About 20 institutions are attacking an epidemic of customer attrition with new technology known as "rapid-cycle testing."
The problem, "silent attrition," has been affecting the airline and hotel industries for some time, said Seamus McMahon, executive vice president of First Manhattan Consulting Group, which has developed software and procedures for rapid-cycle testing.
Customers "don't stop going to Marriott, they just go there less and less, and it is no longer their preferred place," Mr. McMahon said.
In banking, the customers tend to withdraw their deposits without going so far as to close their accounts.
Rapid-cycle testing combines the rigors of customer profitability analyses with telemarketing. Once strategies for retaining profitable customers are developed, telemarketers are equipped with dialogue scripts to elicit reactions from particular customer types.
The software analyzes preliminary results and adjusts scripts according to the knowledge gained.
At PNC Bank Corp., the procedure was responsible for cutting in half the outflow of its most profitable customers' deposits.
"A lot of the loss in value was in customers staying with us and decreasing their deposits," said Joseph C. Guyaux, executive vice president of PNC Bank Corp. and chief executive officer of the regional bank. "We used rapid-cycle testing to determine where that was occurring and at what rate."
Once the bank determined which of its profitable customer segments were pulling deposits out, it applied the process both "to cure the illness and to prevent" recurrences, Mr. Guyaux said.
Similarly, First Commerce Corp. of New Orleans uncovered the startling fact that silent attrition was responsible for more than 75% of its erosion.
"I was shocked when I saw the information," said Richard M. Carey, senior vice president of client strategy at First Commerce, which was recently acquired by Banc One Corp.
Worse, a substantial share of customers withdrew money to open accounts at other institutions that offered substantially similar products.
"The real problem was that our clients were not informed of our products and services and not convinced of our financial expertise," he said.
Their experiences are not atypical. Banks alert to signs of deposit runoff can test alternative strategies, including resolving customer complaints or countering rivals' pricing packages.
With its Rapid Cycle Listening Tool software, First Manhattan is "trying to replace alchemy with a 'periodic table of elements' in marketing," Mr. McMahon said.
Besides retention, the process has been used to generate leads for insurance companies, aid in the collection and design of credit card products, and cross-sell to home equity and private banking customers. NationsBank Corp. officials have used the system, acquired from Barnett Banks Inc., in deciding which of the two banks' products it would offer its Florida customers.