Class of Service: Why Banks Must Deliver Tailored Solutions
The airline industry isn’t the only business now offering gold, silver and platinum packages and privileges to its customers. While these levels may be a very simple form of customer segmentation, this strategy has been proven to create loyalty among customers, and in turn, lead to greater revenue opportunities.
Until now, it has been nearly impossible for banks to implement a truly customized market segmentation strategy with their customers. Siloed channels and disparate data sources have traditionally hindered banks’ ability to see their full relationships with their customers. And customers’ perceptions of banks were being eroded by irrelevant, repetitious offerings and inconsistent experiences across their interactions with their bank.
The ability to cost-effectively create customized products and pricing strategies for unique segments within their customer base was impossible, as many banks didn’t have a single view of their customers or much less understand their channel preferences. A study conducted by Forrester Research indicated that 68 percent of the financial institutions were unsure which channels their customers use, and only 12 percent of firms segmented their customers by channel behavior. Even if those banks did understand their customers’ needs and preferences, the cost of customizing products for market segments and then rolling them out across all channels would be staggering. In fact, the cost to develop a simple product like a preferred CD note can be as high as 100,000 USD; the cost to roll out new services can run in the millions. The bottom line is that the cost and time to create and deploy unique products and services hindered a bank’s ability to individually address customer needs while growing revenue at the same time.
However, new technology developments are making it possible for banks to implement true market segmentation strategies with tangible revenue goals. For instance, TCF Bank, a $12 billion institution based in Minneapolis, was looking for better ways to segment its customer base so it could more effectively run marketing programs, tailor services for high-value customers and expand a pricing strategy of charging for different online banking packages for different customer groups. TCF was able to do this by utilizing a ‘class of service’ feature in a recently deployed online banking application from S1 Corporation. TCF expects the increased revenue opportunity for pricing online banking services to grow significantly as a result of the class of service capability.
Prior to migrating to the enhanced online banking application, TCF was limited in the different online banking products it could offer. Now the bank has the tools to expand on its segmentation, product, pricing, and marketing strategies. TCF currently offers three packages for its retail customers, two packages for its small business customers and two packages for its corporate business customers. The packages range from a basic, no-frills Totally Free Online Banking, to Preferred Online Banking with additional features like extended history, alerts, reminders and bill pay services. Customers may qualify for the Preferred Online Banking service for free, based on their account qualifications, or choose to pay a monthly fee for a higher level of service.
According to Tim Doyle, senior vice president and director of online banking at TCF: “We are finding that many of our online customers are choosing to pay for preferred service and we expect the number to grow significantly as we add more features.” The bank is already looking into adding electronic register, check image and free bill pay functionality to the preferred packages.
In addition to customizing the online packages by class of service, the bank also has the software application to tailor the Web interface for each customer. “When a customer logs in to our system, the Web pages and marketing banners can be specific to their segment and the online package they have selected,” explained Doyle. “For instance, we can provide tips on how to use advanced features for our Preferred Online customers or we can give our Totally Free Online Banking customers information on how to qualify for preferred service.” The bank can also send secure messages to each segment with specific information.
“With the ability to segment our customer base and design customized packages, the dynamic Web interfaces and the secure messaging functionality, we are extremely well-positioned to provide our customers with a competitive level of online service,” said Doyle. “Not only does this present significant revenue generating opportunities, but it also helps us to increase loyalty and retention.”
Beyond offering a range of online checking services to its retail and business customers, TCF is also starting to develop customized packages by relationship. For instance, the bank recently signed an agreement with University of Minnesota and will be offering college students and faculty a customized, preferred level of service.
TCF is just one of the many financial institutions leveraging advanced software applications to segment customers any way they choose – by their product use, geographic location, and demographic information. Segmentation schemes are virtually limitless. Easy-to-use interfaces are making it easier than ever for business users within financial institutions to rapidly design and deploy customized offerings without extensive IT support. And, by putting control in the hands of the business users who are closest to the market opportunities, they can be that much more responsive to customer demands and market opportunities.
While the airline industry has had silver, gold, and platinum customers for more than 30 years, the financial services industry is just starting to recognize the enormous revenue opportunities associated with implementing a market segmentation approach to their customers. Many software companies are leading the way for banks that are ready to leverage the latest technologies, and create significant growth opportunities for their businesses.