Rival Consumption and Customer Profitability in Banking

The consumption of a product by one person prevents consumption of that product by another person. Some products--like food--have extremely "rival consumption." One person, and only one person, gets the benefit of eating that last cookie in the pantry. In business, rival consumption is known as eating your competition's lunch. It means you have a sustainable competitive advantage that allows you to consume market share, while your competition goes hungry. Many banks seem focused on the rival consumption of checking accounts. I've been offered everything from cash to a cargo locker bag to open a new account. The checking account is considered a core banking product and key to a customer relationship. It's easy to understand the focus; if the bank owns the checking relationship chances are it has locked its competition out as it relates to that product. In addition, the bank has now established a beachhead to expand the relationship. It's not likely this mass marketing approach to new business development will soon end. Marketing departments seem to revel in the thrill of the hunt for new customers. Eating your competition's lunch must feel like comfort food, and much more satisfying than harvesting current relationships for profitability. The downside of mass market--rival consumption--is that unwanted pounds of unprofitable customer relationships may soon add up. In fact, for all you know, your competition may have been more than happy to have supplied your lunch! That new checking account customer who accepted your offer may look sweet, but taste unprofitably bitter. I am not the proud owner of a new cargo locker bag. For me, the pain of disconnecting and then reconnecting my direct deposit and automatic drafts outweighs the value of any free gift or money that might be offered. In short, a value proposition that would entice me to leave seems to be missing. Would you conclude that my bank appears to have its competitors locked out? Not so fast. I'm satisfied with the relationship, but I wouldn't call myself loyal. My current provider has missed plenty of opportunities to cross-sell products to secure my loyalty, enhance its profitability and convince me to stay. For example, where was the offer for a safety deposit box during my mortgage loan process so that I could secure and store my loan documents and other important legal instruments? When I refinanced my mortgage it was quite clear that my loan officer did not have a complete picture of my relationship. In fact, the sales and marketing activities are siloed around products, rather than around me. As a result, it will be very difficult to move me into the loyal category. Customer profitability is about nutritional profitable consumption and not just rival revenue consumption. Nutritional consumption as it relates to marketing means developing loyal, profitable customer relationships by selling the right product to the right customer at the right time, and keeping your competition from consuming your profitable relationships. In addition, it means understanding the characteristics and behaviors of profitable customers so you can strategically acquire more just like them. How do you know if you are nutritionally consuming in a marketing sense? First of all you need to make sure you have access to and can read the complete nutritional content! Many marketers are working without an integrated view of the customer. Customer data is scattered throughout multiple systems and platforms, and they have limited technology to consolidate that data to create a complete customer picture. Visibility beyond everyday debits and credits is limited, and the ability to develop a profitable customer centered strategy is not possible. Customer transactional data from back-office core systems and front-office CRM systems must be linked with financial information so that calculating individual customer profitability reflects the total value of the relationship. The technology infrastructure for supporting this single view will include data warehousing and ETL processes, as well as data quality components. In addition, activity based costing and behavior monitoring applications will expose the real-time relationships between customer interactions across multiple channels and the cost-to-serve components that drive individual customer profitability calculations. Advanced marketing and predictive analytic applications could then provide proactive firepower that demonstrates the ability to anticipate additional relevant needs. Identifying, segmenting, and targeting customers based on value can be challenging, but the rewards in profitable growth are considerable. The time is right to move off the rival consumption diet. About the Author: Alan See is senior CRM strategist for SAS's Customer Solutions and Alliances and serves as an associate faculty member for the University of Phoenix's College of Business & Management. He holds BBA and MBA degrees from Abilene Christian University. Contact him at Alan.See@SAS.com