Many executives and marketing professionals view consumer loyalty as the Holy Grail: Simply put, loyal customers will stay with you and give your bank a stable customer base and stable revenue for years to come. Loyalty ranks as so important that most metrics used to assess consumers, such as a promoter score, focus on that trait and that trait alone.
But in fact, a loyalty-centric focus has its drawbacks. In fact, a blinders-on drive to retain and service your most loyal customers might hinder your bank’s growth rather than fuel it. Here’s why:
Loyalty costs money. Industries such as restaurants and retail once spent a lot of time and energy on loyalty programs. The strategy was to make offers that ensured customers kept coming back, and thus discounting products and services served to give consumers a warm feeling about the store or brand. Banks have taken the same approach and often extend special offers to existing, “loyal” customers. But that approach doesn’t make sense anymore. Why should you discount products or services for customers you already have? After all, wouldn’t a truly “loyal” customer pay a full price? That loss of profit margin for existing customers makes it harder to manage margins on discounts you could offer to those customers you don’t have and want to attract.
Technology tests loyalty. Technology has changed how banks do business—much of the change driven by outside forces and new consumer behaviors. “Shopping around” for the best rate or deal once required paperwork and research on the customer’s part. Now, even your own marketing could unexpectedly lead you to lose business. Send a special offer to a loyal customer and she can, with a few thumb-swipes on her phone, comparison shop and engage with a competitor that offers more attractive terms. Loyalty is a behavior, not a frame of mind. It’s not true loyalty if a consumer can test terms quickly and easily via tech, and should they choose, leave in an instant.
Loyalty does not equal lifetime value. You know your customer who visits a branch weekly to make a deposit? He’s followed that routine for more than a decade. Love him, right? You should, because he probably, truly will never leave you. But he’s also likely not to do any other business with you. What your data portrays as a “loyal customer” is simply someone comfortable with a routine, unlikely to initiate more transactions—and certainly doesn’t want the hassle of changing banks. And so the value to your bank’s bottom line remains static. By all means retain him. But don’t expect to increase the lifetime value over the years. You have a better chance to grow your business with a new customer.
That isn’t to say loyalty has no role. Indeed, loyalty allows you to determine how to retain and affirm the relationships of your customers. But the metrics you use to develop marketing and business strategies—and to support your bank’s long-term growth—can’t stop once you figure out who among your existing base is simply loyal. You must entice customers to do more business with you and bring in referrals. You also need data that drives discussions about what in turn drives the behavior of energized customers. That way you can tailor marketing programs to target new customers and win that business.
Loyalty, or any flat measurement you use to assess your business, doesn’t get you very far. But the overarching goal of growth propelled by a broader set of values lies within reach—that is, if you remain loyal to it.
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Sue Hines is head of customer engagement at Informa Research Services. Sue has more than 30 years’ experience in consulting and brand measurement, specializing in the study of consumer mindset and the ties that bind people to what they buy and the organizations with whom they do business.
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