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The financial imperatives
Retail banking: Customer retention at risk
as expectations rise
Paul Linnell
Back in 2005 when we conducted our first
customer experience baseline study amongst customers of New
Zealand retail banks, there was strong evidence that many
banks operate with a significantly compromised customer
retention strategy.
The study estimated that the problems
customers experience when banking, and the way many banks
handle customer complaints, could be placing between 8% and
12% of their annual profits at risk.
In subsequent annual updates, we have
observed two disturbing paradoxes:
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Although
customers of some banks now report fewer problems,
overall satisfaction and advocacy appears to have
dropped.
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When
problems do occur, there appears to be an increase in
the percentage of customers contacting their bank for
help, but a drop in satisfaction with the action taken
by banks in response.
It appears that although most banks are attending to service
quality improvements, customer expectations are increasing.
And, when customers go to their banks for help, the problems
are often not resolved to the customer's satisfaction.
Today, when customers experience
problems with their bank, they find it easier to move their
banking to a bank that can serve them better. This
presents banks with an interesting choice of strategies to
maintain customer numbers:
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Should they
make genuine efforts to gain insights from their
customers' experiences, improve their service, retain
loyal customers and grow through positive referrals
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Should they
invest heavily on marketing and advertising to attract
customers defecting from other banks hoping their
service will be better
I guess the old adage is true - businesses often spend 50
times as much trying to get a new customer than they spend
trying to keep an existing one.
Not a strategy we can all afford these
days.
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