Retail banks are targeting small-business owners to build the profitability of those relationships.
Posted Nov 9, 2004
Bankers and consultants at a small-business banking conference in Chicago say that banks are using CRM strategies to win the business of small companies.
Small businesses are important to banks because they represent much of the economy's growth, they are increasingly sophisticated with increasing complex financial needs, and some small-business owners have a significant amount of personal wealth, as well as their own complex financial needs. The more complex the financial needs, the more opportunity for the banks to sell products and services.
A panel of three small-business owners (who each use different banks) told the bankers in the audience that the best CRM strategy is also the most productive: individualized service. The panelists told bankers that they want to work with financial institutions that take the time to understand their businesses' unique needs, which can include everything from international letters of credit to payroll to direct deposit services.
SouthTrust Bank, for example, augments its individualized service with short (three to five minutes) interviews with small-business customers, a system established by Strategic Metrics. The interviews measure loyalty, trust, and other indications of the customers' attitudes toward and relationship with the bank.
SouthTrust compares interview results against norms from the financial services industry and those of other services businesses. The bank customizes reports for each of its managers, who benchmark their business units against other centers, the market, the region, or the corporation. The survey results impact the financial-center manager's compensation. SouthTrust and marketing research firm Strategic Metrics also use the data to train the bank's staff to understand the small-business customers' needs and to provide better service.
Customer responsiveness, assurance, comfort, trust, and transaction satisfaction are all drivers of customer referrals, says Bob Negri, a bank senior vice president at the conference. Similarly, the primary drivers of customer retention and wallet share are trust, commitment, and comfort. "By focusing on creating loyalty, trust, and comfort among clients, we have improved the client's engagement experience and improved performance," Negri says.
Another way to build relationships with small-business customers is to look for create ways to serve them by understand their unique needs. For example, CIBC in Toronto simplified its credit application process, reducing the time to complete an application by 75 percent, according to bank senior vice president Rob Paterson. The credit application includes information the bank can use to cross-sell other products and services.
Many banks use credit products or a checking account as the customer relationship entry point, but Mike Rizzo, president of U.S. Bancorp's business equipment finance group, recommends that financial institutions consider using equipment leasing as the initial customer sales tool. U.S. Bancorp sells its business leasing package to smaller banks, which can private label the program.
"All small businesses use equipment," Rizzo says. "Cross-selling leases creates a multidimensional relationship that is stronger and more profitable than a single product relationship." Several financial industry studies show that the more products or services a customer has with a financial institution, the less likely they are to take their business elsewhere.
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