The first in a series of articles aimed at identifying strategies that banks should follow for tapping into the potential value certain consumer segments hold for them…
You can download PDF version of this whitepaper here.
The cost of acquiring a customer in the financial services industry has traditionally been quoted as being 5 – 10 times higher than the cost of retaining a customer. This fact has been the impetus pushing banks around the world to focus their efforts on satisfying and retaining their existing customer bases, visible in the proliferation of loyalty and retention programs aimed at reducing customer attrition.
Retention of and / or up-sell to existing customers doesn’t cut it for most banks, however. Such efforts must be accompanied by a solid acquisition strategy, one that helps the bank achieve its growth-related objectives through the on-boarding of new clientele. With the cost of acquiring customers so high, however, banks need to be as efficient and effective as possible in their efforts to win over new clients. One way banks can achieve this is by honing in on certain consumer segments they deem valuable (rather than appealing to the masses), developing detailed acquisition strategies around such segments.
In a series of articles, different consumer segments (SME, Ladies, Young Families, and the Youth) that are relatively under-addressed but hold significant value for banks will be profiled, with best practices highlighted in addition to recommended actions for addressing the segment. The first segment to be discussed is the youth segment (for the purpose of this article, defined as a segment comprised of all individuals under the age of 22).
A segment that is actually not very attractive in the short to mid-term in terms of positive impact on the bottom line, what makes the youth critical is the fact they will be the key assets of the bank in the long-term – both on the retail and corporate banking sides of the business:
- The child with the piggy bank today will be a company owner down the road, needing all types of banking products and services to meet his or her needs
- The teenager with the small checking account today will one day be a high-net worth customer, serving as a cash cow for the bank for many years
- The college student with an overdrawn credit card today will be buying stocks and bonds with his bonus check in a few years
Successfully winning over the youth today can help make growth in the long-term much less reliant on the acquisition of new customers; rather, with such an open-for-growth portfolio of clients on hand, banks can focus more on their cross and up-sell efforts to grow their assets under management.
A strategy for attracting, winning over, and keeping the youth segment requires customization in sales, marketing, and customer care efforts across the bank, all designed around the customer’s lifecycle (such that a child needs to be addressed significantly differently in all manners vs. a college student). Some banks have excelled at catering to this segment, doing all kinds of interesting things to win them over. Some examples include:
Commerce Bank, USA: The bank has a free of charge change-counting machine that can be used by customers or non-customers, allowing them to convert change into dollar bills. Each branch has a machine designed exclusively for children as well, called the “Kids Counter.” The machines are a big hit with the kids, as are the lollipops they receive when they enter the branch.
Barclays Bank, UK: Barclays has designed its savings and checking accounts directly around the needs of various youth micro-segments in their effort to win over such consumers. The products and services are customized in their package features, benefits, and fees for the 11 – 15 year old segment, the 16 – 19 year old segment, the college student segment, and the recent graduate segment. The customization goes one step further, varying based on who will control the account – parent or child.
Sovereign Bank, USA: Sovereign has designed and operates kidsbank.com, a website that aims to teach children about the basics of the banking system. With interactive features and through numerous characters such as “Mr. EFT” and “Interest Ray”, the website aims to make banking fun for children. The site also features numerous links and different games and quizzes around banking. The bank in no way tries to pitch its own products on kidsbank.com, giving an image of being an educator rather than a commercial entity.
OCBC Bank, Singapore: OCBC has a similar program, this one in the form of superhero mascots Simon and Sally, two characters that visit schools in and around the city to give live performances to children around banking and savings – the Bank’s “Mighty Savers Programme” is featured in particular. All kinds of benefits, games, and prizes are built into the program, aiming to engage children heavily through the Simon and Sally characters.
Dexia Bank, Belgium: The Belgian bank has taken the concept of targeting the youth segment to another level, through launching a bank called Axion – designed specifically for the 12 – 24 year old segment of consumers. This new bank is completely aligned around the youth, in its name, strategy, branding / positioning, offerings, etc. For example, rather than use a standard Consumer Index when calculating inflation, the bank has the “Youth Dexia Index,” with categories like food and drink, fashion, communications, and recreation serving as the base for the calculation – last summer when the basket revealed music festival entrance fees had increased 11 percent, the Bank offered account holders discounted tickets. Other benefits also serve the needs of this segment as well – defensive driving lessons being an example, with discounts on car insurance for those who pass the test.
PNC Bank, USA: PNC has placed extensive focus on its efforts to win over college students, with branches and ATMs in over 25 universities across the east coast of the United States. The bank customizes its credit and debit cards for the universities it works with, such that not only are the cards visually branded for each university, but they also serve as access cards across the campus – thus the only card the student carries (serving as ID, allowing access to cafeterias, libraries, and dorms, etc.). A particular strong offering for this segment is the Bank’s “Virtual Wallet,” a feature added onto the accounts providing spending overviews by category, a notice of upcoming danger days when cash on hand may be low, and alerts to parents if spending patterns are out of the norm, among other unique benefits.
Essentially, we believe any bank that is lacking a set of products and services designed and promoted exclusively to the under-22 year old youth segment is missing out – lack of young customers today translates directly into a lack of clients that can be grown tomorrow.
In developing a comprehensive program aimed at addressing the youth segment, we recommend banks take the following three points into consideration:
1. Truly Understand the Market’s Needs
To develop a comprehensive strategy for winning over the youth segment, a bank needs to particularly focus on two things – its competitors and the youth. In terms of competitors, banks need to understand what strategies their competitors are following, what products and services they are offering, and what micro-segments they are excelling with. Such an effort will help the bank identify possible gaps and shortcomings of their competitors, and will also set a bare minimum benchmark level for matching.
Understanding the youth is the second critical element here, this being around understanding their needs, norms, practices, trends, etc. Everything (be it from the proposition offered, to the channel sold through, to the channel communicated through) must be designed with a strong understanding of the youth segments’ viewpoint in mind. Surveys and focus groups must be utilized here, with various youth micro-segments as well as competitor clients probed around what exactly would make them engage with the bank.
That said, in many cases, parents are the ultimate decision makers. Accordingly, their insights will be valuable as well into developing the overall strategy, and thus should be collected.
2. Customize, customize, customize
The next step is to develop the set of offerings to win over the youth. The term “proposition” here means all the little elements that make up the entire experience for the customer- ranging from the name of the product to the conditions around points redemption, if a loyalty program component were to be used. It covers the selection of channels to be used, to the variety of checking products to be offered, to the partners to work with.
In developing the overall proposition, we strongly recommend banks customize the offerings around the multitude of youth micro-segments. The under-22 year olds aren’t just split along age groups, but among gender, nationality, financial status, education level, spending behavior, etc.
These differences need to be reflected in the products and services, even if through minor customizations. It could be reflected in the color of the debit card (different for boys and girls), in the branding (using different characters in different neighborhoods to appeal to different nationalities), in the product usage rules (spending caps that can be put on different categories, monitored by parents if so desired, or none), or even in the communication method (heavily relying on the internet to interact with more affluent, better educated youth vs. relying on more traditional channels like SMS’ and call centers for others).
It is also recommended here that the overall proposition be concept tested through another round of interactions with various youth micro-segments and parents. Their feedback on the offerings will help ensure the most optimum overall proposition is in place before going to market.
3. Enhance, enhance, enhance
The youth segment is a constantly changing, evolving, adapting one – what they like today is out of fashion tomorrow, what they find “not cool” now becomes the opposite a short amount of time later. Banks need to realize that this segment is constantly shifting, and accordingly, much closer manage the propositions offered to them.
As such, a constant check should be kept on the needs and preferences of the various youth micro-segments, and if shifts are identified, changes should be made. This can be reflected in a change in the channels relied on for building buzz (i.e. shifting from MySpace to Facebook), a change in the slang used in all marketing communications materials, a change in the program partners (especially around loyalty program partners, whereby some brands seem trendy today can reflect negatively on the program down the road), or a change in the way the bank is positioned (reflecting possibly a shift in the culture and norms of the youth in the country).
One bank recently found that 26 of its youth segment customers do not generate as much revenues for them as does one average adult customer. As unattractive as this may sound and seem in the short-term, banks cannot afford to ignore this segment. It is these children and teenagers and college students that will be the core revenue source for the bank down the road. It is the average person in this segment that holds the highest potential lifetime value. The better they are served today, the more hooked they’ll be for life.
To learn more about developing banking youth segment offerings, please contact firstname.lastname@example.org.