Consumer loyalty. It’s a phrase that’s thrown around quite a bit these days. But what is it really? Well, the definition is actually pretty simple:
An ongoing emotional relationship between you and your consumer, which determines how likely they are to repeatedly purchase products from you versus your competitors.
This loyalty is a byproduct of positive experiences that drive repeat purchases, utilization of purchases, ongoing engagement, and proactive support. And here’s the thing…everybody thinks their consumers are loyal, and definitely not going anywhere else. And for many, that may be true — but we found some numbers that may surprise you.
It would certainly stand to reason that consumers at community financial institutions got a LOT more loyal after the financial services industry melted down. But between 2008 – 2018, $2.4 trillion in deposits moved from community and regional banks to the three largest megabanks.1 And more recently, deposit growth at the top 25 banks from the end of 2019 to March of 2020 topped $500 billion. That’s half a trillion in three months. And what’s even more concerning is the reason for that last stat was described as a “flight to quality.”
That doesn’t feel like an overwhelming number of loyal consumers. But let’s take a look at where loyalty comes from. There are four kinds of consumers:
- Happy customer
- Loyal based on price or freebies
- Loyal based on convenience
- Truly loyal customer
Out of the four, only one is an actual loyal consumer. The others are easily swayed with better offers, more convenience, or just the promise of greener pastures. So, the first three are all shoppers — and need to be continually sold. If you’re not talking to them, someone else will be.
Digital experiences move consumers.
For years, banks and credit unions have talked about service as a major selling point, but if you want to really compete, you need to add an “s” to the end of that word. It’s all about services for today’s consumers.
Let’s start with digital. The new challenges for community banks and credit unions cannot be addressed by conducting “business as usual.” Especially when it comes to digital quality. According to a Harris Poll from Sept. 2021:1
53% of consumers who move to a regional or national bank do so because they have a better digital banking experience.
47% of consumers who use regional or national banks do so because they have better digital banking.
44% of banking consumers prefer community banks and credit unions, but their digital banking doesn’t meet their needs.
50% of consumers believe digital-only banks have better digital banking.
This introduces a new challenge that can really create frustration for community financial institutions. Whereas some people think digital banking is all about mobile banking and what you can do in it, it goes way beyond that. It’s about how you engage them, how you communicate with them, how you market to them and how you serve them.
The attributes Americans identify as an acceptable digital experience include:
Convenience — “I can do anything digitally that I can do in a branch”
Simple — “Easy access: all the latest bells and whistles”
Unique — “Content and offers designed for my specific needs”
The expectation is a very high-level digital experience. Oddly enough, unique isn’t as big a driver as you might think. The fact is, they still want to do business with community financial institutions that they trust and feel secure with — but they demand simple and convenient.
They’re already shopping — are you selling?
No institution wants to think their consumers are shopping other financial institutions. But let’s be real — today’s consumers have relationships with a number of financial entities at the same time. And, if those entities are smart, they’re constantly selling them more products and services. Based on what we know about loyalty, institutions are gambling if they don’t recognize that every financial provider that does any business with your consumer is a threat to the primary financial institution relationship.
In fact, overall in the industry post-COVID, 22% said they are very likely to switch their primary financial institutions in the next year or two.2 And 24% of consumers said they have opened a bank account in the last 12 months.3 Those are significant numbers.
But what is it that causes these defections? Well, according to a Bain Retail Banking NPS Survey, the percentage of respondents cited these reasons for defecting to a competitor of their primary bank:4
53% More affordable product
36% Better digital tools
36% Simpler purchase process
36% More convenient
If you’re not talking, someone else is.
The past two years have seen a major slash in marketing budgets, especially for community financial institutions. And nobody could blame them; that’s mostly seen as discretionary income that can be cut when needed. But with so many going quiet, there was a lot less noise in the marketing space — and a lot more opportunity to be heard.
During the pandemic, there was a 51% overall increase in digital account applications, and a 37% increase in online applications from digital marketing channels. In other words, those that continued marketing and had a voice during that time saw results from a very captive and receptive audience.
Shopping is high right now. Not being in constant communication with your existing customers is risky. When asked how they found out about a product they purchased from their primary bank’s competitor, nearly 30% of respondents said it was a direct offer from a competing bank. And when asked if they would’ve purchased that same product from their primary bank if an equivalent offer had been made, 80% said YES.4
The key is to stay engaged with your existing consumers while courting new ones. Remember, those shoppers also include your competitors’ existing consumers. There’s an opportunity to gain new consumers as well. What you can’t do is sit back and just expect a high level of loyalty, because it simply doesn’t exist in today’s consumers.
Remember, when you cut marketing to balance expenses, what you’re really trying to do is reduce risk by cutting expenses. But when you do that, you’re also introducing a new risk. The risk of not engaging your consumers while others are.
The competition is H-O-T right now…for ALL your consumers. If you haven’t ramped your marketing back up, you need to.
1 Harris Poll Finalytics AI Sept 2021
2 Insider Intelligence, eMarketer, February, 2021
3 Foresight Research, August 2020, The Financial Brand
4 Bain Retail Banking NPS Survey, conducted with Dynata, 2020 (n=55,800)