In recent years, bankers have become painfully aware of the tremendous untapped profitability within their retail customer bases. The key to unlocking this potential is to further penetrate and up-sell the captive audience.

Case in point: A recently completed strategic planning engagement for a $4 billion-asset commercial bank with 120 branches and 200,000 customer households. An analysis of the bank's customer base revealed that the retail bank could generate an incremental $25 million in after-tax earnings over a three-year time horizon by cross-selling each retail banking customer household an additional 1.5 products.

Losing Ground fast

As a group, U.S. banks hold an enviable position with consumers: To be viewed as the primary financial institution, a financial provider must have either a physical presence or the consumer's checking account-two hallmarks of the banking industry.

But banks are losing ground because consumers also require superb product, pricing and service capabilities, things banks aren't delivering. As a result, they are missing out on significant strategic opportunities.

Although research indicates that Baby Boomers are interested in consolidating their business with one financial institution, for instance, they don't believe any one bank can address all of their needs. Fifty-three percent of all U.S. households would prefer to have their financial needs met by one institution, but they doubt that any one bank will provide the value proposition, the level of service, and the financial acumen they can derive from using multiple providers.

To combat this and implement a truly customer-focused strategy, banks must address five vital issues that hinder their ability to serve as a full-service providers of financial services.

n Strategic issues. More often than not an overall marketing strategy is not in place to focus and prioritize the marketing initiatives of the consumer market. Many bankers believe that their marketing planning and priority-setting processes "could use an overhaul." Through interviews they reveal that management's attention is too often focused on product sales to the detriment of identifying and capturing relationship opportunities.

Typically, there is no universally accepted retail marketing strategy and related segmentation scheme within the organization to guide strategic marketing planning. Instead, banks generally subscribe to several market segmentation studies; none of which are acted upon.

n Service issues. Banks often neither adequately determine which consumer segments deserve higher levels of customer service nor price the relationship to incorporate the customer's preferences. As banks have provided incentives to consumers to stay away from traditional branches through pricing, consumers have become hungry for convenient access to their accounts via telephone banking, ATM networks, and the Internet. This "new" convenience has introduced "new" competitors who are aggressively bombarding consumers with more product choices and greater perceived benefits.

n Business development issues. Because bankers are driving customers away from expensive face-to-face sales and service, they are reducing the number of opportunities they have to cross-sell. As a result, some foresighted banks are developing sophisticated marketing approaches using knowledge-discovery and data warehousing capabilities to identify consumer needs and match those needs with customized and targeted product offerings.

In the panic to develop these capabilities, many companies have made significant investments in marketing information and data warehousing/knowledge-discovery capabilities without a comprehensive database strategy. Instead, these systems operate in a vacuum and are not integrated with the sales channels. Often, the information contained in these repositories varies and emerging capabilities are not suited to specific business-line objectives.

n Pricing issues. Sixty percent of all U.S. households say they are likely to consolidate all accounts with one institution for economic benefit. But, even with economic benefits, consumers still resist consolidation. One reason for this reluctance is that they resent the financial gains they perceive banks make off their relationships. In particular, high punitive and convenience fees have created an overall negative image in the minds of consumers.

To be successful, banks must change this perception by providing meaningful economic incentives for customers to consolidate relationships and maintain higher balances.

n Staffing issues. Banks can no longer hire the same types of employees they hired 10-12 years ago. Today banks must focus on professionalism, communication skills, and technological know-how when searching for new hires. Qualified candidates should possess an understanding of the sales process, as well as the ability to act as the bank's representative to consumers in need of financial advice.

In addition, this new breed of bank employee must be empowered to instantaneously resolve issues that arise in consultations with consumers.

The solution for institutions is not complex. It is simply understanding consumer needs and focusing resources on the most valuable customers; selling products and services consumers want; using an integrated product/delivery system approach; and providing economic benefits for multiple service relationships.

new Paradigm needed

A new marketing paradigm is required from banks . Attention must be placed on improving service to priority market segments and introducing highly targeted products and relationship-based pricing. These products should address consumer convenience needs and expanded product and pricing needs by providing incentives for maintaining multiple service relationships. And, increasingly, share of wallet and share of appealing segments should be the key performance measurements used to gauge success.

So, given the dynamics of the competitive landscape, can banks ever hope to regain their foothold with consumers? There exists a window of opportunity for bankers to strengthen existing customer relationships by establishing themselves as a trusted source for personalized financial services and advisement. But, as long as consumers perceive banks as "pushers of products" and not "fulfillers of needs," they will not regain their preferred status.

Chuck Bruney is a senior vice president of Speer & Associates, Inc.

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