Leveraging the retention lifecycle.

All customers are at some stage in the retention lifecycle with the bank, and each customer has an associated lifetime value. The same holds true for retained customers and those we lose to attrition. Understanding the process and the relationship cycle of each customer is critical to increasing the retention rate and maximizing lifetime value to the bank (the revenue potential customers represent if we are able to maintain their relationship through their lifetime). Let's look at the four main parts of the retention lifecycle.

"New" household

As we have previously discussed, the single most effective way to enhance the "new" customer relationship and maximize lifetime value is to have a consistent on-boarding process. On-boarding is the process of integrating customers into your organization and ensuring that their personal data is correct, that they understand the account and services purchased, and have a clear understanding of the "true value" the bank offers beyond their initial purchase. One study concluded an on-boarding program offers clear and substantial retention and cross-sell benefits.

"Existing" household

The highest-value customer retention strategy for existing customers is to classify each type of customer (silent attrition, ideal and unhappy) and create appropriate initiatives to change his or her behavior. There are statistical models and consulting firms that can assist with the "scoring" of households with their relative attrition risk. For instance customers in "silent attrition" are those that have reduced or stopped using a product, but where the account is still open. For instance, checking accounts with debit cards that have little or no debit card activity from a previously active account. For these customers you must determine why they are no longer using your product (are you their "back of wallet" card?) and create initiatives to change their behavior. The key is integrating the score into all marketing strategies and tactics and understanding the core reasons "why" attrition risk is elevated.

"Exiting" household

Customers that are "exiting" are those customers that have started the process of moving their household to another institution or are in the process of considering that move. The first step in creating bank customer retention strategies for "exiting" customers is to effectively identify the at-risk "exiting" customers.

Indicators of customers considering a move include requests for loan payoff, declines in deposit balances and so forth. For customers in the process of moving their business, you will need to understand the product drop cycle, i.e., the order in which customers drop your products before leaving. With this information you can create effective customer retention strategies.

"Exited" household

Generically, "win-back" strategies designed to recapture customers are the most expensive and lowest ROI tactic for attacking attrition. By the time a customer has left your institution, they have "mentally" moved on and away from your bank. However, if you do choose to execute win-back strategies, then you will need to carefully manage the process of communication and the extent of incentive that your staff can offer to customers. For instance, you will need rules to tailor the incentive level to each specific customer in order to ensure that the level of inducement is not larger than the future business generated by that customer.

By understanding the lifecycle of our at-risk customers, we can focus our strategy and tactics on the highest value activities, based on the cycle of each customer. The holy grail to retention is "knowing" when and how a customer may leave. "Scoring" each customer allows us to get as close to that crystal ball knowledge as possible.

Bruce Clapp, CFMP, is President of MarketMatch, a marketing communications firm in Clayton, Ohio, that works exclusively with community banks. E-Mail: [e-mail].