Defining Customer Value and Satisfaction
Over 35 years ago, Peter Drucker insightfully observed that a company’s first task is “to create customers”. But today’s customers face a vast array of product and brand choices, prices, and suppliers. This is the question: How do customers make their choices?
We believe that customers estimate which offer will deliver the most value. Customers are value-maximizers, within the bounds of search costs and limited knowledge, mobility, and income. They form an exception of value and act on it. Then they learn whether the offer lived up to the value expectation and this affects their satisfaction and their repurchase probability.
What is Customer Satisfaction?
Satisfaction is the level of a person’s felt state resulting from comparing a product’s perceived performance (or outcome) in relation to the person’s expectations.
What is Customer Value?
Customer delivered value is the difference between total customer value and total customer cost. And total customer value is the bundle of benefits customers expect from a given product or service.
Who is a Customer?
Business needs customers to survive and exists in the market.
Customer is important person in business.
A customer is someone who brings his expectations to the organization, and it is their job to meet there expectation and satisfy their wants.
A customer is the blood of any business without which it cannot function.
A Customer is for life – Make it possible
Select the right customer through market research.
Know your purpose for being in the business.
Move customers from satisfaction to loyalty by focusing on retention and loyalty schemes.
Develop reward programs.
Customize the products and services.
Train and empower the employees in excellent customer service.
Respond to customers’ needs with speed and efficiency.
Measure what is important to the customer – always add value.
IS CUSTOMER-REALLY IMPORTANT
What is importance to customer :
CARE FOR THE CUSTOMER
UNDERSTAND THE CUSTOMER
STUDY THE CUSTOMER
TRUST THE CUSTOMER
OBLIGE THE CUSTOMER
MEET THE CUSTOMER
EVALUATE THE CUSTOMER
RESPOND TO THE CUSTOMER
SELL AND WIN THE CUSTOMER
Know what the customers are worth and know their point of view
Firstly, let us look at how the true value of the existing customers can be calculated. Many businesses spend about 75 percent on their marketing budget in a search for more new customers. The cost of this marketing mistake is a negative effect on the overall profits of the organization. It is a mistake because:
It costs substantially more to win a new customer than it does to keep an existing customer.
The longer a business keeps a customer, the more profitable that customer is for the business.
As a customer’s lifetime value grows, the more dependent they become on the company, and the less susceptible they are to the competitors’ offers of low prices.
The Customer’s Eye View
From the customer’s viewpoint, the organization behaves like an ideal suitor. Their every need or wish is not only provided for but also anticipated and personalized. At every opportunity and interaction, the customer is made to feel not only special, but also perhaps the most special and valued customer the organization has.
Customer Care
“Customer care is a customer service that seeks to acquire new customers, provide superior customer satisfaction, and build customer loyalty.”
We are now in the 21st Century, which is the era of the “The Never Satisfied Customer”. The expectations and demands of the customers will keep growing in the coming days. In today’s market scenario customer is the “king”. All companies are striving hard not just for customer satisfaction but also “Customer Delight”. To maintain customer loyalty, it is very important for an organization to have a good relationship with them.
“ONE SATISFIED CUSTOMER IS EQUAL TO 100 NEW CUSTOMERS”
Understanding this factor, many companies are striving hard to keep their existing customers happy. They are spending enormous amount of money to retain their customers. Today the growth and profitability of any organization depends on the number of satisfied customers that it has, not its financial assets.
To maintain customer loyalty and brand loyalty, it is very important for any organization to have a good and long lasting relationship with its customers. Building long lasting customers requires understanding their needs, expectations, feelings, etc. once it is know what the customers expect, it is simple and easier to fulfil their expectations and delight them.
In this context “Customer Care” is very critical. It is about understanding and building a strong bond between the organization and the customer continuously, by serving him in the best possible way when he knocks at your door, or maybe when he requires you to knock at his door.
Customer’s difficulties and problems, valuable suggestions, ideas towards the organization, products, services and people will help the organization in becoming a better enterprise by developing new products and offering superior service. This will also make the customer feel good that he, his problems and his ideas are important to the organization, and will help the organization to build a better relationship.
Who would have imagined 15 years ago, for example that organizations such as Amazon.com could capture market share from the high street by offering the customer a wide selection of value for money products backed by a quality service? Or that companies such as First Direct could fundamentally challenge the traditional way customers do business with their bank by offering a friendly, efficient service 24 hours a day, 365 days a year?
As competition has become more global and more intense, many organizations have realized that they cannot compete on price alone. It is in these market places that many companies have developed a strategy of providing superior customer care to differentiate their products and services.
Surveys suggest that service driven companies can charge up to 9 % for the products and services they provide. They grow twice as fast as the average company and have the potential to gain up to 6 percent market share.
We have to ensure that Customer Lifetime value is created and this is an immensely powerful tool as it helps companies to work out how many transactions it will take to recoup the initial investment in attracting, and servicing each new customer and generate a worthwhile return.
What is an Excellent Service?
An excellent service is a pre requisite to create and maintain customers, but what exactly constitutes good service?
Most people’s definitions will be based on personal experience. The garage which unexpectedly provides complimentary umbrellas to its customers when they come to collect their cars and it’s raining; the newsagent who gives the customer a free sweet when they come in to pay their newspaper bill- these would seem as good service. Ask anyone for their opinions and you will find that, even when discussing the service received from one organization alone, customers’ expectation and experiences vary.
One person’s shining example of the treatment he or she has received can be another person’s horror story. Yet it is the perception of each customer that counts. The perception of customers is their reality. Customer service is about perceptions: it is often a subjective and intangible experience.
Customer Centric Organizations
“There is only one boss, the customer and he can fire anybody in the company from the Chairman down, simply by spending his money somewhere else.”
It has become imperative these days to place the Customer at the centre of any organization. This enables an organization o enjoy the following benefits:
To differentiate itself from the competition
To improve its image in the eyes of the Customer.
To minimize price sensitivity.
To improve profitability.
To increase customer retention and satisfaction.
To enhance the reputation of a company.
To improve staff morale.
To increase employee satisfaction and retention.
To increase productivity.
To reduce costs.
The Changing nature of Customer Service:
A new concept Customer Delight emerges
There are two distinct types of attributes: those that maintain satisfaction and those that create delight. Satisfaction-maintaining attributes tend to be core attributes frequently considered the price of entry in the marketplace. Delight-creating attributes tend to be soft, long term relationship-building factors.
Today it’s about delighting the customer. The focus has shifted from satisfying the needs of the customer to delighting him beyond expectations. It is this, which ultimately drives repeated purchasing and unalloyed Customer Loyalty. Customer delight is not just about better product performance.
Consumers have a certain degree of expectation from a brand and in most cases the brand is likely to deliver a level of performance pretty close to that expected by the customer; however when customers get value or benefits beyond what they had expected, the brand has succeeded in delighting the customer. Common sense suggests that a delighted customer may be more loyal to a brand than a satisfied customer may.
Customer Retention
As customers begin to experience better service their expectations tend to rise. Furthermore the service experienced is transferable in the mind of the customer. The customer makes conscious and unconscious comparison between different service experiences, irrespective of the industry sector. Customers expectation for example of the service experience they will receive from a car rental service may be based not only on their expectation and experience of the service itself but also experiences they might have had in the high street or on the Internet with other car rental companies and other leisure and travel organizations.
A company’s ability to attract and retain new customers therefore is a function not only of the product or product offering but also the way it services its existing customers and the reputation it creates within and across marketplaces. Many organizations overlook the potential of their existing customers and this has cost them dear.
The numbers say it all when they highlight the importance of retaining a customer:
Reducing customer defections can boost profits by 2-85 percent. (Harvard Business School)
The price of acquiring new customers can be 5 times than the cost of keeping current ones (US Office of Consumer Affairs)
The return on investment to marketing for existing customers can be up to seven times more than to prospective customers. (Ogilvy and Mather Direct).
Yet while most companies regard the acquisition of new customers as a crucial element in their sales strategy, very few of them record customer retention rates and even fewer analyze the reasons why previously satisfied customers become dissatisfied and go. Again the numbers speak volumes:
50% of the customers are lost in a five year period.
50% of the employees are lost in four years.
Replacement customers will not contribute to profit unless they are retained for at least three years.
Only best-practice organizations such as Toyota have customer retention levels higher than 70%. Put another way, most organizations lose significantly more than 30% of their customers before, or at the time of a repurchase decision, mainly through poor service. The only reason market share do not drop is because competitors are usually in the same position and are losing customers to competitors! The result is a constant churn of unsatisfied customers looking for a company in which they can put their faith.
The key to Customer retention is Customer Loyalty
“If you want a place in the sun, You’ve to put up with a few blisters”
Today’s customers are harder to please, they are more informed than ever before, more price conscious, more demanding, less forgiving, and approached by many competitors with equal or better offers.
Companies seeking to improve their profits and sales have to spend considerable time and resources in search for new customers. It is not enough being skillful in attracting new customers, it is more important to retain the existing customers.
It is very much necessary to work passionately for loyalty and retention. The company’s aim should be to go beyond the customer’s expectations, to satisfy and to delight them.
The key to customer retention is customer loyalty. A highly satisfied customer stays loyal, buys more products which the company introduces, upgrades existing products, pays less attention to competitors’ brands, and is less sensitive to price offers.
It is in this sense wise to call the recent buyers and enquire regarding the product performance and to know their satisfaction level.
The organization should try to exceed customer’s expectations and not merely meet them, because customers who are just satisfied still find it easy to switch over when a better offer comes along. But a delighted customer creates an emotional bond with the brand, not just a rational preference and this result in high customer loyalty.
Acquiring new customers can cost more than the cost involved in satisfying the existing customers. These satisfied customers tell more people about good products, services, and experiences. But an unsatisfied customer will give his opinion to many people. If this happens, the number of people exposed to bad word of mouth may grow exponentially. Company should not risk losing customers by ignoring a grievance or a small issue.
The cost involved in winning back lost customers is often less than attracting the new customers. Customers maximize the value of the organization. It is very important for the organization to understand this fact that a satisfied customer does the best advertising for the company.
Why do consumers change products?
Service is a key determinant in the choice of a product.
Reasons for choice of product:
7 percent technical specifications
50 percent manufacturer’s response and liability.
Reasons for changing product:
8 percent quality or cost.
40 percent dissatisfied with service.
A customer’s reasons for initial purchase decisions therefore, can be both for tangible and intangible factors, the service feature relating to both performance and sense of caring:
Tangible:
Performance
Quality
Reliability
Cost
Intangible:
Sense of Caring.
Courtesy to customer.
Willingness to help.
Ability to solve the problems.
Reasons for developing long-term relationships with customers:
On average it is estimated that cost five times as much to attract a new customer as it does to keep an old one. Long term relationships with customers are therefore more profitable because:
The cost of acquiring new customers can be high.
Loyal customers tend to spend more and cost less to serve.
Satisfied customers are likely to recommend your products and services.
Retaining existing customers prevents competitors from gaining market share.
Evolution of Banking
The evolution of the Commercial Banking Industry in India has been governed by the social objective of expanding the reach of banking services and the mobilization of domestic savings. The roots of this social character of Indian Banking can be traced to the passing of the State Bank of India Act, 1955, by which the undertaking of the imperial Bank of India was taken over by the newly Constituted State Bank of India (SBI). The SBI was established in 1955 by an Act of Parliament, nationalizing the former imperial Bank of India.
This institution and its seven associates banks, which becomes SBI subsidiaries in 1960, were distinct from the other major Indian Commercial Banks, which remained in private hands until two rounds of nationalization in 1969 (14 banks) and, in 1980 (6 banks). In February 1969, the Government of India's (GOI's) nationalization of 14 largest private sector banks was the culmination of pressures to use the banks as public instruments of development.
The GOI imposed "social control" on banks, of which priority lending was a major aspect. It introduced restrictions on advances by banking companies. These were intended to ensure that bank advances were confined not only to large scale industries and big business houses, but were also directed, in due proportion to other important sectors like agriculture, small-scale industries and exports.
Since 1969, there has been a significant spread of the banking habit in the economy and banks have been able to mobilize a large amount of savings. However, by the 1980s, it was generally perceived that the operational efficiency of banks was declining. Banks were characterized by low profitability, high and growing non-performing assets, and low capital base. Poor internal controls and the lack of proper disclosure norms led to many problems being kept under cover.
The quality of customer service did not keep pace with the increasing expectations. All these reasons led to the next phase of nationalization. The 1969 nationalization had raised public sector banks' share of deposit from 31 %to 86% while the nationalization of 1980 raised the same to 92%. In 1991, a fresh era in Indian banking began with the introduction of banking sector reforms as part of the overall economic liberalization in India.
Active and Predominant Financial Intermediaries in the Country.
Commercial banks
Public Sector Banks
Foreign Banks in India
Private Sector Banks
Old Private Banks
New Private Banks
State Bank of India
State Bank Associates
Public Sector Banks
The banking sector in India has been characterized by the predominance of PSBs, which include the SBI and its seven associates, and 19 other nationalized banks. As on March 31, 2002 the assets of PSBs aggregated Rs. 8,910 billion, representing 80.2% of the total assets of all SCBs. Taken gather, PSBs accounted for 82% of public deposits 79% of advances and 90% of branches of all commercial banks in 2000-02, thus clearly demonstrating their dominance of the Indian banking sector.
New Challenges
The challenges posed to the financial sector in the market place are the following
Deregulation
Advanced information technology
Globalize markets and growing volumes of financial transactions
Volatility of the markets, and
Increased customer demands and sophistication of markets and customers
Customer Satisfaction
Banks are service organizations whose customer service is poor and need a lot of organizational and personal skills. So this is the case of the life and general insurance, whose reputation for quality and delivery of services is probably poorer than that of banks. This has been the result of protracted market monopoly and semi-monopoly elements in the market and poor quality of human element and personal skills, which are the basic brick for service marketing.
Both in banking and insurance, whose customer base is as wide as the whole household sector, "customer is not treated as the king and their marketing strategies are weak. The prerequisites for customer satisfaction are the following.
Identification of customer needs for financial and non-financial services.
Develop appropriate plans and schemes for them.
Price them reasonably on a cost plus basis in a competitive spirit and not on monopoly basis.
Strategies for marketing through personal contact, letters, advertisement through agents as in the case of insurance and in media.
Use of development officers, R&D and customer based research.
Increased customer demands and sophistication of markets and customers.
INTERIM REPORT OF THE WORKING GROUP ON CUSTOMER SERVICE IN BANKS
In the present day circumstances, especially after the nationalization of the 14 major banks in the country, more and more attention is being paid to revolutionize the various factors of commercial banking. The group in its interim report made a number of recommendations to improve the customer service. These recommendations are as under:
Banking is nothing but a service.
Banks are business organizations selling bank services.
It is necessary for banks to continuously assess and reassess how customers perceive bank services what are the new emerging customer expectations and how these can be satisfied on an ongoing basis. Appraisal of customer service thus must be an essential activity for all banks to be carried out meaningfully.
Unfortunately, there has been so far no integrated, unified and organised effort for a study of customer service, in all its aspects by banks in India. Even individually, we are afraid, not much attention, at least on a regular basis, has so far been devoted to these banks.
The low priority given to such appraisal and study might perhaps have been due to inadequacy of bank services compared to large unsatisfied demand all these years, banks have been operating in a seller's market and this continue to have, ready customers and large waiting lists.
It is true that customer service is an extremely dynamic concept. What is good customer service today may be indifferent service tomorrow and bad service the day after. But even in absolute terms, there is general consensus that the service presently rendered by banks needs, and is capable of, vast improvement. There is general feeling today, both amongst bankers themselves and in the public at large, that customer service rendered by banks leaves much to be desired, and in certain respects, had indeed reached very low levels. This can be ascribed to many reasons.
Maybe the enormous branch expansion program undertaken by banks along with the ever-widening range of the activities and responsibilities particularly after nationalisation has weakened the structural fabric of the organisations. Simultaneously, public expectations have been constantly, often justifiably, increasing, and with the growing public awareness, dissatisfaction over the service has assumed growing expression.
And the time has come for banks to look inward to find out what is the nature and quality of the things they sell, what the product is demanded by their customers and have to go about marrying the two.
Briefly speaking, customer dissatisfaction is seen to be pointedly acute in the following aspects;
Delay in putting through transactions
Delay in correspondence
Delay in decision making
In regard to credit applications particularly, questions asked and data required are not fully Relevant. All the enquiries not made at one time. Lack of counseling.
Undue emphasis of staff on observance of rules and procedures and
General attitude of unconcern and apathy for the client.
Ascertaining these expectations therefore is necessary. Expectations vary from one class of customers to another--the underprivileged, the common man, the agriculturist, the professional, the trader, the industrialist, etc., also as between rural, semi-urban and urban customers. Circumstances under which expectations would be met also differ as between bigger and smaller offices.
Further, dynamics of customer expectations and aspirations and the resultant futuristic demands on banks also call for detailed investigation and long-term measures. One major component of customer service is related to the involvement and commitment of people rendering such service and the other major component covers the systems and procedures aspects.
Therefore the entire range of customer service will have to be studied against the backdrop of other major interdependent factors:
Demands on and expectations from banks
Quality and job knowledge of banks personnel
Attitude and motivation of bank employees
Back-up systems and procedures
Some of these and other related factors have a direct and immediate impact on customer service, while others have a long-term significance, but are, nonetheless, very relevant and important. The critical service areas needing urgent attention have been identified as
Deposits accounts.
Remittances and collections areas needing immediate attention.
Encashment of Cheques.
Issuance of receipts.
Statements of accounts.
Collection of Cheques and bills and
Remittances including issue and encashment of drafts.
Over 35 years ago, Peter Drucker insightfully observed that a company’s first task is “to create customers”. But today’s customers face a vast array of product and brand choices, prices, and suppliers. This is the question: How do customers make their choices?
We believe that customers estimate which offer will deliver the most value. Customers are value-maximizers, within the bounds of search costs and limited knowledge, mobility, and income. They form an exception of value and act on it. Then they learn whether the offer lived up to the value expectation and this affects their satisfaction and their repurchase probability.
What is Customer Satisfaction?
Satisfaction is the level of a person’s felt state resulting from comparing a product’s perceived performance (or outcome) in relation to the person’s expectations.
What is Customer Value?
Customer delivered value is the difference between total customer value and total customer cost. And total customer value is the bundle of benefits customers expect from a given product or service.
Who is a Customer?
Business needs customers to survive and exists in the market.
Customer is important person in business.
A customer is someone who brings his expectations to the organization, and it is their job to meet there expectation and satisfy their wants.
A customer is the blood of any business without which it cannot function.
A Customer is for life – Make it possible
Select the right customer through market research.
Know your purpose for being in the business.
Move customers from satisfaction to loyalty by focusing on retention and loyalty schemes.
Develop reward programs.
Customize the products and services.
Train and empower the employees in excellent customer service.
Respond to customers’ needs with speed and efficiency.
Measure what is important to the customer – always add value.
IS CUSTOMER-REALLY IMPORTANT
What is importance to customer :
CARE FOR THE CUSTOMER
UNDERSTAND THE CUSTOMER
STUDY THE CUSTOMER
TRUST THE CUSTOMER
OBLIGE THE CUSTOMER
MEET THE CUSTOMER
EVALUATE THE CUSTOMER
RESPOND TO THE CUSTOMER
SELL AND WIN THE CUSTOMER
Know what the customers are worth and know their point of view
Firstly, let us look at how the true value of the existing customers can be calculated. Many businesses spend about 75 percent on their marketing budget in a search for more new customers. The cost of this marketing mistake is a negative effect on the overall profits of the organization. It is a mistake because:
It costs substantially more to win a new customer than it does to keep an existing customer.
The longer a business keeps a customer, the more profitable that customer is for the business.
As a customer’s lifetime value grows, the more dependent they become on the company, and the less susceptible they are to the competitors’ offers of low prices.
The Customer’s Eye View
From the customer’s viewpoint, the organization behaves like an ideal suitor. Their every need or wish is not only provided for but also anticipated and personalized. At every opportunity and interaction, the customer is made to feel not only special, but also perhaps the most special and valued customer the organization has.
Customer Care
“Customer care is a customer service that seeks to acquire new customers, provide superior customer satisfaction, and build customer loyalty.”
We are now in the 21st Century, which is the era of the “The Never Satisfied Customer”. The expectations and demands of the customers will keep growing in the coming days. In today’s market scenario customer is the “king”. All companies are striving hard not just for customer satisfaction but also “Customer Delight”. To maintain customer loyalty, it is very important for an organization to have a good relationship with them.
“ONE SATISFIED CUSTOMER IS EQUAL TO 100 NEW CUSTOMERS”
Understanding this factor, many companies are striving hard to keep their existing customers happy. They are spending enormous amount of money to retain their customers. Today the growth and profitability of any organization depends on the number of satisfied customers that it has, not its financial assets.
To maintain customer loyalty and brand loyalty, it is very important for any organization to have a good and long lasting relationship with its customers. Building long lasting customers requires understanding their needs, expectations, feelings, etc. once it is know what the customers expect, it is simple and easier to fulfil their expectations and delight them.
In this context “Customer Care” is very critical. It is about understanding and building a strong bond between the organization and the customer continuously, by serving him in the best possible way when he knocks at your door, or maybe when he requires you to knock at his door.
Customer’s difficulties and problems, valuable suggestions, ideas towards the organization, products, services and people will help the organization in becoming a better enterprise by developing new products and offering superior service. This will also make the customer feel good that he, his problems and his ideas are important to the organization, and will help the organization to build a better relationship.
Who would have imagined 15 years ago, for example that organizations such as Amazon.com could capture market share from the high street by offering the customer a wide selection of value for money products backed by a quality service? Or that companies such as First Direct could fundamentally challenge the traditional way customers do business with their bank by offering a friendly, efficient service 24 hours a day, 365 days a year?
As competition has become more global and more intense, many organizations have realized that they cannot compete on price alone. It is in these market places that many companies have developed a strategy of providing superior customer care to differentiate their products and services.
Surveys suggest that service driven companies can charge up to 9 % for the products and services they provide. They grow twice as fast as the average company and have the potential to gain up to 6 percent market share.
We have to ensure that Customer Lifetime value is created and this is an immensely powerful tool as it helps companies to work out how many transactions it will take to recoup the initial investment in attracting, and servicing each new customer and generate a worthwhile return.
What is an Excellent Service?
An excellent service is a pre requisite to create and maintain customers, but what exactly constitutes good service?
Most people’s definitions will be based on personal experience. The garage which unexpectedly provides complimentary umbrellas to its customers when they come to collect their cars and it’s raining; the newsagent who gives the customer a free sweet when they come in to pay their newspaper bill- these would seem as good service. Ask anyone for their opinions and you will find that, even when discussing the service received from one organization alone, customers’ expectation and experiences vary.
One person’s shining example of the treatment he or she has received can be another person’s horror story. Yet it is the perception of each customer that counts. The perception of customers is their reality. Customer service is about perceptions: it is often a subjective and intangible experience.
Customer Centric Organizations
“There is only one boss, the customer and he can fire anybody in the company from the Chairman down, simply by spending his money somewhere else.”
It has become imperative these days to place the Customer at the centre of any organization. This enables an organization o enjoy the following benefits:
To differentiate itself from the competition
To improve its image in the eyes of the Customer.
To minimize price sensitivity.
To improve profitability.
To increase customer retention and satisfaction.
To enhance the reputation of a company.
To improve staff morale.
To increase employee satisfaction and retention.
To increase productivity.
To reduce costs.
The Changing nature of Customer Service:
A new concept Customer Delight emerges
There are two distinct types of attributes: those that maintain satisfaction and those that create delight. Satisfaction-maintaining attributes tend to be core attributes frequently considered the price of entry in the marketplace. Delight-creating attributes tend to be soft, long term relationship-building factors.
Today it’s about delighting the customer. The focus has shifted from satisfying the needs of the customer to delighting him beyond expectations. It is this, which ultimately drives repeated purchasing and unalloyed Customer Loyalty. Customer delight is not just about better product performance.
Consumers have a certain degree of expectation from a brand and in most cases the brand is likely to deliver a level of performance pretty close to that expected by the customer; however when customers get value or benefits beyond what they had expected, the brand has succeeded in delighting the customer. Common sense suggests that a delighted customer may be more loyal to a brand than a satisfied customer may.
Customer Retention
As customers begin to experience better service their expectations tend to rise. Furthermore the service experienced is transferable in the mind of the customer. The customer makes conscious and unconscious comparison between different service experiences, irrespective of the industry sector. Customers expectation for example of the service experience they will receive from a car rental service may be based not only on their expectation and experience of the service itself but also experiences they might have had in the high street or on the Internet with other car rental companies and other leisure and travel organizations.
A company’s ability to attract and retain new customers therefore is a function not only of the product or product offering but also the way it services its existing customers and the reputation it creates within and across marketplaces. Many organizations overlook the potential of their existing customers and this has cost them dear.
The numbers say it all when they highlight the importance of retaining a customer:
Reducing customer defections can boost profits by 2-85 percent. (Harvard Business School)
The price of acquiring new customers can be 5 times than the cost of keeping current ones (US Office of Consumer Affairs)
The return on investment to marketing for existing customers can be up to seven times more than to prospective customers. (Ogilvy and Mather Direct).
Yet while most companies regard the acquisition of new customers as a crucial element in their sales strategy, very few of them record customer retention rates and even fewer analyze the reasons why previously satisfied customers become dissatisfied and go. Again the numbers speak volumes:
50% of the customers are lost in a five year period.
50% of the employees are lost in four years.
Replacement customers will not contribute to profit unless they are retained for at least three years.
Only best-practice organizations such as Toyota have customer retention levels higher than 70%. Put another way, most organizations lose significantly more than 30% of their customers before, or at the time of a repurchase decision, mainly through poor service. The only reason market share do not drop is because competitors are usually in the same position and are losing customers to competitors! The result is a constant churn of unsatisfied customers looking for a company in which they can put their faith.
The key to Customer retention is Customer Loyalty
“If you want a place in the sun, You’ve to put up with a few blisters”
Today’s customers are harder to please, they are more informed than ever before, more price conscious, more demanding, less forgiving, and approached by many competitors with equal or better offers.
Companies seeking to improve their profits and sales have to spend considerable time and resources in search for new customers. It is not enough being skillful in attracting new customers, it is more important to retain the existing customers.
It is very much necessary to work passionately for loyalty and retention. The company’s aim should be to go beyond the customer’s expectations, to satisfy and to delight them.
The key to customer retention is customer loyalty. A highly satisfied customer stays loyal, buys more products which the company introduces, upgrades existing products, pays less attention to competitors’ brands, and is less sensitive to price offers.
It is in this sense wise to call the recent buyers and enquire regarding the product performance and to know their satisfaction level.
The organization should try to exceed customer’s expectations and not merely meet them, because customers who are just satisfied still find it easy to switch over when a better offer comes along. But a delighted customer creates an emotional bond with the brand, not just a rational preference and this result in high customer loyalty.
Acquiring new customers can cost more than the cost involved in satisfying the existing customers. These satisfied customers tell more people about good products, services, and experiences. But an unsatisfied customer will give his opinion to many people. If this happens, the number of people exposed to bad word of mouth may grow exponentially. Company should not risk losing customers by ignoring a grievance or a small issue.
The cost involved in winning back lost customers is often less than attracting the new customers. Customers maximize the value of the organization. It is very important for the organization to understand this fact that a satisfied customer does the best advertising for the company.
Why do consumers change products?
Service is a key determinant in the choice of a product.
Reasons for choice of product:
7 percent technical specifications
50 percent manufacturer’s response and liability.
Reasons for changing product:
8 percent quality or cost.
40 percent dissatisfied with service.
A customer’s reasons for initial purchase decisions therefore, can be both for tangible and intangible factors, the service feature relating to both performance and sense of caring:
Tangible:
Performance
Quality
Reliability
Cost
Intangible:
Sense of Caring.
Courtesy to customer.
Willingness to help.
Ability to solve the problems.
Reasons for developing long-term relationships with customers:
On average it is estimated that cost five times as much to attract a new customer as it does to keep an old one. Long term relationships with customers are therefore more profitable because:
The cost of acquiring new customers can be high.
Loyal customers tend to spend more and cost less to serve.
Satisfied customers are likely to recommend your products and services.
Retaining existing customers prevents competitors from gaining market share.
Evolution of Banking
The evolution of the Commercial Banking Industry in India has been governed by the social objective of expanding the reach of banking services and the mobilization of domestic savings. The roots of this social character of Indian Banking can be traced to the passing of the State Bank of India Act, 1955, by which the undertaking of the imperial Bank of India was taken over by the newly Constituted State Bank of India (SBI). The SBI was established in 1955 by an Act of Parliament, nationalizing the former imperial Bank of India.
This institution and its seven associates banks, which becomes SBI subsidiaries in 1960, were distinct from the other major Indian Commercial Banks, which remained in private hands until two rounds of nationalization in 1969 (14 banks) and, in 1980 (6 banks). In February 1969, the Government of India's (GOI's) nationalization of 14 largest private sector banks was the culmination of pressures to use the banks as public instruments of development.
The GOI imposed "social control" on banks, of which priority lending was a major aspect. It introduced restrictions on advances by banking companies. These were intended to ensure that bank advances were confined not only to large scale industries and big business houses, but were also directed, in due proportion to other important sectors like agriculture, small-scale industries and exports.
Since 1969, there has been a significant spread of the banking habit in the economy and banks have been able to mobilize a large amount of savings. However, by the 1980s, it was generally perceived that the operational efficiency of banks was declining. Banks were characterized by low profitability, high and growing non-performing assets, and low capital base. Poor internal controls and the lack of proper disclosure norms led to many problems being kept under cover.
The quality of customer service did not keep pace with the increasing expectations. All these reasons led to the next phase of nationalization. The 1969 nationalization had raised public sector banks' share of deposit from 31 %to 86% while the nationalization of 1980 raised the same to 92%. In 1991, a fresh era in Indian banking began with the introduction of banking sector reforms as part of the overall economic liberalization in India.
Active and Predominant Financial Intermediaries in the Country.
Commercial banks
Public Sector Banks
Foreign Banks in India
Private Sector Banks
Old Private Banks
New Private Banks
State Bank of India
State Bank Associates
Public Sector Banks
The banking sector in India has been characterized by the predominance of PSBs, which include the SBI and its seven associates, and 19 other nationalized banks. As on March 31, 2002 the assets of PSBs aggregated Rs. 8,910 billion, representing 80.2% of the total assets of all SCBs. Taken gather, PSBs accounted for 82% of public deposits 79% of advances and 90% of branches of all commercial banks in 2000-02, thus clearly demonstrating their dominance of the Indian banking sector.
New Challenges
The challenges posed to the financial sector in the market place are the following
Deregulation
Advanced information technology
Globalize markets and growing volumes of financial transactions
Volatility of the markets, and
Increased customer demands and sophistication of markets and customers
Customer Satisfaction
Banks are service organizations whose customer service is poor and need a lot of organizational and personal skills. So this is the case of the life and general insurance, whose reputation for quality and delivery of services is probably poorer than that of banks. This has been the result of protracted market monopoly and semi-monopoly elements in the market and poor quality of human element and personal skills, which are the basic brick for service marketing.
Both in banking and insurance, whose customer base is as wide as the whole household sector, "customer is not treated as the king and their marketing strategies are weak. The prerequisites for customer satisfaction are the following.
Identification of customer needs for financial and non-financial services.
Develop appropriate plans and schemes for them.
Price them reasonably on a cost plus basis in a competitive spirit and not on monopoly basis.
Strategies for marketing through personal contact, letters, advertisement through agents as in the case of insurance and in media.
Use of development officers, R&D and customer based research.
Increased customer demands and sophistication of markets and customers.
INTERIM REPORT OF THE WORKING GROUP ON CUSTOMER SERVICE IN BANKS
In the present day circumstances, especially after the nationalization of the 14 major banks in the country, more and more attention is being paid to revolutionize the various factors of commercial banking. The group in its interim report made a number of recommendations to improve the customer service. These recommendations are as under:
Banking is nothing but a service.
Banks are business organizations selling bank services.
It is necessary for banks to continuously assess and reassess how customers perceive bank services what are the new emerging customer expectations and how these can be satisfied on an ongoing basis. Appraisal of customer service thus must be an essential activity for all banks to be carried out meaningfully.
Unfortunately, there has been so far no integrated, unified and organised effort for a study of customer service, in all its aspects by banks in India. Even individually, we are afraid, not much attention, at least on a regular basis, has so far been devoted to these banks.
The low priority given to such appraisal and study might perhaps have been due to inadequacy of bank services compared to large unsatisfied demand all these years, banks have been operating in a seller's market and this continue to have, ready customers and large waiting lists.
It is true that customer service is an extremely dynamic concept. What is good customer service today may be indifferent service tomorrow and bad service the day after. But even in absolute terms, there is general consensus that the service presently rendered by banks needs, and is capable of, vast improvement. There is general feeling today, both amongst bankers themselves and in the public at large, that customer service rendered by banks leaves much to be desired, and in certain respects, had indeed reached very low levels. This can be ascribed to many reasons.
Maybe the enormous branch expansion program undertaken by banks along with the ever-widening range of the activities and responsibilities particularly after nationalisation has weakened the structural fabric of the organisations. Simultaneously, public expectations have been constantly, often justifiably, increasing, and with the growing public awareness, dissatisfaction over the service has assumed growing expression.
And the time has come for banks to look inward to find out what is the nature and quality of the things they sell, what the product is demanded by their customers and have to go about marrying the two.
Briefly speaking, customer dissatisfaction is seen to be pointedly acute in the following aspects;
Delay in putting through transactions
Delay in correspondence
Delay in decision making
In regard to credit applications particularly, questions asked and data required are not fully Relevant. All the enquiries not made at one time. Lack of counseling.
Undue emphasis of staff on observance of rules and procedures and
General attitude of unconcern and apathy for the client.
Ascertaining these expectations therefore is necessary. Expectations vary from one class of customers to another--the underprivileged, the common man, the agriculturist, the professional, the trader, the industrialist, etc., also as between rural, semi-urban and urban customers. Circumstances under which expectations would be met also differ as between bigger and smaller offices.
Further, dynamics of customer expectations and aspirations and the resultant futuristic demands on banks also call for detailed investigation and long-term measures. One major component of customer service is related to the involvement and commitment of people rendering such service and the other major component covers the systems and procedures aspects.
Therefore the entire range of customer service will have to be studied against the backdrop of other major interdependent factors:
Demands on and expectations from banks
Quality and job knowledge of banks personnel
Attitude and motivation of bank employees
Back-up systems and procedures
Some of these and other related factors have a direct and immediate impact on customer service, while others have a long-term significance, but are, nonetheless, very relevant and important. The critical service areas needing urgent attention have been identified as
Deposits accounts.
Remittances and collections areas needing immediate attention.
Encashment of Cheques.
Issuance of receipts.
Statements of accounts.
Collection of Cheques and bills and
Remittances including issue and encashment of drafts.
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