Customer-Centric Approach in Provision of Financial Services

Executive summary

This report presents a customer-centric approach in provision of financial services in banks towards greater retention of clients and increased revenue.

Main argument

Customer satisfaction within the financial services industry is emphasized as a pillar for greater customer retention while reducing defection rates. Banks appreciate the dynamic changes in customer service standards thereby employ different approaches to ensure that customer experiences are satisfactory. In doing this, banks recognize the role of customer loyalty in their business and therefore strategize their relationships with clients based on customer’s needs. The varying needs of clients demand a heterogeneous mix of solutions in order to enhance consumer confidence.

Policy implications

• Customer retention is achieved through different techniques which address the varying needs of consumers.
• Core offering which entails provision of services that match customer’s needs is one of the most effective pillars.
• Secondly, satisfied customers are found to be more loyal to the business than not.
• Banks also need to be flexible enough to incorporate their esteemed customers in product design in order to address their expectations.
• A dynamic marketplace demands that services shift appropriately.
• Different geographic locations demand different needs altogether.
• According to the ladder of customer loyalty, customers can be effectively retained is their interests are noted from onset and cultivated towards improving their satisfaction and loyalty. From an ordinary suspect attracted to an advert, the ladder through sustained customer service provision, could upgrade into a prospect interested in the business and finally into a regular client and partner in the bank.
• The lifetime value of retaining customers is calculated by estimating the cost of maintaining a regular customer in the business and his/her worth in the long-term
• Essentially, customer retention is emphasized since the cost of bringing on board a new customer is more than that spend on maintaining the existing ones.

Introduction

Customer service is at the centre of effective financial industry. Banks provide essential financial services to clients through a defined structure of communicating channels that are well coordinated. Customer service is designed to meet the dynamic needs of customers in different regions. When customers’ needs are met, they become satisfied and retained by the banks which translate to greater profits and revenue. Customer satisfaction and consumer confidence are therefore a product of culturally-inclined customer services. Bank operations are strategically planned in alignment with customers’ needs and distinct cultures. The culture of a people determines their way of doing things including their economic activities (Maklan & Knox, 2003). The approach taken by banks in promoting their products seeks to best meet the expectations of their clients within their cultural inclinations. Products sold by banks to clients therefore service customer relations with the business strategy of the organization at heart. The underlying objective is to ensure that profits are realized through greater customer retention strategies and information management. Customer defections are thereby reduced while innovative solutions are created to address the cultural values of the consumer.

Customer retention

Customer retention entails the task of winning customer loyalty and sustaining their allegiance to a business. This involves nurturing consumer/customer loyalties which ensure greater satisfaction and more spending on products and services. Customer retention is characterized by reduced defection levels with greater customer advantage in the market (Brink & Berndt, 2004). Customer retention is also a product of customer lifetime value and loyalty with mutual profitability between the business and the consumer. Factors that promote customer retention and loyalty include the following.

Core offering

First and foremost, there is the aspect of core offering. Core offering entails provision of services that match consumer’s needs and expectations. A business organization only delivers to clients what they desire. Nordstrom, a North American retailer has a track record in customer retention and loyalty initiatives (Goodman, 2009). The financial sector such as the banking industry can achieve the much desired customer retention by exploiting relevant communication channels which ensure that clients are attended to on time and in a convenient manner. The quality of products and services delivered to customers is crucial in retaining consumers instead of lowering prices of commodities. The services provided to clients should correspond to the customer’s expectations, needs and wants.

Satisfaction

Satisfied customers become loyal to their service providers. However, customer satisfaction is a dynamic component of marketing which requires that businesses keep adjusting to different expectations of their clients. Loyalty shifts with the different factors that define customer satisfaction in various situations (Maklan & Knox, 2003). In order to retain customers in a bank, the services provided should address the needs of the customer in the long-term. The marketing department should understand thoroughly the expectations of their clients in different locations in order to deliver the most relevant package that can guarantee their loyalty. In essence, the financial services to individuals and corporate differs in different economic times. This does not mean that banks shall keep modifying their financial services with respect to the emerging levels of satisfaction among their customers. The approach taken to ensure that customers are loyal lies on a comprehensive strategy that addresses the needs of the individual customer as part of an entire business strategy for the organization.

Elasticity level

This refers to the factors that determine a purchasing decision from the perspective of the customer and the business (Reynolds & Lancaster, 2005). It is therefore important to engage the customer in business decisions that empower them to direct product development in line with their expectations. Customers are more likely to remain loyal to a product whose design and development is a manifestation of their interests and opinions. Banks therefore need to utilize communicating channels such as the internet, SMS messaging, email, and telephone among others to carry out a survey of their customers’ interests and expectations in order to develop a customer-friendly product. These communication channels are important in obtaining feedback as regards to the current financial services in the market for the purpose of improving the quality of the products.

The marketplace

Understanding the market dynamics is crucial for customer retention strategies (Teal & Reichheld, 2001). It is noble for a bank to shift from a particular line of business to a more lucrative opportunity if the current market is congested. For instance, multi-national banks such as Barclays have for a longtime dealt with high-income clients as well as big corporations. However, the financial services market in third world countries has shifted to microfinance courtesy of an emerging mobile banking sector. The market pool for large-scale customers is therefore rigid in view of better opportunities for accessing loans through microfinance banks which are ever expanding. In order to retain their customers, big banks should find a formula for entrenching microfinance banking and mobile banking towards greater competitive and consumer advantage.

To this end, customers shall find reasonable to remain loyal to their former banks. Mobile banking is a convenient way of carrying out financial transactions using mobile phones/handsets (Thomas, Getz & Blattberg, 2001). It has facilitated transfer of financial services electronically to remote places among the unbanked populations. Traditionally, banks benefit from “inertia loyalty” since shifting from one bank to another is an exorbitant and time-consuming exercise. However, mobile banking is quite affordable and convenient because transactions can be carried out with ease anywhere there is coverage of the particular mobile network.

Demographics

This refers to the differences that exist between young and old customers, educated and illiterate with respect to their commitment to a product or service in the market. Demographics explore differences in culture, education and class when defining commitment among various consumers. Generally speaking, young customers are found to be less committed than their old counterparts on a product in the market. Learned and rich customers are equally prone to variety and may therefore not subscribe to a particular product for long. The level of exposure among educated clients manifests itself in the manner in which they compare products and services in the market before making a purchase (Brink & Berndt, 2004). Low income earners may not afford to risk a new brand in the market because they are already used to an affordable product.

Share of wallet

It is more appropriate to provide customers with a variety of products that suits their interests under one roof to retain them. Supermarket chains offer their customer a dynamic pool of services and products which ensures that spending is restricted and retained with one premise. Financial services provided by bank should also expand in line with the market demands. Salaried employees are attracted to a bank that operates a salary account which in a defined period of time renders them eligible for loans (Goodman, 2009). Asset and mortgage financing are also lucrative financial products among the affluent class of customers. Students in institutions of higher learning are also attracted to a bank that offers education loans and grants for them apart from sponsoring their placements and industrial attachments. In essence, beneficiaries of such loans are potential customers on a long-term basis as they repay education loans.

Ladder of customer loyalty

Relationship marketing seeks to develop relationships that last between the business and the customer for their mutual benefit. The ladder of customer loyalty is a structure that defines various customers that have transacted business with an organization (Maklan & Knox, 2003). The first client in the ladder is the suspect. A suspect refers to a customer that gets to know a company during a promotion and may therefore become interested in pursuing a relationship with the business depending on his/her first impression. An interested suspect becomes a potential prospect. Customers are the people that actually purchase a product. Clients return once more to a particular business after purchasing a product or service. If clients are satisfied, they graduate into business partners who are basically self-driven in promoting the business by referring others. Such clients are known as advocates.

Customer retention involves all those activities that develop a suspect during a promotion to an accomplished advocate can refer other people to a business. It is important that marketers identify particular prospects during promotions that can be empowered to graduate into loyal customers, clients and advocates for a business (Reynolds & Lancaster, 2005). The manner in which promotions are executed therefore determines whether suspects become interested in the business to the extent of buying a commodity. The quality of the products should also conform to the expectations of the customer in order to retain them as clients. Satisfied clients immediately become advocates because they are self-driven towards promoting the business.

Provision of financial services by banks requires that marketers reach out to potential customers in a creative and intelligent manner. For instance, an outreach program can be designed to encourage college students to operate bank accounts in an organization that lifts monthly levies and loan interests. As such, students interested in obtaining a subsidized education loan could actually apply for one making them potential account holders in the long-term. Purchasing the loan product shall facilitate their career development something worth recommending to their fellow colleagues (Teal & Reichheld, 2001). Being advocates and loyal clients of the bank, the students are more likely to be retained during future employment.

Lifetime value of customers

The customer lifetime value is based on the financial value assigned to a particular customer in monetary terms as defined by the nature of relationship that exists between the seller and the buyer over a long period of time (Thomas, Getz & Blattberg, 2001). The marketing department utilizes this parameter in order to estimate how much a customer is worth during the period of time where a relationship has existed between them. The financial metric can be applied in determining how much money should be spent during marketing and promotions meant to bring on board new customers. The process of attracting a fresh and new customer after losing old ones is quite tedious and expensive.

When a loyal customer is even motivated and satisfied for the type of services and goods that he gets from a particular business, he is ten times more likely to remain loyal as well as convincing other customers to buy the same products (Brink & Berndt, 2004). The relationship that prevails between customers and business organizations is very important in determining sales of the company. Repeat customers are committed in buying particular brands in and out of season. In determining the lifetime value for a customer, the retention costs for maintaining a particular repeat customer over a given period of time is calculated. The overall cost of retaining a loyal customer is balanced against the outcome gained from the proceeds accruing from sales made from the customer during the period under analysis. The lifetime value of a customer is therefore a pointer of the profit margins made by a company through its initiatives in retaining loyal customers.

Customer value, satisfaction, and loyalty

Marketing entails the process of winning customers for a long period time. This process involves spending enough time in creating awareness about products and services from a particular company (Goodman, 2009). On the other hand, business organizations also seek to obtain enough information about customers in order to establish long-term relationships with them. From the diverse information, companies organize their operations with a view of making products and services specific tailored to satisfy particular needs identified by the customer. Customer satisfaction translates into customer loyalty whereby established customers become convinced their needs are adequately met by brands from a particular business making a choice to buy them selectively.

Companies need to be in touch with their customers always in order to evaluate their needs in relation to their products as well as changes required to align products with customers’ tastes and preferences. Loyal customers can then be empowered in order to participate in the decision-making process of a business especially on matters related to their commodities. The products which attract revenue from a company by virtue of customers being loyal to them could also be extensively promoted and kept in proper packaging material in order to attract more customers (Maklan & Knox, 2003). The information on these packaging materials should be quite appealing and whose quality above its competitors. Quality refers to the distinguishing characteristics of a product which enables it to have a competitive advantage over similar products.

Innovation in cutting edge technologies is guided by advanced research in science and technology which is then applied in business. This is also applicable in new product development meant for items which are also user-friendly. Marketing effectiveness is therefore a result of the link between the industry and the market itself with the common purpose of achieving the demands of customers and consumers in general. Market research into consumer needs is intertwined with partners eager to satisfy emerging sophisticated needs (Thomas, Getz, Blattberg, 2001). Provision of quality financial services is automated through computer technologies that enhance money transfer across borders to the reach of clients conveniently.

Conclusion

To this end, companies need to provide the best services alongside quality brands. These include after sale services, training of customers on usage of their products such as their operations and installation in addition to their basic repair and maintenance (Reynolds & Lancaster, 2005). The method used to purchase the products also needs to be convenient with provisions for returns in case of faults. Other methods include convenient pricing affordable to the customer as well as improved manufacturing technology of the products in terms of technology and design for user-friendly products. Customer value is therefore the gains obtained from a customer when he buys a particular product. The customer is equally entitled to the value for his money on purchasing a commodity.

Financial services provided by a bank should serve both the short-term and long-term goals of the business and economic expectations of their esteemed clients. The cost of investing in customer’s financial welfare such as setting up a business should be calculated against potential economic risks in the market. The strategy of advancing loans to clients with a track record in business, while partnering with a specific bank is a welcome venture in promoting lifetime value of customers (Teal & Reichheld, 2001). The rationale behind provision of sustainable financial services to customers is based on the understanding that economically empowered clientele are better positioned to ensure better returns on investments.

References

1. Brink, A. & Berndt, A., 2004. Customer Relationship Management and Customer Service. Cape Town: Juta and Company Ltd.
2. Goodman, J. A., 2009. Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty, and Maximize Profits. New York: AMACOM Div American Mgmt Assn.
3. Maklan, S. & Knox S., 2003. Customer relationship management: perspectives from the marketplace. London: Butterworth-Heinemann.
4. Reynolds, P. & Lancaster, G., 2005. Management of marketing. Oxford: Butterworth- Heinemann.
5. Teal, T. & Reichheld, F.F., 2001. The loyalty effect: the hidden force behind growth, profits, and lasting value. New York: Harvard Business Press.
6. Thomas, S.J. Getz, G. & Blattberg, R.C., 2001. Customer equity: building and managing relationships as valuable assets. New York: Harvard Business Press.