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.

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