Are you a Value or Commodity B2B Provider?

With the traditional “customer ownership” model increasingly being challenged, and especially by disruptive new entrants, both bank and non-bank, the value extracted per customer has never been more important.

How providers achieve this is down to their customer engagement strategy. However, identifying, measuring and tracking the value an individual provider generates per customer requires a lens into their wallet share and primary customer base.

Through an Average Customer Value Indicator*, which measures quality over quantity, we are able to understand which providers are extracting greater value from their customers compared to their competitors. We calculate this Average Customer Value by computing ‘wallet share value’ over ‘the quantity of primary customers’ (see foot note for full description).

To demonstrate this in a highly competitive product line, we can look at Forward Contracts among the UK’s Lower Corporate segment (revenues of GBP£20-100m). This is both a segment and risk product where all key providers have a presence. Corporates in this segment become more attractive to the larger players or conversely are key customer acquisition targets for non-bank providers.

In the above exhibit we can see the average customer value with the five top primary providers from left to right. The market average line shows the average level of customer value extraction across the market. We can see that HSBC, Barclays, Citi, BAML and Santander all experience above average customer value extraction proving that these providers tend to get more “bang for their buck” from customers.

Interestingly, Citi and BAML have been performing significantly better in extracting greater value from their primary customers than Barclays despite lower relationship share.

Customer Value analysis is not restricted to products with relatively low barriers to entry such as Business FX. We can also look to the behaviour of the Top 100 corporates across the Asian Trade Finance markets.

From the exhibit above we can see that HSBC, Citi, Standard Chartered, DBS and JPMorgan have successfully optimised value extraction per customer above the market average. Standard Chartered extracts the highest average customer value among its trade customers, even though the Bank is ranked third in relationship share.

Competition among corporates’ secondary providers offers a further interesting insight to where the value is being derived within the market. BAML, Standard Chartered and Citi are the top three rated average customer value performers. Citi and Standard Chartered, two of the top three players in terms of relationship share, perform well in extracting customer value as secondary providers but BAML is the star performer despite its lower market share.
 

HSBC, although number one in relationship share, is performing just above the market average whereas JP Morgan falls significantly below average in terms of customer value.

Given the wider commercial relationships banks hold, the strength of relationship and strategy we can infer from these results provides significant cross sell opportunity. Linking disparate metrics captured as part of East & Partners multiclient reporting allows client banks to address and increase customer value, delivering very effective cost of sale and return on investment (ROI) outcomes.

However, this raises an interesting point for new entrants and non-bank, specialist providers. We’ve seen an increase in the relationship share these providers hold over time but are they trapped in a numbers game, battling it out for low quality, low value commodity business as a result of product based restrictive business models? The lower Average Customer Value indication among this set would tend to suggest they are certainly having to work far harder to capture new business.

This insight leads us to the conclusion that, across different product lines, geographies and business size, customer value is becoming integral to the dominant players’ strategies. In turn, this leaves us with two questions for the market at large;

       - “Do you have value or commodity customers?”, and / or
       - “What type of customer do you want”?

* - The average customer value indicator is calculated by multiplying wallet share with the average annual FX spend for primary customers (wallet share value) and then dividing this figure by the number of primary customers.

East’s multiclient programs contain core reporting on primary relationship share, secondary relationship share and wallet share. The analytical calculation in this article make use of these metrics together with an external data source on business annual FX spend.