Retention, retention, retention

Scott Philipson

June 24, 2006

Very soon I will go and get my hair cut and visit the same barber shop I have been frequenting for a number of years now. There is nothing particularly special about them – they are not some super global brand where I end up looking like Robbie Williams (much to my wife’s disappointment). The job they do is fine, it meets my needs and moreover, I have formed a habit. This habit doesn’t look like being broken, but I wouldn’t say I was especially loyal, so I suppose if the staff set up their own business next door I would switch barbers – my loyalty is more with the people than the shop itself.

Here the barber shop has been able to retain my business simply by doing a good job. This is one example of customer retention, at its very simplest. At the other extreme there are companies – including high-street lenders – that are using very sophisticated client retention systems to model their customers and devise truly segmented customer retention strategies. There are a host of varying techniques that can be used for customer retention, and brokers should develop one that is relevant to their business, starting at the basics.

Convenience or brand image

These days there is very little loyalty to brands, despite all the attempts of loyalty cards and reward schemes. Think about products and services you buy regularly and ask yourself why. Why is it you go to the same supermarket or petrol station – is it convenience or brand image? Why do you go to the same old pub or restaurant – is it because of the service and people or something else?

Personally I believe people are far more loyal to individuals than brands and this is where intermediaries can win points over the high-street. This is because people buy from people, so an important element of intermediaries’ customer retention strategies should be based upon staff retention. Think back to the example of the barber shop above – how many times have clients been lost because someone jumped ship to another intermediary?

Back to basics

Anyway, let’s get back to basics. It probably won’t surprise you to learn that the best way to attract new business is through your existing clients. It’s the old adage that it costs 10 times more to attract a new client than retain an existing one. It is a fact that simply holding on to your existing clients can lead to increased profits. Some studies have shown that even a small improvement in customer retention can increase profitability by as much as 95 per cent. Now wouldn’t that be nice?

In today’s world, where we have more demanding consumers, more technology and the increasing use of online search engines and choice, keeping hold of clients is becoming harder and harder. It is therefore essential everyone in your organisation understands and embraces the need for good service, because time and time again, studies have proved one single bad experience can be enough to cause a client to stray and look elsewhere. These need not be complex solutions and can be as straightforward as doing the simple things well. Things like answering the phone promptly, returning calls, having an easy-to-navigate website and, of course, deploying the philosophy of under promise and over deliver.

Product focus

In today’s mortgage market, remortgage business is big business, unlike the past. Because of this cultural shift, intermediaries can generate repeat business with their clients. But this won’t happen automatically and the high-street lenders will be marketing to them too – be it through national advertising campaigns or more targeted initiatives; so never assume it will happen. The important thing here is repeat business is possible today, not just because of the growth in remortgages but also because of the growth in specialist mortgage products.

Consider firstly non-conforming, a product that for years was shunned by many intermediaries. Today most intermediaries are active in this area and a key component to non-conforming is credit rehabilitation. Research carried out entitled ‘Non Conforming Mortgages in the UK: A Consumer Perspective’, sponsored by GMAC-RFC, dug up a number of very interesting findings. This included the real value of credit repair, or rehabilitation, not only on someone’s credit rating but their quality of life too. For example, the research showed 40 per cent of people stated obtaining a mortgage had increased their quality of life, while 53 per cent said it had stayed the same.

To put another perspective on this, how many mainstream borrowers have seen their quality of life improve since taking out a mortgage? Now this could be due to the fact that this type of lending has allowed them to purchase their own home and the security this brings, or it could be due to the capacity to rehabilitate their credit situation. Whatever the reason, with non-conforming, an intermediary has a very satisfied client and one that could become a very good client, and indeed adversary.

Intermediaries can revisit their clients in the future, reassess their situation and perhaps decide a more mainstream product should now be applied for, depending on their circumstances.

Another product that can assist client retention is buy-to-let. Recent analysis by the Association of Residential Letting Agents (ARLA) showed that a massive 70 per cent of landlords had more than one property, with the average number of properties in a portfolio being around about five.

Buy-to-let offers a great opportunity for incremental mortgage business through existing clients – not only can they generate more purchase business, they will also be remortgaging properties too. What’s more, buy-to-let is probably the only mortgage product discussed outside the industry, due to its high profile, so your buy-to-let clients are very important and can be great sources of generating incremental business on your behalf.

80/20 vision

Segmenting clients by product is one way of tailoring your approach. Another is to focus on the value of your client. If Pareto’s rule is true, then roughly speaking 80 per cent of your sales are generated by 20 per cent of your clients, so you, and people in your business, should really know who the top ones are and focus more attention on these. The lifetime value of a client is enormous for a number of reasons. One way to do this is to consider everything they will ever buy from you, not just today, but in the future as well.

Identifying your top clients may go beyond how much business they directly supply and you could look to see how much potential there is for indirect business, because some clients will be better advocates of your business than others and are likely to refer friends and colleagues to you.

Never assume

You should never assume there is any loyalty within your clients, even those you have worked with for years and years. Now just because you know this and appreciate the importance of looking after your clients, does everyone in your business? It is important all your employees understand the power they have to make clients feel welcomed and valued, and what this means for the bottom line too. By ensuring every experience your client has with your business is a positive one, you’ll increase the chances that they will remain your client. This is not rocket science, but often gets overlooked.

It is also important that you stay in touch with your clients’ needs, which will be constantly changing. In today’s market, speed and certainty are of paramount importance, unlike a few years back. That is why brokers have been demanding better service from lenders, who have, in turn, been investing in technology. Needs change, so you should keep tabs of what is important to your clients, and the best way to do this is ask them. You need not do expensive research for this and using polls on your website is useful tool. Research is important because for most companies, only 10 per cent of complaints are articulated by customers. The other 90 per cent you won’t know about and the customer, or client, simply does not use you again. So wherever possible, find out what your clients thought of your service through some form of satisfaction survey. Those that score negatively could be targeted and retained, when otherwise they would have been lost.

Lost souls

Nonetheless, losing clients will be inevitable. However don’t assume you can’t win them back because you can. Research has shown a business is twice as likely to successfully sell to a lost customer as to a brand new prospect. Yet winning back lost customers is frequently the most overlooked source for incremental revenue. This is because most firms consider a lost customer a lost cause. So dig up your old files and you never know, you may find some additional business.

So in summary, client retention is vital to intermediaries. Developing ways to keep hold of your clients need not be complex, as often it is simple, common sense thinking that will lead to the best results.

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