Unfortunately, most banks have no idea the answer to the title question. It is actually worse than that - most bankers THINK they know who their best customers are. The worst of all is most bankers can’t even agree on what a “good” customer looks like. If the bank cannot agree on what constitutes a good customer then how can you ever expect to get more of them? If this seems like a trick question, give it some thought. Chances are, you are like most bankers. You have answered, “The profitable ones are our good customers.” If you fall into this category, read on, as that definition could be holding your bank back from getting more “good’ customers in the door.
What a Good Customer Looks Like
The confusion among bankers is understandable as few have thought that they needed to sit down and compare notes. Everyone assumes that they have a clear picture of what good is. However, which one of these do you think it is?
Group A: Any customer that has their primary relationship with the bank
Group B: Any customer that has their primary business account with the bank
Group C: Any customer that has their primary business account with the bank and has the desire to take their company public
Group D: Any customer that generates an annual profit and has the same core values as the Bank
Group E: Has subscribed to 5 different products in the last 6 months
Group F: Has loan outstandings in your top 10%
Group G: Has deposit balances in your top 30%
Group H: Has non-interest deposit balances in your top 25%
Group I: Has their primary account at another bank but generates 10+ referrals per year (like an accountant or law firm)
Group J: A loan broker that brings in 15 or more commercial loans per year
Group K: Any customer that generates a risk-adjusted ROE in the top 25%
Group L: Any customer that has a lifetime value in your top 25%
The list really could go on. It is interesting to note that all the above were actual responses that we have received from ONE bank. Unfortunately, this bank is the norm, not the exception. Most banks would struggle with this test.
If feels like all the above could be good customers, you might be right, but that is in fact the problem. If you say, “I don’t care as long as they’re profitable,” then that is even more of a problem as that attitude will surely inhibit your understanding and likely result in less profitable customers, not more.
The reality is that all COULD be good customers and all could be profitable customers. The real question is - which one do you want?
Why the Definition of “Good” Matters
The challenge occurs as each of the above customers is very different in their profile, motivation and persona. As such, without a clear definition of what customer your bank really wants, your marketing dollars and your management talent is likely not optimized.
Profitable and “good” customers look many different ways and the real problem is that neither are attributes that you can search for. If we showed you a room of 10 successful business women, which one would you want to be a customer? Chances are you would try to find some other way to distinguish them. Maybe some would control their business and household accounts, some would be good loan customers, some would be good deposit customers while others might generate a deep bench of referrals. Whatever the case, just as you might do this without thinking, wouldn’t it be better to verbalize and institutionalize that framework so everyone at the bank could be looking for this type of customer?
What a Good Customer Might Be
Chances are a good customer might share many physical attributes like being a notable influencer, or having a large network or having large loan balances. Additionally, maybe like Group C, it is more important to have a customer with certain non-physical characteristic such as intent. Alternatively, maybe customers like those in Group D that share a similar set of values are more important to find. It also could be that a good bank customer exhibits a certain behavior such as those in Group E. Then again, maybe it is pure profit, but what level and what quality of profit?
Below is one bank’s attempt to do just that. They have identified the types of attributes they want, such as intent, product usage, balances, behavior and other items and then a level of profitability. Customers are then plotted with the desired targets falling in the upper right quadrant. The green trend line becomes the quantification of those desired attributes.
Putting It into Action
Getting a clear understanding of what attributes you want in a customer will put you light years ahead of most banks that are willing to take on all customers. That green line above represents an ideal target customer for that bank. Understanding what that green line represents, now gives this bank a model to go after “look alike” customers in a very focused fashion.
By defining what a good customer looks like, not only will you stand a better chance of knowing them when you see them, but your bank will be able to structure its brand to better attract those desired customers.
Submitted by Chris Nichols on December 16, 2015