The Customer Lifecycle: Five Relationship Management Tools 

In this article, we will analyze a new category of processes designed to cultivate customer relationships. These processes seamlessly integrate into sales and service operations, forming a unified approach that facilitates smooth transitions between products throughout the length of the customer’s interaction with the bank

Customer Loyalty: Myths and Reality 

The prevailing practice for securing customer loyalty is to offer cashbacks. While banks perceive this practice as fostering long-term customer commitment, it essentially functions as a conditional ‘bribe,’ incentivizing customers to choose our product over a competitor’s. The risk is that if a customer’s sole connection with the bank is through high-value cashback, building their loyalty becomes a battle to raise cashbacks rather than enhancing the intrinsic value of the product. 

True loyalty is the result of a positive and enduring customer experience, expressed through commitment to a company, brand, or product. In essence, a customer remains loyal when the relationship proves profitable, comfortable, convenient, and fosters emotional attachment.  

Even more crucial is the question of the true cost of loyalty, or how much we earn from it. NPS author Fred Reichheld himself stated that there is no direct correlation between NPS and revenue per customer. While a customer may have a great experience with your brand, the key question remains: Will they continue to engage? Will they use your bank frequently, buy additional products, or opt for a competitor? 

NPS does not provide answers to these questions. It reflects only the degree of customer satisfaction with past experiences, lacking correlation with plans for further engagement and income per customer. 

Customer Relationship Management Processes 

If a bank prioritizes long-term customer relationships over single-product or credit-centric strategies, it is essential to begin by assessing its inventory of relationship management processes. Typically, contact efforts are reduced to birthday, holiday, and New Year greetings, with some additional messages personalized for priority segments. 

Relationship Management Processes (Fig. 1) are a new type of processes focused on developing customer relationships. 

This graphic on the lifetime value illustrates on the lifecycle illustrates the three layers of processes along the entire customer activity curve (Fig. 2).

Let’s briefly discuss the relationship management processes that have proven effective, working particularly well in conjunction with each other. We have organized them into five blocks (Fig. 3).

1. Maintenance and Support Tools 

The bank assesses the current financial well-being of individuals, families, businesses, or groups of companies. It manages their financial discipline, establishes goals, and monitors progress toward achieving those goals, as well as their financial health and behavior. Providing maintenance and support to achieve financial goals influences the process of cyclical purchases, resulting in a significant boost to the customer’s lifetime value. Game dynamics (gamification) can be employed as a means of engagement, support, and communication with the customer. 

2. Training Tools 

The bank serves as a mentor or coach, teaching customers to solve their problems through training events, workshops, master classes, or webinars. Topics may include financial efficiency, best practices for individual products, or related competencies. For instance, CFO competency development and courses from HR partners proved useful for medium-sized businesses, while topics on transformation and digitalization were relevant for business owners. It is crucial that training sessions focus on providing value to customers rather than adopting a “hard” sales pitch. Notably, A/B testing at Alfa Bank in 2018 demonstrated that a focus on valuable training resulted in a +20% of sales increase after two months compared to a “hard” sales approach. 

3. Solution Selection Tools 

These tools are essential for automating the process of understanding customer needs and behavior, selecting the optimal solution from a myriad of banking products and partner services, and guiding the customer through the product assortment. They aim to model not just standard products but comprehensive solutions relevant to the customer. Primary metrics here include the conversion of traffic to closing sales and, more importantly, the customer lifetime value. 

4. Formal and Informal Communities 

This block focuses on planning and executing events designed to establish relevant points of contact with customers, prioritizing their needs over the bank’s products. The goal is to enhance the sense of belonging to the company. It is crucial to create an environment where customers can engage with others who share similar problems, goals, and behaviors. This may also involve the creation of online communities. 

5. Personal and Business Finance Management 

This block includes PFM[1] and BFM[2] tools that are integrated into both CRM and the customer’s personal account. They aid in evaluating the financial state of the business, budgeting tasks and projects, and planning and achieving goals. Many individuals have grown disillusioned with traditional PFM methods. A new generation of tools, such as mint.com or tink.com, goes beyond basic income and expenditure pie charts. They offer forecasting and “smart” recommendations, taking into account seasonality, type, and frequency of expenses. 

Launching Relationship Management Processes 

It is important to note that these are not ad hoc processes, but a system of interconnected processes overlaid on the customer lifecycle, tailored to each customer segment. While not all customers may fully engage in relationship management processes, those who do present a significant increase in loyalty, product penetration, and revenue per customer. When management processes are well-developed and systematic, achieving an exceptionally high CIR (cost-income ratio) of approximately 20% is possible. 

Many businesses that invest in relationship management processes struggle to quantify their precise impact. We often observe gaps in customer-centric analytics, indicating a lack of correlation between actions and the long-term effects on changing customer behavior over periods of 3, 6, or 12 months. Therefore, it is crucial to establish analytics when launching such processes, ensuring a focus on tangible financial outcomes rather than solely on the concept.  

In more advanced stages of development, we recommend separating the relationship management processes for corporate customer roles from the different behaviors of individuals or family members. Fig. 4 provides an example from a bank’s processes within SME segment, showcasing the different processes for the owner, CEO, CFO, COO, and the client’s employees. 

Loyalty and Bank Revenue 

To conclude, while NPS growth may serve as a valuable benchmark and ambitious goal for management, the key question remains: Will it result in increased revenue per customer? Consider this: what processes, beyond cashback, loyalty points, and partner discounts, are actually being developed in your bank? 

What analytical tools and methodologies are you developing to see the long-term impact on behavior (usage, lifetime, product penetration, etc.) of customer relationship and customer loyalty? 

It is important to realize that in mature markets, practices that were effective for years are no longer sufficient, and what was considered innovative is now standard practice. Customers are becoming more discerning about the value banks offer, highlighting the significance of long-term relationships more than ever before. 

Notes 

1. Personal Financial Management. 

2. Business Financial Management.