Customer Retention in Retail Banking

Why Customers Leave and How to Keep Them:

Phil Jarymiszyn, Managing Partner Adam Isler, Client Services Director October, 2006

Industry: Banking Segment: Consumer, Small Business, Retail Pub. No. 2006004 Tags: Attrition, retention, loyalty, banking, Isler, Jarymiszyn, PNT Abstract

With the rapid growth in deposits of the last several years beginning to taper off, banks are now competing for one another’s deposits, putting a premium on retaining customers relative to seeking new ones.

Measuring customer retention in banks is more difficult than it might at first appear. It requires an evaluation not just of individual account retention but of the full customer relationship. Furthermore, a variety of data issues can distort the picture, significantly overstating the problem. Banks need to develop accurate customer retention and attrition measurements. Having done so, they need to be able to predict future attrition risks and put programs in place to alleviate them. Often overlooked, a reduction in the balances of retained customers is an important cause of customer “diminishment” and reduced profitability.

Understanding the sources of customer attrition is equally important in crafting effective counter measures. While customer service improvements and loyalty programs can work, the largest segment of lost customers is comprised of customers whose financial services needs have changed without the bank having anticipated or even noticed it.

Effective customer retention programs include both metrics and tactics, or programmatic, components that work together to measure, target and act on potential customer attrition.

Customer Retention in Banking

For the last several years, banks have been capitalizing on high liquidity and low rates to attract profitable deposits and new customers. As interest rates have begun to rise, that liquidity has diminished and competition among banks to gather new deposits has grown more intense, particularly with the near-universal spread of “free-checking.”

Banks are now competing aggressively for one another’s customers and have returned to the idea that retaining existing customers is at least as important as acquiring new ones.

In most businesses keeping an existing customer happy is both easier and less expensive than acquiring new customers. Even the basic corner pizza store is a case in point as demonstrated by the seminal 1994 article in the Harvard Business Review by Heskett, et al., “Putting the Service-Profit Chain to Work,” which introduced the world to the lifetime value of a loyal pizza customer.

When you consider that the average acquisition cost of a new bank customer is estimated to be between $350 and $3,500, according to the American Banker’s Association1, it’s apparent why holding on to each of those hard-won customers is so important for profitability in banking.

If you’re concerned with maximizing your customer retention and minimizing attrition you are immediately faced with two important challenges that we’ll seek to address in this paper: 1. How do you measure attrition and retention? 2. What do you do about it?

Why conduct a retention study of my customer base?

Whereas retail and manufacturing businesses largely track the retention of their customers through repeat purchases, services firms, and particularly banks, have a far richer set of data to draw on when evaluating customer loyalty. Since bank customers make continuous use of their bank accounts, these on-going transactions provide detailed information on the use of specific bank products, services, and channels. The data also provides information on the “recency” and frequency of these transactions.

A retention study pulls together all of the data available for each customer: accounts held, opened and closed; balances, revenues and fees; transaction volumes and types, transaction channels. Then an analysis is performed of these factors over time to determine if the customer is growing or shrinking their relationship with the bank. The individual customer results are further aggregated by customer segment or geography (or other important characteristics) to characterize customer retention across the bank. This provides critical insights into areas of strength and areas for concern.

When is it most critical for banks to evaluate their retention/attrition situation?

Large numbers of customers change relationships during the following situations over which banks have limited, if any, influence but which likely affect most of the customer base:

general economic downturns periods of rapid changes in rates

By contrast, there is tremendous value to having a tracking system in place during the following, bank-controlled events to ensure that there is not an unacceptable exodus of high-value customers.

Mergers Before the merger’s closing date, to focus retention efforts on key target segments to retain. Around the closing date: tracking tied to a retention-oriented communications program. Post-merger analysis provides an opportunity not merely to track outcomes, but to prepare for future mergers armed with a better understanding of at risk segments.

Re-Pricings, Tracking during roll-out tied to both communications and retention De-Waivers sales programs. Also, identifying in advance those most impacted by planned changes to prepare pre-emptive efforts (for example, scripting a service conversation to help a customer select a more suitable account that is cheaper for them and more profitable for the bank).

Branch Tracking during program tied to both communications and retention Closings sales programs. This can provide critical learning about “psycho- demographics” for future branch site selections and closings.

Product Tracking during communication and conversion phases to support both Conversions communications and retention sales programs

All of the situations just described are within the control of the bank and will place 100% of affected customers “in play.” By contrast, the changes in economic conditions cited earlier are not controllable by the bank and will not typically put more than 15% of the customer base into play so it’s clear how much greater the risks and opportunities are for the bank for the latter.

The outcomes are more manageable because the schedule and logistics are under the control of the bank which can be proactive rather than merely reacting after the national (or local) economy has shifted. In our practice with large regional and national banks we can reduce attrition in target segments by 40% to 90%. For example, ─ We have seen merger attrition rates of 5%-7% reduced to 1%-3%. ─ We have seen attrition rates of 7%-10% fall to 1%-2% in repricing and “de-waivers” with appropriate programmatic action

Four Key Customer Retention Issues

The most critical point is that discovering a customer is defecting when he or she closes their account (or afterwards, when reviewing monthly account closing reports) is too late. Also, it’s not just about accounts closing. Over the course of a long relationship, most bank customers will open and close several accounts as their needs change. It’s important to understand the difference between changing needs and changing loyalty. We’ve seen the following four key points emerge time and time again in all our retention work with bank clients:

It’s important not to mistake “account closings” for “attrition.” Attrition is not well Attrition is not measured in net closed accounts per month, but understood or in lost customers or households. Accuracy in defining attrition consistently defined will lead to more effective solutions.

The most important loss is customers who keep their (low- Reduced balance) transaction accounts with the bank, but move their relationship depth is savings and investments to other financial institutions (brokers more serious than like Schwab for instance, or mutual fund managers like account attrition Fidelity). These look like retained customers, but the economic loss to the bank is severe.

Too many banks Up to 75% of account closings are driven by changed don’t know enough customer circumstances that have escaped the bank’s notice – about their not by dissatisfaction with specific service events or issues. customers

Our work with clients shows that while total customer attrition Focus where you runs as high as 11 – 14%, the scope of controllable attrition is can have measurable typically in the range of 2 – 3% of all retail customer impact households. Making an effective impact on that small but very targeted group can have a huge net effect for the bank.

100 17 - 19% 11 - 14% 3.7 - 4.7% 2.4 - 3.1% ?% 95 90 85 80 75 70

% of Customer Households % Customer of 65 60 HH Attrition, HH Attrition, HH Attrition, HH Attrition, Impactable HH High range "Raw" "Clean" "Controllable" "Impactable" Attrition, Low range Profitable HHs Retained HHs

The total size of the Figure 1: Different measures of customer attrition manageable attrition in volume terms is small, and implementation programs should be scaled and prioritized accordingly. When we analyze customer attrition we look at a number of measures and it is important to be sure everyone is speaking the same language when discussing the subject. As the chart makes clear, while the “raw” level of attrition may appear high (that is, relationships that appear to be “lost” before cleaning up various data anomalies), deeper study usually reveals a more nuanced picture.

From the initial “raw” figures, subtract the “noise” (see Prime Suspects for Attrition Noise,” below) to get at the actual relationships lost. This will usually reduce the apparent scale of attrition from the high teens percent, to the low teens.

Then look at how much of that “clean” attrition is from potentially “controllable” sources, driven by manageable causes

Recognize that bank programs and actions can only impact a portion of the apparently controllable attrition

Finally, remember that some customer attrition may not be worth overcoming. Spending a lot on customer retention programs for customers with low profitability and low potential to become profitable is less valuable than finding more profitable ways to serve these customers in the first place.

Why are headline customer attrition rates so often misleadingly high?

As mentioned above, a wide range of systems events, unrelated to actual customer activity, frequently distorts the true attrition picture and obscures sound business choices. It is crucial that any customer retention/attrition analysis that is undertaken controls for this “data noise” or “data artifacts” and identifies real, as opposed to apparent, customer attrition.

Prime Systems Conversions – As banks merge and consolidate their systems, Suspects for key customer and account linkages are often the victims, resulting in the Attrition Noise apparent loss of accounts from customer households that have merely lost or Data their links. Artifacts Re-Householding – Periodically, the bank’s data warehouse or customer information system re-evaluates how accounts are linked together to represent full customer or household relationships. When this happens, as with systems conversions, the number of accounts per household can appear to change dramatically, though there has been no change in actual attrition rates.

Abandoned Account Purges – In compliance with state laws and policies and procedures on account escheatment, banks periodically purge abandoned accounts from their files. If these were previously counted in existing customer relationships, it may appear that there’s been a sudden reduction in accounts per household and customer retention.

Account Transfers / Product Switches – When customers switch products, it often generates a mistaken picture of changes in relationship depth. The introduction of a new loan or checking product, for instance, may push significant numbers of customers to change account types and household links are often affected

Definition of Account Status Fields – Most banks’ Marketing Customer Information Files (MCIFs) have multiple account status flags (is the account “open” or “closed” from an operational perspective or a marketing prospective, for instance, or is it enrolled for special features like “preferred customer”, “senior citizens” or affiliate marketing programs?). Any change in the calculation methods used, or unexpected changes in the underlying source data for setting these status flags can create phantom attrition.

What are the most significant reasons for real customer attrition?

Once data artifacts are removed from the analysis, it is possible to evaluate the causes for the remaining customer attrition. The most common conditions cited for generating customer dissatisfaction include:

Prime Corporate Acquisitions – Many customers of community banks express Suspects strong preferences for continuing with a smaller local provider of bank for Real services. When large regional or national banks buy community banks Attrition there is often some exodus from the acquired bank, particularly from former, dissatisfied customers of the acquirer who have already defected once. The amount of this attrition varies widely based on factors as diverse as:

Available competition from surviving community banks Reputation of the acquiring bank Factors in the economic cycle

Branch Closings, Reorganizations – Less of a factor in the last few years as banks have raced to open and acquire new branches at a dizzying pace, this was a significant source of customer disaffection in the 1990s and may well be re-emerging as the current cycle of branch building ends with a hangover.

Re-Pricings – Another factor that has been less significant in the recent past as banks have almost universally offered “free” checking and introductory rates on credit products, re-pricing of accounts and new fees have often proved to be an important source of customer dissatisfaction.

Dramatic shifts in interest rates – high variation in competitive interest rates can lead customers to accept offers they might not have sought on their own.

Unconsolidated customers – While the barriers to switching are generally accounted to be high, customers with single account relationships are more easily wooed by attractive competitive offers.

Branch-Only customers without Direct-Deposit – the history of multi- channel banking has demonstrated conclusively that customers who use more services and more channels are more likely to be retained. And the converse is also true. Customers who only use the branch channel and are not using Direct Deposit are at much higher risk of attrition.

Real Reasons for Attrition – While the list above certainly provides a set of events or circumstances which might lead to heightened levels of customer attrition, our work with banks, particularly in the Northeast and the Southeastern US has uncovered a much more striking and, fortunately, much less intractable cause for reduced customer retention: customers’ needs changed over time, and the bank failed to notice and preemptively offer the appropriate new accounts and services.

The chart below shows the results of customer telephone surveys that were performed by a bank as part of their ongoing attrition efforts. To fully understand the results, PNT went through the surveys one by one. We evaluated the open-ended question responses and the recorded verbatim comments and re-categorized the reasons customers gave for closing their accounts. This exercise immediately made clear that once accounts closed for internal bank reasons are excluded, the largest single reason for account closing (some 70 percent of the cases) was the account no longer met the customer’s needs. Some of these changing needs were for totally uncontrollable reasons, like death (9%) and moving out of the bank’s footprint (5%). However, most related to changes in the customers’ perceptions of their product needs, such as “not needed” (6%), “major expense” (6%), and “business closed” (1%).

Anecdotal evidence at one bank showed that the wide range of different checking account types on offer after several rounds of bank mergers was too great for most of the branch staff to evaluate on behalf of their customers. As a result, many customers were being sold checking accounts that were far from ideal for them. This led to lots of defections later on when customers discovered accounts more closely meeting their needs at other institutions with a more understandable range of offerings.

Pay Credit Not Needed 0% Moved 6% Major Expense 5% Customer 6% Internal Needs Invest Elsewhere Transfer Changed: 1% 46% 38% of total - 70% Death of non- 9% transferred

Current Spending 10% Business Closed 1% Convenience Service Rates Policy Fees 1% 3% Unsatisfactory Client 1% 4% 1% 1% Other External Transfer 1% 3% Customer Dissatisfied Figure 2: Customer reasons for closing accounts

As the chart of our detailed phone analysis shows, paying attention and responding to changing customer needs will pay higher dividends in lower retention and overall customer satisfaction than focusing only on customer service issues.

How to Keep Bank Clients from Leaving

Not surprisingly, many banks have aimed to intervene before at-risk customers defect. The bank must first identify customers at risk and then have effective programs in place to avert the loss. There are a variety of approaches:

Programs that attempt to improve the overall experience of all customers

Programs that target customers thought likely to leave

Programs that target specific customer transactions or business “events,” like a large withdrawal

Customer Some banks invest in improving customer service across the board, or Service for particular targeted segments. However, as we have seen, overall Programs satisfaction with customer service is often a lesser cause of defection than a change in needs that the bank did not perceive and failed to respond to proactively. Accurate statistical analysis has seldom supported a correlation between increases in reported customer satisfaction and increases in customer retention.

Attrition Another approach relies on attrition targeting programs, which have been Forecasting introduced by large marketing database vendors for banks. Typically, these use relatively basic multiple regression1 approaches to identify the balance change and transacting characteristics of soon to attrite customers, by examining the historic patterns of customers who have already left.

A critical component of this approach is to predict the attrition risks far enough in advance that remedial action is still possible. For example, forecasting attrition when the customer’s CD has already been closed and a check draws the checking balance down from thousands to single digits probably comes too late to salvage the relationship. As with all forecasting methodologies, the multi-regression forecast is most accurate in the very short term and less accurate in the longer term. So the problem with this approach is it is most accurate when it is too late and largely inaccurate when it is timely.

Data Mining

10 9 8 7 etc. 6 5 Geography 4 Profitability 3 2 Tenure 1 0 Service Channel Location etc. Time Product Segment

Figure 3: Multi-dimensional relationship of attrition variables

Recently, at PNT, we have been working with some more sophisticated data-mining techniques, such as cluster analysis, incorporating a wider range of attributes (independent variables) to improve the accuracy of attrition forecasting at longer intervals. These are represented figuratively by the chart, above.

1 Multiple regression is a mathematical technique that calculates the relationship between known “independent” variables and the “dependent” variable being forecasted based on known historic variables and expresses it in a fairly simple algebraic equation.

Disaggregate Another analytic approach we have taken at PNT is to target the actual sources of sources of loss (highlighted as an area of opportunity in the illustrative gained and lost chart below). By looking at shifts in balance, net revenue or profitability balances deciles, we can quickly gain insight into those customer relationships that need attention.

Where the Money Goes Lost Lost bottom 5 Lost decile HHs Balances Area of opportunity Lost top 5 decile HHs HHs moved from top 5 to bottom 5 decile HHs moved from bottom 5 to top 5 deciles New HHs Retained bottom 5 decile HHs Retained top 5 decile HHs: Retained Balances

The greatest area of opportunity for retaining lost revenues is customer households which significantly reduce their balance relationships with the bank rather than those who leave.

Loyalty and Many banks have introduced “rewards” programs, modeled on airline Reward frequent flyer programs. These programs are designed to provide Programs increasing benefits as customers maintain and open new accounts. Typically there are also rewards for specific customer transactions that are deemed to make the relationship more “sticky,” like direct-deposit of payroll checks, the use of on-line bill pay services, and the use of ATM/debit cards. While it is too early to draw definitive industry-wide conclusions about these programs, some major banks are claiming early success and they bear close attention.

One issue to bear in mind with loyalty programs is that, like customer service improvement programs, they do not specifically target customers displaying attrition risk characteristics. Rather, they are aimed at the entire customer base (as well as seeking to attract new customers). As we have seen, where banks fail to keep pace with individual customers’ changing financial services needs, or there are significant customer service issues, rewards programs may not be sufficient to overcome the unfulfilled requirements of these customers.

What are the components of a successful retention program?

From our experience helping banks with their retention efforts, we have learned that retention success relies on a number of elements, working together synergistically. Broadly speaking they may be divided into:

Metrics, which include the various types of analysis described above as well as putting appropriate tracking mechanisms in place to monitor attrition/retention on an ongoing

basis. Metrics here includes the analysis of what’s going on and the ongoing tracking to measure performance.

Tactics, referring to programmatic responses banks take to measured attrition, such as loyalty programs and others we shall describe below. “Tactics” is the people side of the equation: while the metrics are important, only people responding to the measurement and analytics can effect necessary change.

Let’s look at each of these in a little more detail.

Metrics: Definitions & Targets

Many banks lack a clear definition of lost or “diminished” customer relationships that is consistently applied across the organization.

Define Attrition definition Retention ─ Needs to be clear, concise and understood by all. As discussed Targets above, choosing the wrong attrition targets or using the term to cover a wide variety of disparate customer behaviors will lead to the wrong investments and outcomes ─ Bank-wide measures should focus at the customer level (not the account level) ─ Metrics should track full customer relationships including balances, accounts, behaviors and profitability, not just the number of services customers hold.

Targeted customers only, based on analytic findings ─ Focus pro-active resources on most profitable segments or deciles – chasing low profitability customers’ loyalty may not be a good investment unless they can easily be made more profitable (for example, by moving them into more suitable account types) ─ In all other cases, retention efforts should be opportunistic – that is when the opportunity presents itself, rather than actively pursued.

Implement “vintage” analysis and tracking of portfolios of customers over time to establish and manage true retention ─ Establish a portfolio of “best” customers based on the analyses described above. Monitoring a portfolio makes it clearer where value is growing and being lost in manageable chunks. ─ Portfolios should be reset periodically for management purposes. Typically this will be done annually. Resetting portfolios more frequently often allows poor retention performance to be masked since it’s hard to know what’s truly happening to a portfolio whose membership is not stable.

While an aspirational goal is to achieve 100% retention among top- decile customers, operationally, targets should be set that recognize uncontrollable factors and are achievable, motivational goals ─ Careful definition of “uncontrollable” attrition may provide a higher level of opportunity with “controllable” attrition

Tactics: Performance against Goals

Tactics are the set of actions taken to impact attrition, once it has been properly defined, measured and analyzed. These may include systemic changes to products and offerings and policies or procedures but, based on the foregoing discussion on the need to stay close to customers’ changing needs, these efforts need to include active programs for bank staff to talk to customers about their needs and the bank’s offerings. As has been well established, personal interaction is one of the most powerful drivers of purchase behavior in retail environments2. Clearly defined customer relationship management activities undertaken and implemented by staff need to be defined, practiced, measured, coached, and rewarded.

Goal Setting Part of understanding customers’ needs is recognizing their preferred and channel. Looking at customer activity in each channel allows you to classify Performance your best customers by branch vs. non-branch channel preference based Management on their individual usage patterns and account-type holdings. Branch-based customers may further be assigned to Personal Bankers for accountability and portfolio tracking, where the volume of such customers warrants it

Measure retention of customer portfolios at the individual account executive level by the number of households or customers, relationship depth and breadth - not number of accounts added or lost,

Hold staff accountable for the performance of the prescribed activities ─ Select and recruit the right staff for these roles ─ Provide specific training and script suggestions for phone calls and relationship management activities ─ Track both the volume and the quality of these customer contact activities, providing targeted feedback and coaching on the performance of these activities ─ Ensure adequate capacity for these activities. Many banks make the mistake of simply adding these activities to the branch staff’s list of duties without consideration for where the time to perform these incremental activities will come from

Retention goals should typically be in the range of 90 to 95% of households in individual portfolio after removing a non-controllable percent based on primary customer research

Tactics: Incentives

Goal setting in a way that achieves business goals and motivates staff is an art. While it’s necessary to set targets for the actual level of customer retention achieved, it’s also necessary to reward the performance of the right activities that lead to those results. To develop a self- sustaining culture of customer retention among your staff, there must be measurement and recognition for performing the right activities and practicing the right behaviors. A balanced scorecard for individual employees or business units should balance these twin objectives.

Reward and Build scorecards and bonus or other staff rewards programs in a Recognition supportive, motivational way rather than punitive one: ─ Set goals so that poor performance in the first period doesn’t discourage participants from competing in successive periods ─ Allow high performers to accrue greater rewards for ongoing results in multiple periods, while allowing weaker performers to re-enter the competition meaningfully in each period.

Incentive compensation is typically paid for actual results; performing the prescribed activities is the leading indicator for coaching future results

Establish other forms of recognition, below the scorecard level, for performance of the prescribed activities that are leading indicators of scorecard success, i.e. contacting top customers

Weight for retention in the scorecard should be set after performing your retention analysis to ensure it’s consistent with the scale of the opportunity relative to other scorecard level goals. We have seen incentive pay offered that was out of proportion to its value to the company or other, more important, business objectives that were less well rewarded.

Tactics: Programs Since customer retention is all about staying current with customers’ financial needs, we’ve found the following types of programs effective in targeting particular retention opportunities:

Auto Re- This program automatically reviews customer account activities and fees “Package” to highlight customers who might be better served by a different checking account package. The program can be run monthly or quarterly to calculate the fees customers would have paid if they were in a different checking “package” and compares it to what they did pay in the package they’re in. The analysis needs to span several months, since customer usage patterns fluctuate and you don’t want to make a bad recommendation.

Auto Re- By pro-actively contacting customers and letting them know you can better “Package” meet their needs you have a powerful weapon for sustaining the customers’ loyalty. Of course, there can be revenue implications if this results in moving large numbers of customers to accounts where they will pay lower fees, so this opportunity needs to be fully analyzed – but by best meeting the customers’ needs you vastly increase the likelihood that they will come to trust you and retain you as their bank over the long term.

“Segment For banks that segment their customer markets it makes sense to pay Changer” attention to customers who are changing segments and anticipate their changing needs. For example, for customers who are changing from a demographic segment like “professionals with kids” to, say, “empty nesters,” there is a major shift from accruing wealth for future college expenses and retirement to totally different needs. By looking at customers’ changing account behaviors, particularly with the additional insight provided by third party demographic data, it’s possible to notice these changes and proactively engage customer in a dialogue about their needs. Please note, however, that you don’t want to frighten the customer with the sense that Big Brother knows too much about their personal life. The script for such customer contacts should reflect your desire to stay close to their financial needs and make sure you’re always meeting them – not your access to their personal details.

Top-20 or The retention analyses described above will identify top tier customers who “Nifty Fifty” provide your highest profitability. Once identified, these customers should be offered a high level of personal attention in addition to any other loyalty benefits provided automatically. Rather than waiting for a segment change or a request from the customer, they should be assigned to account officers who will monitor their changing needs on an ongoing basis at appropriate intervals.

Trigger Event In addition to the indicators of changing needs described above, there are Leads other, more transactional events that occur on accounts that should trigger a phone call (or other communication) to see if financial needs are changing. Examples include a large deposit, which may indicate the sale of a home and a mortgage opportunity or the need for investment advice; or a change of address which may signify a job change and the opportunity for an IRA rollover.

Tactics: Tools To support the programs listed above a variety of tools can make the jobs of tracking and managing considerably easier and more reliable. We recommend evaluating the following tools and analytic modules for inclusion in your retention armory:

Lead Delivery The metrics programs above provide lists of customers to contact under various circumstances. Providing a centralized tool that delivers these leads to the frontline staff in branches or contact centers (or e-mail send programs) can greatly speed and manage the quality of the contact programs. For branch delivery, we favor a tool that uses e-mail (such as custom MS Outlook form) to deliver the information to the desktop. The user is also able to register their action and status or response for automatic updating of the central database.

Contact Contact Management software makes it easier to monitor whether staff are Management making the necessary contacts and to help provide coaching on the quality of their contacts. Most common CRM applications today will meet this need as well as providing the lead delivery described above.

Relationship In order for bank staff to have a clear understanding of customers’ financial profiler needs, the critical starting point is a picture of the current relationship with the bank. Most bank CRM programs can provide this capability (assuming they have access to all of the bank’s product silos). Added enhancements show summaries of the customer’s enrollments in different programs and their statuses as well as contact history and other key relationship factors. These should be tied to the contact leads generated by the tools above.

Channel For each customer identified for contact, their historic contact history should Chooser be evaluated to establish their preference. The contact recommendation should then be routed to the appropriate channel using the lead delivery tool described above

Retention In some cases, the bank may wish to extend an offer to customers to help Offers retain or increase their loyalty. Typical examples include offering better rates on term investments like CDs or on loans. Such offers need to be made in carefully prescribed situations but providing bankers the flexibility to make offers may be a useful tool

Capacity As mentioned earlier, many banks make the mistake of simply adding Planning customer contact activities to the branch staff’s list of duties incrementally without consideration for where the time to perform these activities will come from. A capacity planning tool allows you to measure your capacity in advance and ensure there are adequate staff available at the appropriate times.

Launching your retention program: PNT’s approach

Before committing to major investments, our experience has shown a retention audit is a good first step. An effective audit provides a quick and inexpensive way to determine if retention is an issue, what the scope of the challenge is, and suggests the specific areas in which to concentrate resources. At PNT, our approach covers the following elements:

Review of current attrition measurement capabilities ─ Is tracking at the account level or proper customer/household level over time? ─ Is there racking of balance diminishment or just account holdings? ─ Are account status flags properly set? ─ Are all required data available for the full required period?

Review current retention programs and tools across retail channels ─ Which programs are in place? ─ Are they being practiced consistently? ─ Is tracking in place to measure results? ─ How do staff feel about ease of use and effectiveness of existing programs and tools?

Benchmark practices compared to industry ─ How do your bank’s retention and attrition rates compare to others? ─ How do your metrics and tactics compare to industry standards?

Conclusions

With the rapid growth in deposits of the last several years beginning to taper off, banks are competing for one another’s deposits, putting a premium on retaining customers relative to seeking new ones.

Effective customer retention programs include both metrics and tactical, people-based components that work together to measure, target and act on potential customer attrition.

1 Quoted in the following article on the SPSS web site: http://www.spss.com/vertical_markets/financial_services/acquisition.htm. 2 See, in particular, Paco Underhill’s excellent Why We Buy: The Science of Shopping, Simon and Schuster, New York, 2000, which reveals how banks can better “convert” customers in their branches.

PHIL JARYMISZYN Phil Jarymiszyn co-founded PNT Marketing Services in 1988. He has developed data warehouses and data marts, designed and developed householding algorithms for some of the largest financial institutions in America, including Citigroup and SunTrust. Phil is the guru behind PNT's MetroMatch suite of householding tools and proprietary attrition tracking software, and continues to make inroads into more efficient and accurate name and address parsing software and linking algorithms. He previously worked as an economist at a Cambridge, MA consulting firm modeling housing trends and wrote case studies for the Harvard Business School. He is a magna cum laude graduate of Harvard College Contact: [email protected]

ADAM ISLER Adam Isler is a seasoned professional, with over 25 years’ banking experience. Before joining PNT as Client Services Director he worked in a wide variety of management positions in Citigroup’s consumer bank including sales and marketing, operations, small business and branch management. Subsequently, he spent almost ten years as a consultant to banks across the US and Canada. He holds degrees from Columbia and the Cass Business School in London Contact: [email protected]

PNT Marketing Services PNT Marketing Services is a leading provider of Customer Intelligence-based marketing services primarily, to the financial services industry since 1988 for clients both large and small. Our mission is to help companies know their customers better in order to grow more profitable relationships.

PNT Marketing Services, Inc. 24-20 Jackson Avenue, Suite 203 Long Island City, NY 11101 www.pntmarketingservices.com [email protected] 1-888-PNT-2210 x202