By adopting practices more akin to the retail industry, two US banks are being hailed as models for boosting cross-sales rates. Tony Gandy reports on their winning formulae.

In the late 1990s and early 2000s, spending hundreds of millions of dollars on individual customer relationship management projects did not faze big banks. The hope was that by understanding the customer better and putting this information into the hands of customer service centres and the marketing department, customer-centric sales conversations could take place and the customers would buy more.

Success needed to be measured, and the measure of choice became the cross-sell ratio. Firms started to report how many products customers held and bank analysts started to ask for this data – the more products per customer the better. The world has since changed and it is notable that fewer banks now publish this data. They found that improving these numbers was not simply a case of buying a new database and giving call centre staff clever scripts to read.

However, some banks still publish their cross-sales rates, and they are the ones that have been successful.

According to an AT Kearney study, cross-sales rates are 3.3 in France, 2.6 in Germany, 2.3 in the UK and 2.1 in the US. Achieving a high rate is seen as a worthy target. AT Kearney claims that the average profit generated by a US bank customer holding two products at a bank is $150. If the customer holds nine or more products, the return is $1000 or more.

US trailblazers

The AT Kearney statistics show that the US lags behind its rivals in the number of products held per customer household, so it is ironic that two US banks are providing models for improving the sale of financial products. These are Wells Fargo and Washington Mutual.

Wells Fargo places great emphasis on improving the level of customer cross sales, and it has been doing well. In the final quarter of 2006, the average Wells Fargo retail customer held 5.2 products, while the average wholesale customer had six products. The group goal is now to achieve eight products per customer.

Cross sales have been a measure of success for Wells Fargo since the merger between NorWest and Wells Fargo in 1998, when the average customer held three products. Jay Freeman, executive vice-president for regional banking sales, service and development, says: “This success starts with our corporate culture, going back 20 years. NorWest brought a consistent focus on deepening customer relationships. The most effective way of building a long-term relationship is through improving the customer experience.”

According to Mr Freeman, getting the right culture is vital and technology cannot make a firm better at sales unless it has the basic skills available. “Some firms viewed CRM [customer relationship management] technology as a silver bullet. If you have the basic customer skills, then adding the right data is a winning formula. If you don’t have those skills, it will not make you more articulate at sales and service,” he says.

West coast rival Washington Mutual (WaMu) also manages to achieve impressive sales rates. Ken Kido, executive vice-president, retail bank distribution at WaMu, speaking at the BancAnalysts Association of Boston Conference in November 2006, said that the average customer household at his bank held 6.55 products in the third quarter of 2006, driven by its free current account product.

The current account may be a loss-leading product but with cross sales at that level, attracting new households into the bank’s services can translate into rapid rewards through cross-sales opportunities, especially its developing credit card business – though current problems with home equity markets in the US, especially at the sub-prime level, are subduing overall performance.

Some of the success at Wells Fargo and WaMu has been from developing new products aimed at creating cross-sales opportunities and reducing the chances of customers spreading their bets. For WaMu, a key element has been new and innovative free current account services, as well as a simplified online application processes.

For Wells Fargo, there is an increased emphasis on packages offering customers a set of inter-related products with discounts integrated into the package. For example, the Wells Fargo PMA package will offer a customer free current accounts and free bill payments, together with options to add a savings account, credit card, mortgage, loans, and a discount brokerage account. About 63% of new current account customers are taking such a package, with an average of four products per package.

Retailing ethos

The process by which Wells Fargo developed the packages is itself illustrative of how it takes a retailer’s view of the world. “Innovation is absolutely essential,” says Mr Freeman. “While we see it as evolutionary rather than revolutionary, you have to have the right discipline. You have to accept that most of the innovations you test will not work in that they may not be a winning product with customers or they may not be scalable, but you have to keep on testing new innovations.

“For example, our Wells Fargo packages were developed by our Colorado region, and we then helped to develop the packages and scaled the process across the whole bank.”

More important than the products, however, is the culture in these institutions, which puts the customer and service first, leading to a better and more profitable relationship with customers.

Some European banks want to emulate these success stories. One method they have used is to buy in skills developed at these banks. For example, Terri Dial, formerly vice-chairwoman of Wells Fargo, has been recruited to run retail banking at Lloyds TSB; and Deanna Oppenheimer, formally president of WaMu’s retail services and financial services group, has been recruited by Barclays for the post of UK banking chief operating officer.

Nonsensical comparisons

However, importing skills, in itself, may not deliver a doubling of cross-sales rates because the base line comparisons of performance may not necessarily stand up to scrutiny. According to Accenture partner Simon Jenkins, there is a simple measurement problem that may make translation into European terms difficult. “We are not always comparing apples with apples,” he says.

“Comparisons between Wells Fargo and some of the successful Spanish banks with UK banks do not make sense because they use different measures. The UK rate of 2.1 products includes bundles of products that these other banks count separately. However, organic growth and increased wallet share are clearly the major targets for all banks”.

Wells Fargo’s Mr Freeman supports this view. However, he says that he does have real evidence of his bank’s ability to outperform rivals. “There is no accepted accounting matrix for comparing cross sales and we are often comparing apples with bananas. But we believe we are appreciably better than other institutions and we see this when we acquire new banks and apply our methods to their networks,” he says.

European banks chasing the same goals have other challenges beyond the problem of measurement because the markets themselves are very different. According to Richard McManus of PA Consulting: “We must remember that the US banking market is only just becoming a national market; in many locations there are few national competitors in the local market. There is more competition on most European high streets and, in some countries, a greater desire by customers to spread their bets and use multiple suppliers.”

Mr McManus says he sees hiring the right people as a significant challenge for European banks. “Some US banks found that teachers and the clergy made the best sales people because they can communicate with other people.” In Europe, there is a strong negative attitude to the sales process, making cross-selling even harder, he says. “Raising sales from two to three products per customer seems plausible, even from three to four, but after that the effort and the cost would probably mean a diminishing return on investment,” he says.

Killing the golden goose

The challenge in growing cross sales is to avoid developing a ‘sales at all costs’ culture. Instead, long-term relationships with customers should be encouraged, which allow them to become ‘happy’ buyers as they seek to satisfy their financial requirements. Not all banks will find that easy as they look for quick returns from customers.

All too often, sales incentives are aligned to short-term gain, not long-term retention. Giving staff the incentive to make sales at any cost is one of the worst things a bank can do. Such an overly aggressive stance not only drives customers away, but also exposes banks to the risk that bad sales are made that will be challenged later and increase compliance costs as the sales process is investigated.

According to Mr Freeman, Wells Fargo has developed a more advanced method of building incentives for its staff. “We target loyalty, not just customer satisfaction. Gallup [the market research agency] surveyed 50,000 of our customers per month. This gives us a statistically meaningful sample across our entire network. We can measure indicators of customer satisfaction and customer loyalty. We take action on these results and increasingly our incentive compensation is based on these results.”

The cross-sales success stories coming out of the US are hard to relate to other banks, whether in the US or outside. However, there is a growing customer-first attitude in some banks that is being rewarded by improved customer retention and healthy sales to satisfied customers. For Mr Freeman, getting this attitude right depends on culture and staff: “Half our senior staff started their careers as tellers; this gives them plenty of experience of what customers want.”

Translating that success to other firms may be harder than simply buying the database tools that are used to identify likely customer targets.

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