Consumers now have more choice than just the big high street banks. We are now being presented with a broad range of financial services brands offering shiny credit cards, celebrity-endorsed current accounts and unregulated crypto products. So it’s important for financial service brands to get ahead of their competition in this increasingly saturated sector.
New players in this market have an aggressive strategy to acquire new customers, based on attracting a high volume of customers quickly with lots of incentive-based marketing. But established financial brands have longer legacy relationships that often aren’t being utilised. The new players also tend to only have one or two products to sell, whereas established financial services brands usually have a catalogue of products to up-sell and cross-sell. Making the most of this competitive advantage through an LTV marketing strategy should be a focus for established financial brands in 2022.
Identifying current and future high value customers
Financial services brands have built long-standing relationships with customers, often spanning decades and sometimes transcending generations. This puts them in a strong position to get more value from customers over their entire lifetime with the brand – their customer lifetime value, or LTV.
More brands should be making use of this competitive advantage in 2022 to understand the triggers that make a high-value customer.
LTV as a concept in marketing is not new for financial brands – acquiring and retaining high value customers is ultimately what financial brands want to achieve from their marketing efforts. Acquiring a large number of customers is important too, but not all customers are valuable – some can even lose the business money. So, defining what constitutes a high value customer is essential if marketing activity is to drive the long-term success of the business.
Current high-value customers
Defining the metrics of high value can start by identifying which customers have been the most profitable to the business over the course of their relationship. Once these customers have been identified, analysis needs to be done to identify commonalities between these individuals.
One element of the LTV marketing strategy is to identify the consolidated profile of a current high-value customer. This could be based on:
- their demographic, such as their postcode,
- their media consumption, such as which channels they engage with,
- their customer product lifecycle, such as which product they first acquired,
- their triggers, such as at what behaviour led to them procuring high value products.
The first three points (demographic, media consumption and customer product lifecycle) can be gleaned through a fairly straightforward analysis. This data may be sitting in an existing customer database or CRM platform and profiles or personas can be created which show attributes of these high-value customers. This isn’t new for most financial services brands.
Future high-value customers
The more complex yet beneficial analysis comes from identifying people who could become high-value customers but aren’t currently. Turning a low-value customer into a high-value customer is a profitable business strategy for a financial services brand. Understanding how to achieve that is vital for creating a profitable brand.
To do this, brands need to focus on the triggers – the illogical and often unexpected prompts that have pushed customers down the road to become a high-value customer throughout their lives. These are the triggers that aren’t perceivable by a marketer’s brain but can be the competitive advantage for LTV.
For example, marketers may hypothesise that a trigger for a mortgage (a high-value product) is when a customer in their twenties starts regularly moving more money from their current account to their short-term savings account. The theory could be that the age of the customer shows they are likely saving for their first property, and this would be an opportunity to engage them with information on first-time mortgages.
But we all know that people don’t behave in obvious ways and there may be unpredictable triggers that push a customer into this new product consideration. Often, this can only be picked up by sophisticated analysis and segmentation of historical customer information and behaviour. This analysis requires data science and algorithmic modelling that is not in most brands’ existing marketing strategies.
Once the profiles and triggers that predict high-value customers have been identified, marketers can use these in their audience strategies to target low-value customers who they predict will eventually become high-value over the course of their relationship with the brand.
Finding current and future high-value customers
Once the brand knows the attributes that makes a customer valuable both now and in the future, they need to work out how to market to both new and current customers that share those similarities. There are already a variety of ways to do this, often using existing platforms and tools that brands already have in their armoury.
Current high-value customers
For current customers, a good place to start is the CRM system which almost all financial services brands will have access to. How does the CRM system segment high-value customers and market to them? Does it track when someone goes into a branch and has a conversation with the bank teller about a loan? If having a conversation about a loan is a trigger for a current or future high-value customer, an email can be automatically sent based on that behaviour. This could also be automated in other owned channels, such as mobile app push notifications or social media messaging.
It can also be based on something as simple as personal detail changes within the CRM system. So, for example, if a customer changes their address on their personal details, the CRM system shows that they have changed from one postcode to another. A script could run across that looking at the house values of the two postcodes perhaps showing they have moved out to a cheaper area and presumably a larger property. This triggers sending a home improvement loan request since they have moved house and need money to make improvements.
Future high-value customers
For future customers, hashed – or anonymised – profiles of current and future high-value customers can be inputted into first-party activation tools which allow you to market to that exact segment of existing customers, possibly cross-selling and up-selling new products.
These hashed profiles can also be used to find lookalikes – customers who display similar attributes to the existing segment – for new customer acquisitions. Different vendors (e.g. Google, Amazon, Facebook) have different lookalike attributes in their models, so the best activation partner to choose may depend on what the brand values highly in its LTV model. For instance, Google allows age and gender in its lookalike modelling, but Facebook doesn’t, so if these attributes are important in the high-value profile then Google could be preferable over Facebook.
This Direct Line case study is a great example of a brand incorporating LTV into its existing marketing strategy using platforms they already had at their disposal.
Culture shift
The biggest challenge to trigger-based LTV marketing is changing the way KPIs are viewed by both marketing departments and the wider business. Shifting established and often comfortable measurement, KPI and bonus frameworks isn’t an easy internal fix, but it will unlock huge value from a brand’s data.
Removing the sole focus on short-term acquisition requires a cultural change and considerable patience. In an LTV strategy, efficiency KPIs such as cost per sale and cost per acquisition are likely to get worse as brands pay more for higher-quality customers. Developing customers into high-value customers will also take several years, meaning a true assessment of the strategy may take a long time.
This culture shift is like putting faith in investing in the stock market versus placing a bet on a football game. Historical data shows the stock market will be profitable and represent higher value than a short-term gamble, but this requires patience, trust and belief in the long-term approach that not everyone has. We can expect to see a greater focus on lifetime value marketing over coming years as financial brands capitalise on their advantages and switch to long-term thinking.
