Why loyalty is tricky for the finance sector

A number of months ago I was approached by someone working in the financial sector in Israel, seeking advise on developing a loyalty program.  For starters I was impressed that a financial institution is actually thinking about developing loyalty.  During our discussions a number of key things emerged, which I wanted to share with everyone.

Customer loyalty for traditional financial institutes, such as banks, mortgage lenders, etc. and customer satisfaction don’t always go together.  About a month ago statistics for customer complaints was published in the UK.  It seems that the biggest banks have the highest number of complaints!  Similarly, customer dissatisfaction rates for the biggest banks in Australia are the highest.  This is an interesting phenomenon, which we normally won’t find in any other industry.  If customers are dissatisfied, and unhappy with the product or service, they would simply leave.  However, in the financial sector this does not appear to be the case.

So why do customers still stick with a bank, despite the fact that they provide bad customer services?  And does it mean that these customers are ‘loyal’ to the financial institution?

Why customers take bad customer services

When we think of non-financial products and services, we need to look at what the customer is purchasing.  A customer buys perceived value that he/she would derive from using that product or service.  While each product and service has a price tag attached to it, the value can differ greatly.  For instance, you can buy a suit for $200, and a similar suit, in the same color and design; you could get for $2000.  So why do the customers pay more?  In this case the perceived value that a customer would get would be higher, even though the material may be the same.  It could be things such as self satisfaction for wearing a luxury brand, or the feeling that you belong to a particular group in society, etc.  Similarly we can look at it from another angle.  Two cars that cost the same, but appeal to different segments, because of the value that customers get from them.

In the financial sector, things are different.  First, the perceived value is much more quantifiable.  You know what rate of interest bank x is offering as compared to bank y.  The major portion of the perceived value is no longer perceived, it is factual.  So if you put £10,000 in a bank for a year, you will know exactly what rate of return you will get from two competing banks.  Hence, if banks make mistakes and don’t provide a good service with this, you still know that you are getting a good rate of return. 

There are cases, where two banks would be offering near identical rates, and customers would still stay with the one that is offering poor service quality.  One of the major reasons for this is the cost of switching can be high.  Most people have a bank account tied in to many different things.  Your salary would be going into the account, and perhaps you have set up direct payments to expenses such as rent/mortgage, utilities, gym membership, etc.  Calling up to change the bank details for each of these can be a big pain, and very time consuming.  Hence many customers would stick with a bank, just because switching to another bank is a big hassle.  These customers think that the perceived value of switching to another bank is lower than the value of the time it would take to switch.

Are these customers loyal to banks?

So does that mean these customers are loyal?  I would think not.  However, is it possible to win true loyalty of these customers?  The answer is yes.  Currently most banks are not thinking about true loyalty, and hence customers have no better option to switch to.  However, if a bank were to start working on true loyalty, it could start a revolution.

Are loyalty progams the way to go?

Can using a points based loyalty program win loyalty?  I’ve talked about this in my earlier blogs.  I don’t think points based loyalty programs are run correctly.  They focus on the wrong things.  They don’t seem to be creating true loyalty in other sectors, so the chances of them developing true loyalty in the financial sector would be low.

Why change?

Finally, one could argue, well if customers are not switching, and they don’t want to switch then why should we worry about loyalty?  At the present most financial institutions are not thinking about loyalty.   However, if we get more companies to start thinking like the Israeli financial company, we could see a change in the industry as a whole.  This would mean companies that are not adapting would see themselves being overtaken by those that do.

Share your views

I would love to hear what your experiences are with financial institutions.  Are there organizations that are providing great experiences, or mostly bad levels of service quality?  Are there other industries that seem to be in a similar state as the financial sector?

About the 12-step CEM Program

Hi Everyone,

Thanks for the numerous comments on the last blog.  Just a couple of clarifiying points to the last blog.

First, I was asked is this the right order.  Some of you have pointed that perhaps some items should be listed up top.  I think this list gives guidelines, and it needs to be modified according to the organization that you are working in.  For instance, in some organizations it may be easier to get the management to committ to CEM, while in others it may be a bigger challenge.  Hence, someone implementing these steps would modify the list according to their needs.

Second, I was asked about expereince mapping.  Basically an expereince map is a digramitical representation of the stages a customer goes through while interacting with your firm.  For some companies this starts with the advertisement that the customer sees.  Others start with the booking of the service, or the purchase process, etc.  Either way, we are looking for the interaction, and the experince that a customer may have.  More importantly we want to identify the expereince that the should have.  I’ve seen a number of tools which can be used for this purpose, so you don’t have to do it manually.

I hope this clarifies some of the issues raised.  If you would like to discuss these in more detail, you can always email me.

I have an interesting model for creating online customer expereinces, which I hope to share with you in the near future.

The 12-steps to creating a great CEM program

Customer Experience Management seems to be on everyone’s mind these days.  One of the questions that I’ve gotten asked a number of times is, how to build a great CEM program, what do we need to do, etc.  Based on extensive research, I’ve come up with a 12-step plan which should help in developing your own CEM program.  I’ve helped a number of firms to use these steps in improving their own CEM strategies, and I’m confident that this will be of use to you too.

Step 1:  Experience Mapping. Creating an experience map of what actually is the first thing that a company ought to do.  This will help us to identify all of the various points of interaction a customer has with a firm.  We may also want to find out what the customer thinks of the current level of service being delivered for each of the experience points.

Step 2:  Find out customer expectations. Finding out what the customer expects should be one of the starting point in the customer experience management process.  This will help the organization to understand what the customer desires, and what is of importance to the customer.  Often companies find it difficult to develop effective CEM strategies because they are unable to understand the requirements of their customers.

Step 3:  Examine the competition. A company can not work in isolation.  Knowing what the competition is offering will only help an organization to set goals and targets and figure out where they can meet and exceed the competition.  Customers will always compare a company with others, and hence it becomes imperative that the company know what its competition is up to.

Step 4:  Analyze and Plan. Once a company knows what level of service it is providing, the level that customers expect, and the level that the competition is providing, it should be ready to develop its own plan.  After analyzing the three types of data, it should be easy for companies to devise their own plans and set levels of ‘quality’ that each experience should deliver to the customer.  If the company is looking to provide memorable experiences, then the company should try to set high goals, where the standards in critical functions exceed both customer expectations as well as competitors.  This is similar to the delight concept for customer satisfaction.

Step 5:  Communicate the Brand Experience. Before a customer actually comes in contact with a firm, the customer gets to experience the communications about the brand.  Hence it is imperative that the various marketing communications media should reflect the brand experience that the company wants its customers to have.  It is important that not everything is given away in the advertising, as this may lessen the impact of the surprise elements within the experience framework.  However, all of the different communications media, including advertising, commercials, web sites, public relations activities reflect the brand experience that the company want to portray to the customers.  If this first level of experience is good, the customer will be attracted to continue to the next stages.

Step 6:  High Quality Product / Service: The experience is of little use if the actual product or service is not of the high quality.  It is imperative that companies work to make sure that the product / service on offer meets the customer’s expectations.  No level of customer experience can help sell a poor product.

Step 7:  Motivated Employees. Numerous researchers have called for having motivated and or satisfied employees.  The first step is to hire right employees and then to train them so that they are highly committed to providing the level of customer experience that the organization expects of them.  Making sure that the employees are satisfied and motivated will ensure that in the long run the customer receive a good experience, and can eventually lead to customer loyalty.

Step 8:  Customer Interface. The customer interface needs to embed the planned level of experiences.  This includes the physical aspects of the customer’s interactions and appeal to the five senses of customers.  Focusing on the right décor, the appropriate music, color schemes, the design of the equipment etc. will help customers to feel comfortable and make the experience an enjoyable one.  Technological aspects of the experience can also be included in this step.  This would include things such as ATMs, payment points, automated call centers, and web sites.

Step 9:  Senior Management Focus. Like other areas of management, senior management’s commitment to and focus on the desired strategy is imperative for its success.  Hence, for CEM too, the senior manager’s commitment is imperative.  Senior managers can not only set examples for the rest of the employees, but will also be more focused in the whole CEM process.

Step 10:  Integrate Functions. It is important that the whole organization is working towards providing a high quality experience for their customers.  The back office as well as the front end employees need to work together, so that the customer can have the best possible experience.  Companies have been cutting back costs by shifting some of their back office work overseas to lower cost centers.  Jaiswal found in a research (2008), many of these have not been able to provide the right level of customer experience as desired by the customers.  Although this may result in short term savings in cost, in the long run it results in customer defections.  Hence, it is imperative that companies make sure that all operations are working towards the same goal.

Step 11:  Post usage. The customer needs to have great post usage experience.  This can include things such as after sales service, warranties, upgrading, installations, etc.  Good after sales service is a way of reminding the customer, long after he/she has used the product or service that the experience with the firm was great.  This encourages the customer to return to the firm and to recommend it to others.

Step 12:  Continuous Innovations. Continuously innovating and improving the experiences is one of the ways that the company can make sure that it stays ahead of competition.  It is also one of the ways that will help the firm to make sure that the customer receives the best possible experiences, and perhaps even help to design memorable experiences.

The Customer Loyalty Lifecycle!

We’ve all heard of the business life cycle, however today I wanted to introduce you to a different type of life cycle, i.e. the customer loyalty life cycle.  When managing a business it is imperative to know what sort of a life cycle the business is likely to go through, and hence we can make appropriate strategies.  Similarly, when wanting to manage loyalty, it is important to understand what type of a life cycle a loyal customer is likely to go through, so that we can make appropriate plans.

Going back to one of my earlier blogs, we must remember that there are three distinct types of loyal customers (http://blog.cibmp.org/?p=32).  Keeping this in mind, we know that the most profitable ones are the emotionally attached customers, and the least profitable are the behaviorally loyal customers.  Moreover, the longevity of the relationship also differs from one type of loyal customer to the other.  Based on research into these types of customers, I have developed a customer loyalty life cycle.

As you can see from the figure, the life cycle is based on two main factors, time and profitability.  While my drawing skills are not great, you can make out the basic concept behind this model.  Customers that are behaviorally loyal will stay lesser time with a firm and not be very profitable.  Attitudinally loyal customers will stick for longer, and eventually they will leave the firm.  Emotionally loyal customers will stay with the firm for as long as they are alive, or as long as they remain to purchase from that product category.  These customers are the most profitable for a firm.  The time factor differs from one industry to another.  However we can now put time figures to this graph.  We can estimate the number of years it will take a customer to become emotionally attached!  The numbers written in the figure above are only for illustration purposes.  My research into this continues, and hopefully in the near future I will be able to publish the time scales, along with estimated profitability figures.

What is important is that we need to realize that all customers start from the same place.  It is up to us to ensure that they end up in the right place.  For example, companies that are committed to providing better customer service and quality will be the ones that will get more customers to go further on this life cycle.  Those that ignore the customer’s true needs will be the ones that see most of their customers end up in the behavioral loyalty sector.

As always, please do let me know what you think about this.  Your comments here, and in various linked in groups are always appreciated.

WOM still the most powerful tool for a marketer

Word of mouth, or recommendation, is the most powerful tool marketers have in their arsenal for attracting and retaining customers.  Despite this being the most powerful of the tools, it is one of the most overlooked, and hence I thought I would devote this blog to the importance of WOM.

Research indicates that customers are more likely to purchase a brand / product based on recommendation from a trusted source than from any other means.  This includes advertising, PR, online marketing, etc.  Moreover, researchers have found that those people who purchase a product based on recommendation from a trusted source are more likely to become loyal than those that went there as a result of other sources.  Interestingly there is further research which states that more customers are likely to purchase a product based on recommendation than even their own past experience!

My research indicates that emotionally attached customers are the ones that are most likely to recommend a brand, and are the ones that will do it most frequently.

Recommendation is also a free tool for marketers.  Usually you don’t spend money on this.  However some companies have started to realize the importance of recommendation and reward their customers who recommend others with vouchers, discounts, and free gifts.

Social media has enabled our customers to use the power of the web to broaden their scope of friends.  This now allows for our customers to reach a wider number of people, and much faster too.

The only problem with recommendation is that it is not really in the control of marketers, or at least not until now.  Companies need to develop strategies, devote budgets, and create teams that will look after recommendation.  With it being a very powerful tool, we must learn to take advantage of this, and not to let it evolve on its own.  Companies need to devise strategies that will assist their customers in being better at WOM.  Various rewards that are being used by firms is just one way to encourage customers to start recommending the company to others.  However there much more to be done.  Companies that can harness the pwoer