Customer Loyalty Case Study in the Auto Finance Industry

The strategy for the Auto Finance division of major money center bank called for it to focus a significant amount of marketing effort on finance managers at automobile dealerships across the country.  These finance managers were a major source of loans for the bank, as buyers turned to them for guidance in financing their new car purchase.

SITUATION

A critical way the division examined the relationship with the finance managers was whether that finance manager considered this particular bank their primary source of loans or a secondary source.  More specifically, did the finance manager send all applications to the bank or just those that had been rejected by other banks?

IMPLEMENTATION

Market research indicated that the division was the primary source of loans for approximately 35% of the finance managers and a secondary source for the remaining 65% of their active customers.  It was determined the division generated the lion’s share of its revenue and profits from these managers that considered them to be their primary source of loans.  In other words, they were generating lower quality loans from the secondary source managers.

In planning for the next fiscal year, the management team of this division was given an aggressive revenue growth goal.  They decided that this goal would be achieved by converting more of the managers in the secondary category to the primary category, which made implicit sense because they already had a relationship with these customers.  In order to strengthen that relationship, they allocated sales time and marketing budget accordingly.

The result of this endeavor was abysmal.  They converted very few of the secondary customers to the primary category.  Furthermore, the lack of attention to the primary customers, due to the reallocation of sales time and the marketing budget, weakened relationships.  There were some losses, some gains, but overall no growth.

How could this have failed?  Was it an implementation problem or a competitive problem?

In-depth research conducted AFTER this debacle revealed the following:

¹Client bank / Regional banks / Auto manufacturer finance divisions

KEY FINDINGS

• There were three critical attributes which created differentiation among the needs of these finance manager – the variety of loan packages (product variety), having a local representative to interact (local relationship), and providing superior lease programs (lease offerings).

• The cells within this matrix indicate how the customer segment evaluated each of these attributes across three types of competitors: the client bank, regional banks and the finance division of automobile manufacturers.

• The bank’s strength was in offering a wide variety of loan packages.  This strength is recognized by both Primary and Secondary customers.  Furthermore, the bank was given a superior performance evaluation relative to the two types of competing organizations; however, on the other two attributes, the bank’s performance was low relative to the competition.

• The blue shading identifies the attributes that were critical to each customer segment.  Product variety was critical to the bank’s current Primary customers.  The bank’s relative performance was high; therefore, these customers tended to use the bank for their business.  The other two segments of Secondary customers did not value product variety nearly as much.  Although these customers believed the bank’s performance to be high in product variety, this was insufficient to sway their business.

• The other two Secondary customer segments valued local relationships and lease offerings, so they went with the organizations that offered the best performance in these areas – regional banks and auto manufacturers respectively.

The conclusion of these findings was that marketing by itself could not sway the Secondary customers to become Primary customers.  The underlying business model of the bank had not changed to meet the different needs of the Secondary customer segments.  Further, the bank could not change to compete effectively in these areas.  Establishing a network of local offices could not be economically justified, and the automobile manufacturers had too strong of an advantage in the lease market.  The bank had to recognize that most of the Secondary customers were going to remain in that segment unless there was an underlying transformation in needs.  Significant growth could never come from that segment.

The lesson from this case is that prior to establishing goals, strategies, and plans, find out if they are feasible.  Every strategic plan requires growth.  Where will the growth come from?  Is it feasible?