For banks, selling an additional product to an existing customer is one-fifth the cost of selling the same product to a new customer.
It's called cross-selling, and chances are your bank sucks at it.
The average bank is only able to get 19% of its retail customers to use three or more of its products in addition to checking. For Huntington Bancshares (NASDAQ:HBAN), that number is close to 90%.
It's called the Optimal Customer Relationship, or OCR for short, and its bringing in optimal profits for Huntington. There are three key characteristics that are making the OCR a success.
1. Consolidating data
When it comes to cross-selling, data is king. Smooth communication and consistent reporting are absolutely essential. However, for many banks, lines of communication stop at operational segmentations.
This was much the case in 2011 for Huntington. At the time, the bank was using six different customer relationship management systems.
This meant inconsistent processes, varying and redundant fees, and worst of all, an overall gridlock when it came to sharing data.
This all changed when the company moved all of its CRM efforts over to Salesforce, consolidating all data on one platform across all segments.
"Our colleagues' view of the customer relationship is better than it ever has been. Having this information available to use in tandem with the sales tools that we've built in Salesforce helps us recognize opportunities to help customers immediately, as well as to better plan their life journey," said then-Director of Retail Sales and Services at Huntington.
Setting up a common system on which sales were carried out helped the development of the next key characteristic.
2. Setting goals
Check in your bank's 10-K and see if it has any specific metrics on cross-selling. Didn't think so.
You can likely find lots of talk about the importance of cross-selling, but nothing that gives you a solid analysis of how a bank is doing in its cross-selling efforts.
That's not the case at Huntington. Consumer metrics have been around since the OCR was introduced in 2009 and commercial metrics were introduced two years later.
What do these metrics track?
Consumer metrics are based on three drivers: the number of checking account households, the number of product penetration per customer checking household, and the revenue generated from the consumer households of all business segments. Here is the breakdown for 2013:
For commercial data, Huntington looks at the number of commercial relationships, the number of services penetration per commercial relationship, and the revenue generated. The results for commercial efforts are as follows:
If your bank wants to set cross-selling goals, it has to have a way of quantifying them. You can't know where you are going if you don't even know where you are.
3. Continued innovation
Banks haven't traditionally been the quickest in adopting and applying new technology.
For Huntington, it largely came out of necessity. After the financial crisis, the company was in dire straights. It turned to technology to help clean up its books.
Technology initiatives helped Huntington to analyze loan quality and consolidate its service and lending systems into common platforms.
The bank doesn't show signs of slowing down its efforts now that its balance sheet is looking back to normal, either. Huntington's technology budget has increased steadily at 13% for the last several years.
Continued increases in technology will only help the flow of data, helping cross-selling efforts.
Huntington has implemented a cross-selling strategy that opens up the channels of communication across its business segments, and it's doing so with extreme success.
In an industry as highly commoditized as financial institutions, it is hard to attract new customers. For this reason, selling more to existing customers gives Huntington a clear advantage over other banks.