Customers are the cornerstone of financial sector companies’ operations, and every company strives to serve them in the best possible way. Successful and profitable business depends heavily on well-managed customer relationships. Customers include all individuals and businesses that contact a financial company. The better a company understands its customers, the better it can serve them and design targeted marketing campaigns for different groups.
Better customer relations can be achieved by creating positive impressions and by getting to know the customers and their needs. High-quality, reliable customer service is also key to building strong relationships. Actively offering of services and maintaining interaction with customers further strengthen the connection. The fundamental questions in customer relationship management are Who, What and Why.
Customer segmentation
Financial companies usually group their customers into various segments, which enables the provision of different services and marketing to different groups. The main distinction is made between retail and corporate customers. Retail customers can be further segmented based on their characteristics into different groups, such as young people, the working population and pensioners. Corporate customers can be segmented into small, medium-sized and large enterprises, for example. Another frequently used customer segment are farmers and forest owners.
Customer relationship management
The management of customer relationships is a strategic decision for financial companies and one of their key competitive factors. By developing customer expertise, a financial company can increase both its customer base and market share.
Customer loyalty is built on the strength of the relationship: when a customer is satisfied, this relationship grows stronger. For example, a well-handled complaint reinforces loyalty.
Customer satisfaction depends on the customer’s perception of value, i.e. their personal assessment of the relationship between the cost and quality of a service. A satisfied and committed customer wants to remain a customer and may also recommend the service to others based on positive experiences.
Every financial sector company has its own product offering – the range of products and services it provides to its customers. In order to stay competitive, companies must constantly update and develop their products and services. There are no precise standards for financial products and service offerings, but legislation does impose certain requirements on service content and practices. In addition to legislation and customer expectations, the competitive environment is influenced by economic development, the actions of current competitors, and the entry of new competitors into the market.
Identifying customers’ needs
Customers’ needs change along with social changes and over time. The values that society considers important have a strong influence on the operations of financial companies. These values can shift significantly over time. For example, the increase in immigration and the growing emphasis on environmental consideration already have an impact and will become even more influential in the future. Similarly, as population ageing continues to accelerate, the need for care services for the elderly will increase rapidly. Population ageing also affects the average net wealth of customers: because median wealth tends to peak around retirement age, the average customer will in the future be both older and wealthier than at the moment.
Customer behaviour also varies on the individual level; some live in the moment without planning ahead, while others prepare for the future very methodically. Previous experiences may also sometimes have a strong influence on later decisions. Consumers today are more self-directed and put more weight on the wisdom and reviews of their peers. As a result, they want services to be transparent and simple and want to have greater control over their own affairs. Modern consumers also place greater emphasis on both financial and physical security. They expect companies to act more ethically and responsibly.
Financial companies must adapt to changes in customers’ values and societal norms and develop new solutions to remain competitive in the market. It is crucial for financial sector professionals to understand the diversity of their customers in order to adapt their own ways of working and approach to the values of their customers.
The role of customer service advisors
Customer service advisors help customers find the solutions that best suit their needs, even when the customer has only a vague idea of what they need or want. In addition to the customer’s individual profile, it is also important for the advisor to take into account the organisation’s profitability and income objectives. The ultimate responsibility for the decisions lies with the customer, who must be able to trust the advisor’s expertise and advice. In general, the management of customer relationships depends on a mutual sense of security and trust.
Customers today prioritise effortless and smoothly operating services, and the nature of customer service has changed. The majority of financial services are available online, which enables customers to manage their affairs from their own home. Loan and insurance negotiations can also be conducted online, without the need to visit the bank or insurance company in person.
Customers’ individual economic circumstances and wealth vary greatly. Wealth – also referred to as total assets – can be divided into financial assets and non-financial or real assets. Financial assets include deposits, investments (such as shares, fund units and bonds) and insurance savings, which encompass savings and pension insurance. The majority of a household’s total assets is formed by real assets, which include real property, forests, cars, boats and other fixed property. Customers can also have debts, such as home or student loans. Understanding the customer’s income and expenditure structure is important to offering them services that suit their financial situation.
Income and expenditure
Households’ main source of income is earned income. Another source is capital income, such as investment returns, capital gains and rental income. In addition, customers may receive transfer payments like child benefit, pension, parental allowance, student support or other social security benefits.
Expenditure can vary significantly across different life stages. In addition to taxes and tax-like payments, normal expenses include housing and living costs such as food, rent, home loan instalments and interest, service charges, recreation and travel.
In addition to the customer’s current finances, it is also good to discuss whether the customer foresees any income structure changes or potential additional expenses in the future.
More than half of the financial assets of Finnish households are held in bank deposits. The remainder consists of insurance savings and various investments. The most popular investment products are shares. Real estate investments (for example buy-to-let homes) are considered part of real assets.
Corporate customers
Companies are an essential customer segment for financial sector operators. Corporate clients account for a significant share of credit and deposit activities in monetary institutions. In Finland, there are hundreds of thousands of companies, ranging from sole proprietorships to multinational groups employing tens of thousands of people. The financial services offered to companies vary depending on the size and nature of business of the client company. Generally, large companies are provided with tailored solutions, resulting in close customer relationships and a high degree of personal service. Smaller companies, which make up the majority of the business population, may be offered ready-made service packages.
In addition to company size, its operating model and growth needs influence the types of financial services it requires. During loan application, for example, the collateral offered by an engineering workshop, an IT consultancy and a travel agency will differ significantly, as will their insurance needs. The operating region of the company also matters; does the customer conduct all of its business activities in Finland, or does it have, for example, foreign customers or suppliers in its value chain?
Relationship maintenance is as vitally important in corporate client relationships as it is with personal customers. Regardless of size, companies consider reliability and an established customer relationship as the most important criteria – alongside the pricing of services – when choosing banking and insurance services.
Corporate customers’ service procurement process
Small, entrepreneur-led businesses purchase services much in the same way as retail customers: once they recognise a need, they gather information to inform the purchase decision.
As the size of the company grows, the procurement of financial services becomes more organised. Large companies have dedicated departments for finance and procurement. The benefits and cost of every purchase are carefully calculated.
The procurement process begins with mapping potential service providers. This is followed by enquiries about interest and requests for proposals from candidates. The purchase can be put out to tender through an official invitation to tender. Finally, negotiations take place with the candidate that has been deemed the best. This process forms a ‘funnel’ which gradually narrows down the number of eligible candidates.
Glossary
- Customer segment: A sub-group of the customer base that shares a common trait such as age, wealth, location, company size or business type. Segmentation aims for minimised differences between the members of a segment and maximised differences between each segment.
- Customer relationship management system (CRM): An information system that enables efficient management of customer relationships.
- Offering: A product or service that a company provides to its customers.
- Financial assets: Deposits, investments and insurance savings.
- Real assets: Physical property such as real estate, forests and vehicles.