

The potential of this new approach is already evident. Just six months into its loyalty effort, one major Benelux institution had increased the number of

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Boosting Sales Through Loyalty