KQ Article

Banks and credit unions know what makes the perfect customer: someone who actively use a variety of products and happily recommends your brand to others. In other words, a customer with remarkable, unshakeable loyalty. The problem is that loyal customers are not born, they’re made — by financial institutions who consistently deliver experiences customers find valuable. Here are four ways to move prospects and first-time customers into the “advocate” column.

1. Know how loyal your customers really are

Customer loyalty includes what customers do (behaviors) and how they feel about it (attitudes). But loyal behavior does not necessarily indicate a positive attitude about your brand, and vice versa. By combining behaviors and attitudes, we see four states of loyalty:

• True loyalty. These customers have positive attitudes and show it by making regular repeat purchases, using a variety of products and services, referring others and remaining immune to competitive offers.
• Spurious loyalty. Spurious (false) loyalty means customers behave loyally (for now) but have neutral-to-negative attitudes. They do not endorse your brand, and are at high risk for switching.
• True disloyalty. This customer has a negative attitude and disloyal behavior, and has likely already switched at least one (if not all) their accounts to a competitor.
• Spurious disloyalty. These customers have a positive-to-neutral attitude but behave disloyally. Imagine a formerly happy customer who was forced to switch after being denied a loan, for example.

To keep customers actively engaged with your products and services, you need to earn your customers’ or members’ true loyalty and keep them in that state. True loyalty represents a “sweet spot” for profitability. Failure to maximize true loyalty robs your institution of both revenue and referrals.

2. Make switching easy

Banks have long relied on what I call the “hook principle” to retain customers. The hooks, such as direct deposits (of social security and pension checks) and automatic payments (for insurance or utilities) keep customers tied to a bank they would just as soon leave, because the red tape required to switch is hardly worth the trouble. How can you get these consumers to switch to your institution? Consider sweetening your “prospective customer” offerings with switching assistance:

• Incentives, including fee waivers or welcome gifts
• Face-to-face help filling out required paperwork
• Switch kits that walk prospects through the steps required to switch

3. Build strategies around the six stages of loyalty

Customers become loyal over time, in six stages. By understanding a customer’s current stage, you can better determine how to move the customer to the next stage. Here are the six:

A suspect is someone you believe needs your financial services, but you can’t be sure. By engaging a suspect, you learn enough to turn them into a prospect. From here, a prospect can be converted into a first-time customer. In the same way, a first-time customer can be transformed into a repeat customer, and a repeat customer into a client who buys as many products or services from your institution as possible. (Most banks and credit unions have lots of repeat customers but very few clients.) The final stage is advocate, where the customer’s positive word-of-mouth brings in new prospects. When a customer becomes an advocate, your job is to maximize referrals while keeping the customer buying across as many product and service lines as possible.

4. Think “customer value” at every stage

Building customer loyalty starts the moment a prospect opens a dialogue with your institution, long before that person becomes an actual customer. Let’s say a small business owner is meeting with your new accounts representative, and is exploring the possibility of banking with your firm. Asking “Where are you banking now?” and “What’s prompting this change?” and “Why us?” provides keen insights into how the prospect defines value and how you can address these needs.

Once this prospect opens an account, she begins evaluating your brand through a “new customer” value filter. Essentially, she is seeking confirmation that she made the right decision, and that your brand deserves her trust. She will likely grade your value according to transactional measures such as reliability (Is online banking working as promised?), accuracy (Did my insurance premium draft against the right account?) and responsiveness (Were my phone calls returned promptly?).

Of course, every customer defines value differently, depending on his or her stage of loyalty. The key is talking to a wide range of customers, teasing out the differences across stages and designing experiences accordingly.
 

_{© 2010 Jill Griffin}

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