Part Three
While these two reasons do indicate the possibility of loyalty, it would be naive to believe they are sufficient indicators of loyalty. We need to determine whether customer retention and/or repurchase are due to inertia or a lack of options? Or, is it due to high switching costs? For example, several people retain their bank accounts in a particular bank only because that is where their employer is willing to credit their salary. Can we really consider them as loyal customers? The fact is many of such customers will have accounts with more than one bank, and will move business elsewhere if communications on offerings are not done routinely and well, Ultimately, given an option many of these customers will easily migrate elsewhere.
A study reported in an article by Stephanie Coyles and Timothy C. Gokey, "Customer Retention is not enough," in The McKinsey Quarterly, 2002, Number 2 indicates that more customers tend to change their spending behavior rather than defect. They report that at one retail bank five percent of checking-account customers defected annually, taking with then 10 percent of the bank's checking accounts and three percent of the balances. But, every year, the 35 percent of its total balances, while the 35 percent who increased their balances raised its total balances by 25 percent. Obviously, merely retaining accounts is not good enough.
A better measure of loyalty is when customers are active and emotive loyalist who have no problem in being unpaid referrals and advocates. These are customers who have a high level of satisfaction and have no intention of reassessing their banking options. Research shows that these are the customers who typically end up spending the most.
The conclusion is that customer loyalty is a complex phenomenon and heeds to be approached from different directions, behavioral as well as attitudinal. A few good places to start would be understanding expectations, and use it to shape customers' perceptions of results. But, customer loyalty could also be incresed by raising switching costs and building defection barriers.
While these two reasons do indicate the possibility of loyalty, it would be naive to believe they are sufficient indicators of loyalty. We need to determine whether customer retention and/or repurchase are due to inertia or a lack of options? Or, is it due to high switching costs? For example, several people retain their bank accounts in a particular bank only because that is where their employer is willing to credit their salary. Can we really consider them as loyal customers? The fact is many of such customers will have accounts with more than one bank, and will move business elsewhere if communications on offerings are not done routinely and well, Ultimately, given an option many of these customers will easily migrate elsewhere.
A study reported in an article by Stephanie Coyles and Timothy C. Gokey, "Customer Retention is not enough," in The McKinsey Quarterly, 2002, Number 2 indicates that more customers tend to change their spending behavior rather than defect. They report that at one retail bank five percent of checking-account customers defected annually, taking with then 10 percent of the bank's checking accounts and three percent of the balances. But, every year, the 35 percent of its total balances, while the 35 percent who increased their balances raised its total balances by 25 percent. Obviously, merely retaining accounts is not good enough.
A better measure of loyalty is when customers are active and emotive loyalist who have no problem in being unpaid referrals and advocates. These are customers who have a high level of satisfaction and have no intention of reassessing their banking options. Research shows that these are the customers who typically end up spending the most.
The conclusion is that customer loyalty is a complex phenomenon and heeds to be approached from different directions, behavioral as well as attitudinal. A few good places to start would be understanding expectations, and use it to shape customers' perceptions of results. But, customer loyalty could also be incresed by raising switching costs and building defection barriers.
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