A customer retention strategy.

Author:Marple, Mark
Position:Cover Report: Origination Strategies. - Mortgage banks - Cover Story

Customer retention has been a losing battle for quite a while for many mortgage lenders. During 1998 and this year's first half, many of the top 100 lenders managed to keep only one out of four borrowers who were paying off loans. Here's a recipe for building better customer loyalty.

Billions are spent annually by financial services providers seeking to sell their products and services to the increasingly educated and aware American consumer. Much of that money is spent trying to sell consumers mortgage products. With so much being spent to woo customers, why do lenders spend so little to keep them?

The answer is the mortgage industry is just learning what other industries have come to understand - it takes a different type of marketing push to keep customers than to gain new ones.

This is true in any industry. Dry cleaners, for example, print coupons in an attempt to get people to try their service the first time. Once they've got them, they offer the VIP discounts. Airlines offer frequent-flier miles. Columbia House provides deeper discounts on CDs the more you buy. Coffee shops have coffee clubs; department stores offer discounts to people who use their department store credit cards; hotels and resorts offer frequent-stay packages; and baseball teams give priority seating to previous season ticket holders.

What do most mortgage companies do to keep customers? They advertise their low rates in the print and broadcast media, same as they do to attract new customers.

A lesson from Marketing 101 comes to mind: It's easier to get somebody to try your service or buy your product the first time than it is to get them to come back again and again. Since it's tougher to keep customers than it is to get them to buy your product once, doesn't it make sense to spend more time and money on customer retention?

We think so. We think that's how you build a growing and profitable mortgage banking operation. We believe it starts with excellent customer service and eventually grows into a much greater bond called loyalty. If you think loyalty in this day and age is a fleeting concept, you're probably right. There is no such thing as blind loyalty anymore. Consumers have their eyes wide open, and competitors are constantly beckoning to your customers with the message that they have a better deal.

So how do you compete? By offering your customers a new product or service just when it appears they may be most inclined to leave you for the lender down the street.

In the third quarter, Mortgage Guaranty Insurance Corporation (MGIC), Milwaukee, unveiled a comprehensive customer retention program for lenders. The goal of the program is to help lenders remain their customers' lender of choice. This means that whenever a customer's need for lending products or services arises, they think of you first. Without getting into a lot of detail about the program, we should note that it uses leading-edge Internet technologies, predictive models and consumer-direct marketing to help lenders identify new customers and better serve those they already have.

The program was developed exclusively to help lenders meet the challenges they face as they try to sustain a viable, competitive business. The balance of this article discusses these challenges, focuses on the value of customer loyalty and suggests ways to build customer loyalty and brand recognition.

Customer service is the answer, right?

In today's competitive market, the fact that you have excellent customer service gives your firm the right to play because consumers expect this. Excellent customer service certainly gives you a license to initiate business with existing customers, but it is by no means the way you will build your business over the long run.

The winning strategy is to develop and enhance customer loyalty and, most importantly, the profitability of each customer relationship while delivering excellent customer service. Firms like Coca-Cola[TM], IBM, and Microsoft[R] are examples of companies that excel at this strategy. They all have created brand name value that translates into billions of dollars of institutional value [ILLUSTRATION FOR FIGURE 1 OMITTED].

This value is not tangible. You can't see it. Rather, it is derived from the customer's perception of the name, which gives brand-name companies a strategic advantage in marketing. Ask yourself: If you were starting a soda company, how much would you pay for the Coke name? Probably a few billion dollars. That's the bottom line on customer loyalty.

So it is with anything else on the market today, from fast...

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