Marketing: Customer Loyalty

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One of the most discussed issues in the financial services sector around the world is the improvement of the services that are given to customers. This discussion has taken a strategic shape because of the perceived influence of the customers in securing competitive advantage for firms in this sector. There is a belief that customer satisfaction leads to high revenues in the financial services sector and the media has been fueling this belief. The media and the regulators in the financial services sector have been fighting to protect the customers from perceived inequalities that may affect their bargaining power. The belief that customers in the financial services sector are not treated properly is propagated by the media and the regulators. In any competitive industry, the role of the customer cannot be underestimated and mistreating a customer can lead to administrative problems that can easily result in liquidation. This means that for any player in the financial services sector to remain competitive, great services must be provided to the customers. This is one of the greatest challenges facing the financial services sector because the coordination of processes and operations that enhance customer experience is some how difficult because the existing cultures and infrastructure often hinder such processes. Therefore, constant reengineering processes are necessary for the players to keep in touch with the changing preferences of the consumers. These challenges notwithstanding, players in the financial services sector have realized that there is a direct relationship between customer confidence and customer satisfaction and the two variables create customer loyalty which in turn boosts revenues. Customer preferences are constantly changing and the setting of customer service standards should be an ongoing process because if a bank views the customer service standards as a destination and not a journey, it will definitely struggle to attain a competitive advantage in the financial markets. Management of customers and enhancement of their experience need to be improved continuously so as to inspire customer satisfaction; loyalty and lifetime values and this will have a positive impact on the balance sheets of the financial services providers. Therefore, banks must use customer centered approaches that identify the needs of individual customers instead of the one –fits –all approach that treats the customers as one homogenous mass perceived to have same problems that need the same solutions.

There are some resources and capabilities that have been found to be the best source of competitive advantage (Seymour, 2003). The first resource is the customers. Without the customers, there can be no market to for businesses to compete in. Any market is driven by the customers, their preferences and their purchasing powers. This means that for a firm to have a competitive advantage, it must be able to determine the central role of customers in its operations (Smallbone , 1995). There are various processes that can enhance the value given to customers by a business. One of them is market segmentation. A bank should identify the segment of the market it wants to serve. Secondly, it must identify the needs of the targeted segment of the market so that it can work to satisfy them. Then it must identify how the needs will be satisfied so as to create customer loyalty and attract more as they retain the existing ones. A bank must also set strategies that will strengthen relationships with customers by giving them a high quality value than any other competitor in the market (Seddon, 1995). There are some key factors that can help players in the financial services sector to retain their customers. One of the key factors is differentiation of products and services. Differentiation is a business level strategy that delivers goods and services to the customers at an acceptable cost using unique strategies that guarantee customer satisfaction. According to Fred smith, the founding director of the FedEx, the main tenet of differentiation is innovation. For a firm to create products that will constantly appeal to the mass market without losing its luster, it must enhance them through differentiation. The price of the goods and services can be more than what the clients are willing to pay so long as the differentiation creates value that was not there initially (Jones &Farquahar, 2003). Customers are known to have a knack for unique goods and services and sometimes the quality maters more than the cost. A customer can go for a unique product that is more expensive than the ordinary version of the product because they expect more value from the different product. This means that the business level strategies of firms in the financial sector should adopt differentiation strategies that offer the customers unique products even if it means at a higher price. Unique products at a higher price fetch more revenue than ordinary ones at a lower price and this is a factor that can give a business competitive advantage over its rivals in the market that have ordinary products at low cost (Senge , 2004). The advantage of the differentiation strategy to a firm is that the value that is provided by the unique products and service features usually attract a premium price and give the customers a higher level of satisfaction. The products and the services have superior quality; they are exclusive and more prestigious. For a firm to succeed through this strategy, it must design new ways of doing things and develop new systems. It must also shape perceptions of the differentiated products and services through intensive marketing campaigns and rigorous advertising because this is another way in which competitive advantage is created. The firm must also focus on the enhancement of quality that will make the product exclusive and prestigious. The other key factor that can help in customer retention is market segmentation (Jarrar, 2002). Financial services providers should gather and measure structured information that will help them to comprehend the needs and the preferences of all their clients so that they can effectively respond to these needs. This process will lead in the prediction of the consumer outcome behavior which will in turn help in the creation of consumer management strategies (Thomas, Reinartz and Kumar, 2004). The process will help the banks in creating segments in the market based on the needs of the customers. For example, the high income earners do not have the same needs as the middle earners or the low income earners meaning that the three groups cannot be addressed as a homogenous group(Lusch 2007) Segmenting the market will therefore help in customer retention because it enhances individualized customer attention and service. The customer loyalty ladder can be used the players in the financial services sector. The customer loyalty ladder has five distinct levels; the suspect, the prospect, the customer, the client and the advocate. Most of the marketing strategies that are used by any business focus on the first three levels. The last two levels consists of customers whom the business have managed to satisfy and have chosen to continue buying their goods and services (Lusch, 1987). They are referred to as retained customers. For the financial services sector to be able to transform the occupants of the first two levels into retained customers, the sector must invest in aggressive marketing practices that will draw customers so that the business level strategies mentioned above can spearhead the transformation process.

The customer loyalty ladder can be used to explain the customer lifetime value. The first level of customer loyalty is the suspect. The suspect is a person who hears about a certain product or service mainly during a promotion or through the media. The suspect is not very important to a company if they do not gain interest in the product. The second level is the prospect. The prospect is the suspect who is interested in the product being promoted. The prospect is a very vital asset to a firm though especially in the future. The third level is on the ladder is the customer. The customer is the prospect who has proceeded to buy the products or the services. The customer lifetime value of a company begins at this stage. A customer may buy a product or a service but if this customer fails to buy again, this customer is not useful to the company. Most of the revenue made by any business comes not from repeated purchases. When customers are satisfied by the initial products and services they purchase, the repeatedly purchase those products in the future and this is what constitutes the customer life time values. A customer who buys a product or a service repeatedly is called a client and such a customer becomes an advocate if they influence other people to buy the product because they give free advertising services to the company. The most important asset for a company is the advocate because they create a higher life time value than all the occupants of the lower rungs of the customer loyalty ladder. For a company to create advocates and clients out of its customers, it must have efficient customer satisfaction and retention strategies. Business growth is actually determined by the ability of business to retain customers. One of the best approaches that can enhance customer retention strategies in the financial services sector is called Psychographics. Psychographic approach helps a company to divide its target market using variables such as personality, social class, lifestyle and consumer patterns. The aforementioned variables determine how people perceive a product and spend their money on it. The study of the social class considers the interests of the demographic group in the class and their spending power. Personality focuses on the need of the targeted people to automate their lives while lifestyle focuses on consumer needs. This segmentation of the market helps to establish what different groups require which enables a company to effectively respond to the needs of the people. Taking the market as one can be suicidal because a business can end up satisfying one group and relegating the others to the periphery. This is how businesses lose vital customers. Players in the financial services sector should be enhance customer satisfaction using coordinated sets of activities that are in line with the philosophy of the marketing. This will ensure that the financial products to stay ahead in the market as the banks achieve their goals at a very good profit. The trick is not making and selling a product, it is to learn the needs of the people and make the product in a way that satisfies the needs.

Marketing should focus on customer acquisition and customer retention. In the process of marketing, information gotten thorough advertising should be utilized to create reinforcing messages that connect the product with the needs of the consumers. This means that marketing functions should ensure that the consumers are satisfied. Players in the financial services sector should therefore look at the central goals of the consumers to ward off the competition which may be more appealing (Harrison, 2003). To start with, the companies must ensure continuous improvement of the products they offer and the services they provide to support their efforts of attracting and retaining customers (Sherwin, 1998). Balancing the demands of the customers with profit making results in the total satisfaction of both parties and this is the basic tenet of marketing that bank should pursue while trying to attain a competitive advantage. This means that the banks should have precisions of the market situation and buyer decision making to ensure that it’s marketing strategy is effective. The banks should first create awareness of the product then help the consumers throughout the diverse stages of the marketing process to make decisions (Haskell, 2007). The clients cannot start making considerations of a product without awareness because marketing is a solution to need strategy. For the banks to be able to implement this marketing mix, they must therefore create strategic marketing plans that give a timeline of the achievement of the marketing objectives. This can be effectively done through a proper analysis of the macro environment where a bank looks at its strengths, weaknesses opportunities and threats. After this analysis the company should work to enhance its strengths, to manage its weaknesses, exploit its opportunities and minimize the threats. This will help the banks and their products to enjoy a competitive advantage, ensuring that their services remain competitive dominant and the company acquires more clients as it retains the existing ones.

In conclusion customer retention strategies should first focus on customer satisfaction. Customer satisfaction creates confidence which in turn translates into loyalty (Evans, 2002). A loyal customer is a retained customer who can easily become an advocate who provides free advertising services through the referrals they make. For banks to attract and retain customers, they should strive to provide the right products and services to the right customers and also ensure that the exceed the expectation of the customers because this clearly indicates that they comprehend the needs of their customers. The strategies should work on customer defection and attrition rates and also ensure that quality services are provided at the lowest cost possible. Defection and attrition rates should remain low for the banks to enjoy the competitive advantage created by customer loyalty. Most banks tend to drive their income through customer acquisition which has been proven to be more expensive that customer retention. Banks should realize that customer retention is also a form of customer acquisition because when the customers rise to the level of an advocate on the loyalty ladder, they help the banks to acquire more customers through referrals. This will be a key factor that will address the challenges in the identification of the routes that an organization will take in order to achieve the strategic visions by creating the critical success factors that will ensure that there is optimum leverage and customer satisfaction. Since successful strategic planning is about unleashing the whole organizational potential, it is important to realize that most of this potential lies in the customers, both new and old. Customer service departments must realign their functions in order to create a mindset that revolves around satisfaction of customers. Mixing long term and short term strategies that underpin the strategic direction of the business is one of the best strategies for customer retention. If the aspirations of the business are the major assets of the business, the only other asset that can work hand in hand with those aspirations, goals and objectives is the customer.The customer services in many organizations have become strategic meaning that they are an integral part of the realization of the visions and missions of the organization. Therefore, organizational leadership system that inspires the human resources to share in the vision for the mutual embracement and fulfillment is necessary. The use of the correct customer attraction and retention practices will enable an organization to adopt a holistic approach that will enable it to capitalize on the competitive market trends avoiding internal divisions and personal agendas that end up blocking the path to the realization of the strategic plans.

List of references

Evans, M. (2002). “Prevention is better than cure: Redoubling the focus on customer retention”. Journal of Financial Services Marketing, 7(2), 186

Haskell, S. (2007). Onboarding – Getting the first 90 days right. Financial World.

Harrison, T. (2003). “Why trust is important in customer relationships and how to achieve it”. Journal of Financial Services Marketing, p. 206.

Jarrar, Y. (2002). “Cross-selling in the financial sector: Customer profitability is key”. Journal of Targeting, Measurement & Analysis for Marketing, 10(3), 282

Jones, H., & Farquhar, J. (2003). “Contact management and customer loyalty”. Journal of Financial Services Marketing, 8(1), 71.

Lusch, V. N. (1987), Principles of Marketing. Kent: Kent Publishing.

Sherwin, R. (1988) A Dictionary of Economics. NY: Sage

Seymour, W. I. (2003). Intellectual Capital in Twenty-First-Century Politics. MA: Paideia,

Seddon, J. (1995). Changing Management Thinking: The Key to Success TQM. London: Chapman & Hall.

Senge, P.M. (1990). The Fifth Discipline, London: Chapman & Hall,

Smallbone, P. (1995). The Characteristics and Strategies of High Growth, London: Chapman & Hall

Thomas, J., Reinartz, W., & Kumar, V. (2004). “Getting the Most out of All your Customers”. Harvard Business Review, 82(7/8), 116-123.

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Marketing: Customer Loyalty

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