Maximising returns from customers is now crucial for asset lenders, says Brian Rogerson, and new CRM methods can help grow revenues

As asset lenders switch their priority once more towards winning new business the wiser ones are brushing up their customer relationship/retention management (CRM) skills.

The reasons are well known in this point of the economic cycle. Whilst customer acquisition must be undertaken – to offset natural customer churn – precedence should be given to customer retention. Selling to existing customers is significantly cheaper and more profitable than winning new customers.

Alistair Wallace, an independent business adviser to the financial services industry, told Asset Finance Europe that acquiring new customers can cost five times more than retaining current customers. He said: “A two percent increase in customer retention has the same effect on profits as cutting costs by 10%. A typical asset lender loses around 10% of its customers each year whilst a five percent reduction in customer defection rate can increase profits from between 25% to 125% - depending on the industry. Overall, customer profitability rate tends to increase over the life of a retained customer.”

Another imperative for leasing companies to work on developing relationships with their existing customers is the current shortage of experienced sales executives. Staff attrition, caused by the recession and the consequent illiquidity in the market, has blunted the front-end capability of many lenders. Until such time as recruitment is back on lenders’ radar (and this may take quite some time since rises in employment traditionally lag behind the upward economic cycle) then existing customers are likely to head their target list.

Richard Carter, director of Icenet confirms the recent growth in demand for asset finance. “There are growing signs that demand is increasing,” he said, “although at the same time this outstrips the supply or availability of finance. So ironically there are two graphs here moving in different directions.”

CRM neglect in recent times

Wallace says: “Building a business based on effective CRM will inevitably have positive bottom-line impacts. Yet the asset finance industry has in recent times favoured transactional relationships over credit relationships.”

“Evidence for this can be found by talking with software companies who tell that, whilst systems commissioned and supplied have robust front- and back-end functions, there has been little demand for powerful relationship management software. Why, you may ask, should lenders spend so much time, effort and money in attracting customers – and then allowing them to leave through either neglect or disservice?”

Tony Langford, head of sales at NetSol Technologies Europe, points to a structural change that overtook the asset finance industry during the time of “new business glut” prior to the recession. “Traditionally, “he explains, “a lender received a new business proposal which was set before the credit underwriting department. Upon acceptance, new business staff would then try to glean from the customer what their future requirements may be. These would then be built into a long-term credit line from which the customer could immediately acquire the assets as needed.”

He adds: “Recently, however, business was done so quickly and with so much time pressure that there was no time to build the relationship and assess the customer’s long-term credit requirement. The relationship therefore became based solely on the transaction in hand. The only time the lender contacted its customers was when it sought to sell them something else – or to collect the payments.”

Reliance on contact centres

Wallace argues that the asset finance industry stands accused of gravitating away from investing in well-trained, field-based sales teams (which nurture CRM) towards relying upon contact centres.

“The perception seems to be,” he stressed, “that a customer-facing field sales force is an unnecessary expense and that all the customer wants is a “cheap deal”, and that technology allied to central contact centres can do everything the customer wants. Sometimes it seems that lenders are focusing on their needs rather than those of their customers.”

By way of illustration he points to a survey undertaken by Rightnow Technologies to discover why customers left a vendor company. The three top reasons given by customers were:

• poor levels of service – 73%;
• quality of product – 31%; and
• price – 25%.

“As part of the same survey,” Wallace said, “they asked senior managers of vendor companies to give their view why customers left. The top three reasons given were:

• price – 48%;
• changed needs – 35%; and
• poor levels of service – 21%.

“Whilst allowing for survey error, what is striking is the disparity between the suppliers’ views and those of the customer. It appears that vendors have convinced themselves that all the customer wants is price – yet the customers are telling us that what they want is to be valued.”

Brendan Gleeson, global sales and marketing director at White Clarke Group, confirmed to Asset Finance Europe that research has invariably shown that, where high levels of customer service are concerned, price is not always the most crucial issue. “Price comes lower down customers’ priority level than is generally thought,” he says. “Far more important is the need for them to obtain regular contact, speedy resolution of queries, fast decision making and a perception that the relationship with the leasing company is developing in depth and to their satisfaction.”

But changes are afoot. Richard Carter says: “There is a growing need for greater efficiency amongst asset lenders and this will best be provided by the proper use of CRM systems to manage the process. It is becoming crucial for lenders to have their customers’ whole trading history in one place – and for lenders to provide greater levels of satisfaction for their customers.”

Limitations of existing systems

Gary Lowrey is director, of systems and technology at IAA-Advisory. He believes that, from a technology perspective, traditional CRM systems are often unnecessarily complex, and driven by a stereotype approach that classically focuses on prospects, opportunities and their conversion.

“For many intermediaries and funders,” he says, “a reliable and user-oriented customer contact database is usually preferable. But in many cases such systems fall short of what is really desired. Within asset finance there are unique relationships between the customer, vendor, introducer and funder – or, if a direct model, between the customer, vendor and funder.”

He adds: “The significance is that one should be able to access a proposal or contact from any relationship point. The challenge for intermediaries and funders thereafter is to see an aggregate financial exposure for each customer. For some this will be across multiple business lines.”  

Nick Pattenden is managing director at Field Solutions. He told Asset Finance Europe that for some lenders there is a growing wish to integrate a contact management system with a “robust origination system”. “Field Solutions,” he stresses, “has already achieved this step in the process through its FieldNet origination system. Going forward we would expect to see further emphasis placed on the relationship between customer, vendor, introducer and funder and to see this reflected in our systems.”

Price promiscuity

The general financial services industry may, itself, have encouraged customers to become price promiscuous with the rise of comparison web sites and the introductory discounts available to new customers. Existing customers, however, are offered little reason, financial or emotional, to stay.

Wallace says: “Whilst there certainly exists a clan of purely transactional-focused customers to whom price is everything most customers admit that if lenders treat them well they are more inclined to stay with them; in effect they are asking lenders to build deep-rooted customer alliances.”

Building alliances with customers has at its heart the customer experience.  “The better the customer experience the more disinclined the customer is to leave. Remember that it is the customer that decides how great the experience is, it must satisfy them emotionally and rationally, they must feel valued. Lending organisations that set about improving the quality of the customer experience give themselves a huge competitive advantage,” Wallace said.

He adds: “Building strong relationships has real impact, it enables us to understand our customer better and tailor offerings accordingly, making our offering bespoke rather off the peg. Sales teams will have greater success, since it is an easier task to sell a solution to a defined problem rather than pitch general features and benefits.  As our clients begin to climb out of recession, how will we know what problems our clients are facing and, in turn, how we can help them unless we are close to them?