Measuring Customer Loyalty in Performance Management
One of the greatest challenges for a service-oriented organization is the effective and accurate measurement of customer loyalty. The customer is always right, so it is crucial for the today’s service focused financial institution to understand the needs and wants that drive long-term customers. We have all read the statistics on how much it costs to attract a new customer compared with the costs of retaining an existing one. Companies therefore spend three to four times more money attracting new customers than they do retaining those they already have. Yet, given that higher profits come from the retention of existing accounts, the time to switch focus from attraction to retention is now.
In financial services firms, it requires less effort to retain an existing customer than in most other industries. This is true in part because in the financial services industry there tends to be greater loyalty than in, for example, the airline or car industry is first of all harder to differentiate one bank, insurance company or stockbroker from another. A sexy new car model, on the other hand, may sway a long-time Lexus owner to Jaguar or another brand. Second, it is not only easy to purchase a ticket from a different airline, or stay in another hotel, but these are also decisions that customers are faced with again and again. Switching all of your financial portfolio or insurance policies tends to be a major hassle that is perceived as unnecessary for its customers.
Consequently, financial services firms tend to have much higher levels of customer loyalty. However, these higher loyalty levels are not often due to wonderful service, but rather to the amount of effort needed to take business elsewhere. In short, while the tolerance for mistakes tends to be higher for financial organizations, today’s customers demand courtesy, variety and value. Customers are growing less tolerant of poor service.
In the highly competitive financial services industry we are facing today, banks must take steps to not only attract and retain new customers, but to keep them fully satisfied with the services provided. And, since loyalty is the key to profitability, your organization will be driving blindly without comprehensive knowledge of your client base. Effective measurement practices can be a critical process in evaluating whether your customers are loyal out of obligation, or if they are truly happy.
