A hallowed mantra of our age is "customer centric" or "customer oriented" marketing, recently eulogized in this space. The theory demands that rather than having a limited line of products and services we sell to all comers (the dreaded, allegedly outdated "product centric" marketing) instead we should strive to offer each customer precisely what he needs, whatever that is—even if we have to invent it. And ideally, we don't wait for customers to ask. Instead we process heaps of data to find out their needs.
What an endearing and ethereal image! But in the real world, the marketing policy choices are much more basic.
For instance, just a few years ago Wells Fargo seemingly wanted to issue credit cards only to branch customers and had only limited card market share. Contrastingly, the bank has gained top mortgage market share lending directly to anyone who can qualify, mostly people with no branch relationship. Someone must have pointed out that the bank could emulate this stunning mortgage success by also selling credit cards to noncustomers. A wrenching transition followed—with big changes in card management.
Meanwhile, Bank of America was going exactly the opposite way, likewise via major management changes. The bank went from marketing cards very widely (mostly to noncustomers—the MBNA story) to emphasizing prioritizing to branch customers. Maybe this strategy of primarily cross-selling (which Wells was already abandoning!) was implemented because Wells had been conspicuously more successful—lower losses, higher yields. The two banks were like ships passing in the night.
In principle, and up to the point of diminishing returns, cross-sell can be more efficient and profitable than seeking new customers. Particularly if based on more complete information about present customers. But there is indeed a point of diminishing returns. You should also earn a good return acquiring new customers—and you need them.
So, the right answer is "both of the above": market to customers and noncustomers. The appropriate balance depends on the bank's situation and capabilities. But for any decent product and sales organization, the larger opportunity is selling an appropriate first product to noncustomers.
"Customer centric," the focus of so much praise and aspiration, seems to address only the cross-sell. (No one needs to be told that acquiring new mass affluent customers entails marketing different products than you'd sell to the underbanked.)
In fact, customer centric is often wrong even for current customers.
An example: the head of wealth management for a big bank had a strategy study done and then prioritized cross-sell. Later, he talked about his accomplishments.
One was to reduce the number of money funds the bank sold from over 30 to 10. This favors house products.
Conceivably a sound strategy, but not customer centric. The opposite policy, saying "pick any money fund and we'll deliver it," would be customer centric. Schwab and Fidelity preferred this: "If the customer wants something, he'll buy it. We prefer he buy it from us, even if we don't manufacture it."
The executive's other claimed accomplishment was to greatly increase referrals of wealth management customers for bank loans. Obviously, he made it a goal for wealth managers to get investment clients interested in bank loans.
How can that possibly be "customer centric"? It's taking a single class of products and putting it front and center for attempted sale to his customer population, wealthy people. On the face of it, that's the least likely segment to "need" loans. But can we be sure he's wrong?
Optimal strategy can conflict with customer centric.
As an Amazon customer, you can ask about a vast range of products, using its excellent search engine. Amazon will also make suggestions based on your previous purchases, and on what customers with similar prior purchases also bought. That's one logical cross-sell starting point, though not a complete sales strategy. Amazon also pushes bestsellers to all comers—whether they "need" them or not. Absolutely right.
Target your customer with what he can be expected to buy most profitably, even if it's not your house brand This may or may not include (but surely isn't limited to) what you think he "needs." Even if he's in dire need of budgeting and PFM, there's no point in pushing these to people who won't buy them.
Customer centric is a reductionist truism, meaning little more than "different strokes for different folks." It's simplistic and misleading.
Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was for six years the founding CEO of First Deposit, later known as Providian.