Trends in Customer Loyalty and Acquisition Strategies in Europe 2007

Introduction

Lenders are having to contend with the issue of decreasing customer loyalty, as customers shop around more and switch providers more often. So how should lenders look to maintain customer loyalty and what do customers look for when considering switching providers? Moreover, which lenders are addressing this challenge successfully?

Scope

Looks at the key drivers of customer loyalty and its state across European retail banking markets. Analyzes which factors are most important to customers when considering staying with or switching providers. Provides a number of case studies of the lenders that are succeeding in the customer retention and/or acquisition areas.

Highlights

Branch managers surveyed believed that an increase in consumer awareness and the growth in online banking are the principal reasons for customers shopping around more than they used to a few years ago. Allied Irish Bank’s ‘be’ credit card is particularly effective in both customer acquisition and retention; by firstly offering a highly competitive discounted APR and then by varying the APR by how much customers spend after a period of twelve months. Banco Popular in Spain excels in cross-selling to existing customers as a way to build up customer loyalty. Unlike its larger competitors, the bank uses CRM systems, its brand image, and customer service to cross-sell products. Such a strategy has been highly successful for the bank, which is now known for its ongoing success in cross-selling.

Reasons to Purchase

Gain a thorough understanding of the customer retention issues lenders are facing and what they are doing about it. Identify and evaluate the most successful strategies in retention and acquisition in your market. Understand where the opportunities lie in customer retention and acquisition and what you can do about it.

CHAPTER 1 INTRODUCTION 10
What is this report about? 10
Scope of the report 10
Who is the target reader? 11
How to use this report 11


CHAPTER 2 DRIVERS AND TRENDS IN CUSTOMER LOYALTY 12
Introduction 12
Customer loyalty is an increasingly important issue for European lenders 12
Customer loyalty is declining across all retail banking markets in Europe 12
Increased consumer awareness has been key to this change 13
Yet, customer behavior differs across national markets 18
Customers in the Nordics and the UK tend to shop around the most 18
However, the extent to which customers shop around depends on the product they are buying 21
Value for money is the main feature by which customers choose a product 22
Though not many strategies are successful in maintaining loyalty, customer service initiatives are the most effective 24
Some regions differ from the overall picture more than others 26
Going forward, lenders will need to adjust their customer loyalty and acquisition strategies if they are to stay ahead 26
The customer loyalty issue is only going to get worse in the long run 26


CHAPTER 3 BEST PRACTICE IN CUSTOMER RETENTION AND ACQUISITION STRATEGIES 28
Introduction 28
A number of lenders across Europe exhibit well-devised and sound customer retention strategies 29
Banco Popular cross-sells to maintain and build customer loyalty 29
Banco Popular has continued to grow in a competitive Spanish retail banking market 29
The bank excels in cross-selling to existing customers as a way to build up customer loyalty 29
Unlike its larger competitors, the bank uses CRM systems, its brand image, and customer service to cross-sell products 30
Such a strategy has been highly successful for the bank 31
Turkey's Garanti Bank's credit card loyalty schemes have become a model for competitors worldwide 32
Garanti Bank's Bonus Card loyalty scheme has become well-known 32
The Bonus Card uses a highly sophisticated points based loyalty scheme 32
Moreover, since the success of Bonus Card, Garanti Bank has since launched a new and more innovative scheme 33
Allied Irish Bank's 'be' credit card varies the APR according to how much consumers spend 34
AIB's strategy depends upon relationship banking in order to cross-sell products 35
AIB uses one pricing strategy to acquire and then two different pricing strategies to retain customers 35
Such a strategy also fits in well with Irish consumers' preferences on how they choose a credit card provider 37
Other lenders exhibit robust acquisition strategies 38
Alliance & Leicester uses pricing and aggressive advertising on current accounts 38
Alliance & Leicester has become well-known for its aggressive approach to current account acquisition 38
The bank acquires by aggressive introductory pricing, marketing and packaging 38
The bank's strategy is yielding returns 40
A price-based acquisition strategy makes sense given that UK customers choose a current account based on price 40
Raiffeisen Bank in Hungary is using innovation to build up its credit card business 41
Indeed, Raffeisen Bank's new card fits in well with how Hungarians choose a credit card 43
In conclusion, lenders should look to improve their own loyalty-building and acquisition propositions 45
There are a number of questions lenders should take into account 45

CHAPTER 4 APPENDIX 47
Supplementary data 48
Supplementary data tables related to Chapter Two: Drivers and Trends in Customer Loyalty 48
Supplementary data tables related to Chapter Three: Best Practice in Customer Retention and Acquisition Strategies 54
Research methodology 55
Definitions 55
Balances outstanding 55
Credit card 56
Current account 56
Debit card 56
Gross advances 56
Mortgage 56
Personal loan 56
Relevant links 57
Relevant readings 57
Future Readings 57
Datamonitor's custom research capabilities 58
Retail Banking Team contact details 59


List of Tables
Table 1: Do you think more customers shop around in general for financial services products more than they used to a few years ago? 48
Table 2: Which of the following factors have influenced more customers to shop around in general for financial services products than they used to a few years ago? 49
Table 3: The Nordics: Which of the following factors have influenced more customers to shop around in general for financial services products than they used to a few years ago? 49
Table 4: Southern Europe: Which of the following factors have influenced more customers to shop around in general for financial services products than they used to a few years ago? 50
Table 5: To what degree do you think customers shop around different providers rather than buying from their main bank automatically for credit cards, personal loans and mortgages? 51
Table 6: For the following three product categories, could you give us your estimate of what percentage of customers you think shop around different providers rather than buying from their main bank automatically? 52
Table 7: For the following retail banking products, which features of the product offering do you think are the most important for customers when selecting which provider to go with? 53
Table 8: In your opinion, how successful are the following techniques in maintaining loyalty? 53
Table 9: UK: Which features of a current account do you think are the most important for customers when selecting which provider to go with? 54
Table 10: Hungary: which features of a credit card do you think are the most important for customers when selecting which provider to go with? 54
Table 11: Ireland: which features of a credit card do you think are the most important for customers when selecting which provider to go with? 55


List of Figures
Figure 1: The great majority of European banks are finding that customers are shopping around more than they used to, 2006 13
Figure 2: Increased consumer awareness in particular has led to customers shopping around more than they used to, 2006 14
Figure 3: Unlike the rest of Europe, banks in the Nordics are seeing customers shop around more because of the growth in online banking as well as an increase in consumer awareness, 2006 15
Figure 4: In Spain, Greece and Italy, an increase in competition between players has also been particularly crucial to customers shopping around more, 2006 17
Figure 5: More competition leads to consumers shopping around more, 2006 18
Figure 6: Customers in the Nordics and the UK tend to shop around most for credit cards, personal loans and mortgages, 2006 19
Figure 7: Customers shop around most for mortgages and personal loans, rather than credit cards, 2006 22
Figure 8: Value for money is most important when choosing a mortgage, personal loan, credit card or current account, 2006 23
Figure 9: Across Europe, customer service initiatives are the only technique which has been significantly more successful than others in maintaining loyalty, 2006 25
Figure 10: On its website, Banco Popular tends not to highlight a product's price, but rather its characteristics, December 2006 31
Figure 11: Garanti Bank's Flexi card allows customers to choose their own interest rate and bonus scheme, December 2006 34
Figure 12: AIB's rate for those customers it wants to retain is competitive, November 2006 36
Figure 13: AIB's acquisition and retention strategy ties in well considering that Irish customers choose their credit card mostly by value for money, the convenience of a single provider and customer service, 2006 37
Figure 14: According to Moneyfacts, Alliance & Leicester offers the highest interest rate on current account positive balances, December 2006 39
Figure 15: UK customers choose their current account mostly on the basis of price, 2006 41
Figure 16: An existing relationship or a personal recommendation is most important to Hungarian customers when choosing a credit card, 2006 44
Figure 17: Core consulting capabilities 59