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Hitting the target

By their very nature, financial services companies need to work hard to achieve sustained growth. With such diverse product ranges consumers are faced with a wealth of choice from a wide range of brands.

On top of this, diversification into new markets and retention of existing customers have been big challenges for even the most established financial brands – especially in an ever-changing economic environment.

In today&#39s world, how can these brands continue to grow and increase customer value?

The answer for many has been to look at how their brands can stretch into new products and markets – offering consumers a full range of account services combined with offers of pensions, credit cards and loans.

Some brands are trying to push this further, making services such as car breakdown cover and personal insurance available alongside their core account offer. But this kind of activity needs to developed carefully.

Successfully using a brand to offer other products and services requires credibility in that new market and consumer acceptance. Without a rigorous approach to product development, new pension offers and investment services can just as easily be damaging as beneficial.

Brands need to develop according to consumer need and acceptance. Any “add-ons” of new services must be relevant as part of existing relationships with consumers while offering something new to potential customers. Brands need to know who they want to target and how they want to evolve to be able to focus on these goals effectively.

Two key reasons why so many new products fail is lack of consumer research in the new market sector and poor understanding of how the existing brand can position itself as a provider of a new product.

Our research has shown that customers are often confused by a multiplicity of offers from one brand. Take for instance the response from customers of credit card companies: “Why do they want to sell me wine or flowers? What I need from a credit card company is credit.”

Traditionally, concepts are born within the marketing department and then – if researched at all – taken into focus groups for verification.

Unfortunately this method of testing is flawed. The consumer – the most important factor – is being brought into the process at the end rather than at the point of conception.

Brand extensions and new services often fail because they have not been sufficiently researched before launch and are instead heavily marketed to consumers in the hope they will buy into the idea – even though the offer may be irrelevant or unsuitable for many.

But the use of data-driven marketing practices has meant that the companies which have developed the most innovative and brand-complementary products and services have done so through a detailed understanding of consumer needs and motivators as a starting point in the new product development process.

It would be wrong to attribute guaranteed success in new product development solely to data analysis but it does give brand extensions and new products more of an advantage to succeed.

Understanding data introduces an understanding of consumer behaviour which, when coupled with traditional consumer research, can lead to stronger new product development. In other words, the customer – not the marketing director – drives development.

Database analysis is the key starting point to making this happen. For example, there could be many different reasons why the business is not growing at the desired rate. New customer growth may be declining, existing customers may be switching to other brands or average customer values may be falling.

Examining and interpreting the data will help to develop products suitable to the customer base, such as retention products, loyalty schemes or cross-selling opportunities.

Defining these customer segments can be done in a variety of ways but the first step should be to identify the most valuable customers – and those most likely to move on from the brand.

It is widely believed that the Pareto rule applies to most businesses – 80 per cent of value coming from the best 20 per cent of customers. Identifying the “high-value” customers and developing services specifically for them is a prerequisite to increasing profit margins as well as ensuring their continued loyalty.

Many of the high-street banks have started to realise the need to concentrate on and respond to the needs of their best customers and are beginning to reap the benefits.

Using their customer information new products are being specifically developed for consumers at the top end.

For instance, new account products which offer much more than standard money transmission facilities – cheaper and preferential rates on other products and access to other lifestyle-related products such as stockmarket trading and travel.

Aimed specifically at the highest value or indeed the highest potential value customers, the banks are innovating to develop more income through fees, loyalty through better tailored services, and cross-selling through effective product bundling. The clever thing is that the core product is still just a repository for the customer&#39s money.

The lesson for commodities such as utilities is that they work to the same formula. By looking at a specific segment of customers and the opportunities they present, the banks can offer services and products which will seem tailor-made to their needs.

Alongside services aimed at high-value customers, financial brands can focus on those consumers who are most likely to move on from the brand. They can analyse data on this group and introduce strategies to focus on keeping the core customer base.

They can also work at improving the relationship between brand and customer, to ensure the best possible service is given. Due to the range of services that high-street and internet banks are now offering, all are competing for both acquisition and retention of customers.

Most often, customers are tempted by other brands offering perhaps superficial benefits. By encouraging consumers to choose the brand&#39s services such as investment provisioning – which are created to appeal to and suit them specifically – they can focus on expanding and retaining a stable customer base with core account services, combined with a service relevant to the customer.

Analysing past behaviour of customers through evidence of transactions held on company databases can give a great deal of insight that can lead to spotting new product opportunities. Predictive techniques should then concentrate on using data to indicate consumers&#39 likelihood to react in particular ways – their propensity to take out a pension or mortgage, switch suppliers or to change value are such hypotheses that can be statistically modelled on individual customers.

In the long term, greater knowledge of customer attitudes and behaviour is likely to benefit any new product development or brand extension plans.

Data, if used effectively, can identify customers who have a greater likelihood to respond in a certain way to marketing communications.

New product development can be focused specifically on those most likely to respond positively.

The essence of this segmented approach is avoiding developing new services and intensely marketing them to consumers for whom they hold no relevance – but at the same time appealing to other segments in the customer base.

Likewise, data can ensure brand extensions are relevant to new markets and customers. By not utilising this information, marketers risk damaging the brand for these all-important customers.

Using and analysing data helps to identify the need for new products, while giving some indication of their likelihood of success.

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