Four Sure Steps to Customer Loyalty

The most profitable consumer banking units focus on retaining customers.

Why? Because new customer relationships are not profitable at many banks for as long as two years - and even longer when the cost of acquiring customers is particularly high.

The more profitable banks aim to build loyal customers. Loyal customers establish a primary relationship with the bank, recommend it to others, and will not leave for a better interest rate or at the first sign of a problem.

A Tougher Task

It is far harder to develop a loyal customer than to recruit a new one. Banks focusing on building a base of loyal customers are succeeding, however, and any bank can succeed if it follows four strategies that create customer loyalty.

* Courtesy training. This first strategy is one that bankers have been using over the past 10 years: training and incentives for courtesy. Experiencing courtesy leads to customer satisfaction but rarely leads to loyalty. Unfortunately, many banks stop at this point and fail to take advantages of other, far more powerful strategies for creating customer loyalty.

* Service. A number of service strategies create customer loyalty. One of these is empowering employees to take personal responsibility for satisfying customer needs, particularly solving customer problems.

The nature of banking guarantees that there always will be operations failures such as statement errors. Customers often become angry when problems like this erupt. Faced with an angry customer, even employees with the best courtesy training may become defensive. But employees who take responsibility for solving these problems can turn an angry customer into a loyal one.

In turn, the bank's culture changes. Rather than being procedure driven, it becomes customer driven.

Unlikely as this may sound, it's easier to give employees the tools for solving problems than for being courteous.

* Leadership strategies. These encourage branch managers to lead, coach, and encourage rather than direct and control, but more about that later.

* Sales. Banks, particularly their marketing departments, have done an excellent job in segmenting customers into groups. Generally, though, all the groups receive similar treatment on the sales floor.

As a result, banks generally miss opportunities to leverage customer information by identifying the best prospects for selling additional products and services.

Many banks have invested in sophisticated systems that bring this information to employees and let them use what-if scenarios for sales purposes. But employees are not taking advantage of the systems.

Though banks are proactive at getting customers into the bank, many employees tend to sell reactively. A major reason is the general reluctance of employees to sell. These employees fear they may upset a comfortable relationship by suggesting that it be expanded.

Banks have to do a better job at giving employees confidence in the value of the products and services being offered. They also have to be better at helping employees recognize that selling an additional product to a customer who needs it serves the customer better. Indeed, employees should recognize that sales and service are one and the same.

Banks also should educate their customers about the broad range of relationships they offer.

New Tools Are Required

Building a sales strategy requires giving new tools to employees. Among the skills that banks using this strategy teach their employees are:

* Recognizing and confirming referral opportunities.

* Determining needs.

*Creating awareness of needs.

* Developing listening skills, including strategic questioning and questioning for reactions.

* Turning a problem into a sale.

* Sales planning. To secure maximum results, it is essential to provide specific skills for different levels of employees from tellers to advanced customer sales representatives. Also, because reductions in force make it difficult for employees to leave the premises, much of the training has to be on-site.

Using these strategies, the bank moves from a transactional culture to a relationship culture. Event-driven activities become process-driven. Employees who were reactive become proactive; shotgun marketing becomes targeted marketing.

Managers as Entrepreneurs

By encouraging managers to lead, coach, and encourage rather than direct and control, they become responsible for the profitability of their branches. They develop their own sales and service plans, taking both long- and short-term needs into account.

In short, these strategies make the manager entrepreneurial rather than someone who blindly follows directives from headquarters. The manager takes responsibility for building relationships with customers, for broadening the concepts of personal banking and private banking until they become part of the branch's culture.

Branch leadership cannot be mandated, however. The manager has to be coached and motivated. Intervention here is sorely needed because the vast majority of branch managers haven't had good role models.

Unless banks succeed in turning the manager into a leader, none of the customer loyalty strategies outlined here can be successfully carried out.

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