Dialogue: Kiwibank's biggest task to sell itself

By MARK COLGATE*

On average, about 20 per cent of all customers seriously consider changing banks every year. In reality, only about 4 per cent of all customers actually switch.

Time and effort are involved in closing bank accounts and in opening new accounts. Further effort is involved in such things as changing the account into which a salary is paid, or setting up new automatic payments, or redirecting mortgage payments.

Customers also tend to attach a history to their relationship with a bank. This is not just a credit history (although that is crucial), but a feeling that there is value to having been a customer of a bank for an extended period of time.

All of this means that people do not readily switch banks.

Marketing is therefore going to be the key to success for Kiwibank. It is true that the bank has many things in its favour.

It will have a large network of branches. It has a full range of banking products (some of which are quite innovative). It has strong Government backing.

There is even some level of public support (although the last University of Auckland Business School banking survey showed a dramatic fall in such support since the idea of the people's bank was floated).

This all suggests that Kiwibank has every chance of making or even exceeding its initial targets.

But the longer term success of Kiwibank is a lot harder to predict. Such success does not just come down to the number of customers that the bank attracts. What is much more important is the quality of these customers.

Quality is reflected in both the dollar value of a customer's business, and in the types of products that a customer takes out with a particular bank.

In this sense, three types of customers are vital to Kiwibank: Mortgage customers.

Customers with revolving balances on their credit cards.

Customers who have their main account with the bank.

If the majority of accounts held at Kiwibank are fringe accounts (such as children's accounts, or a customer's second or third small balance savings account), then the bank is unlikely to be profitable for a long time.

The marketing trick that Kiwibank management must perform is to attract (and retain) a good proportion of bank customers who have a high net worth. And this is where the problems start for Kiwibank.

Our research has shown that the New Zealanders who are most interested in joining Kiwibank are older, lower-income customers.

Unfortunately, older customers (those over 60) are also the least likely to switch banks. This is because of the effort it takes to switch banks, and also because most banks already offer free superannuitant accounts.

From our research, it is also interesting to note that the lower income half of banking customers are actually the most satisfied group of customers.

Customers with less complex banking requirements are more likely to stay where they are as they feel they have nothing much to gain from switching between banks.

The customers who are most likely to switch banks are those in the 30 to 59 age bracket with higher incomes (over $40,000). These customers are also the most valuable to the banks, as they tend to use the widest range of banking products.

Although our research shows that these high-value customers are the least satisfied with their banks, they are also the least interested in Kiwibank. They believe they have sophisticated banking needs that are unlikely to be served by this new offering.

It is these high-value customers that Kiwibank management must win over with its marketing.

There are three key challenges I now see with Kiwibank's marketing to such customers:The first is to maintain interest and momentum. In this respect, a strong and confident launch of Kiwibank was crucial.

In reality, the launch was more of HP+1a whimper than a bang. The second challenge is one of competition. In its early launch, with few branches, Kiwibank has given its competitors plenty of time to respond to its offerings. This ensures that they can at least match Kiwibank's offers or even better them.

A third challenge is to manage customer expectations. Kiwibank is aiming to have the lowest price position in the marketplace - but to be a low-price operator in the market and be profitable you must keep your costs down.

This means at some stage sacrifices will have to be made.

When you make sacrifices, the quality of your service will be lower than those banks which made investments in these crucial areas.

The question is can Kiwibank management rise to the above marketing challenges? If not Kiwibank could become a great Kiwi joke rather than a great Kiwi icon.

*Dr Mark Colgate is a senior marketing lecturer at the University of Auckland Business School.

Dialogue on business

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