The Silent Scream of the Unloved Customer

Mis-servicing is becoming one of the most critical issues for British companies, especially in the financial services sector. Tamsin Addison and Svetlana Gogolina argue that, by putting the customer at the core of their business strategy, companies can cut costs, drive significant additional profits and develop a stronger sustainable competitive position.
Many financial service providers have recently declared record profits. At first sight, the industry is in perfect shape. But would their customers agree, or is it a case of pride going before destruction? We believe strongly that only through building advocacy and loyalty amongst their customers will these companies be able to achieve sustainable organic growth.
A self-inflicted problem
Establishing the correct level of servicing of customers to enable better focusing of resources is a key challenge for financial services providers. The industry is characterized by rapid change, intense competition and increasing levels of commoditization. Products and services offered by banks and insurers are becoming indistinguishable from each other, as innovative offerings are swiftly copied by the competition. Aggressive customer acquisition strategies coupled with these largely-undifferentiated offerings has created a “switching culture” amongst many customers.
In the past, communication strategies have focused on the ease of switching: a “hassle-free”, no-cost experience was promised, and lucrative introductory deals offered. The result has been that the industry itself has created promiscuous consumers – “rate tarts”, as the CEO of one financial company put it. Customer churn has increased across the whole industry, with the credit card and mortgage sectors suffering the most. For instance, re-mortgaging rates have increased from 5% in 1999 to close to 20% in 2004, and it is now regarded as the smart thing to switch credit cards when the introductory interest-free period runs out, or to change car insurers every year. But is it so smart for the product providers, and what is the long-term impact?
Short-term gain, long-term pain
From extensive research studies that we have conducted for financial services providers, we know that customers who have switched once are likely to switch again, particularly if they are not entirely satisfied or if they see that a better deal is available. Worryingly for financial services providers, there is a growing number of people who are always on the look-out for better deals, no matter how satisfied they are with their providers. They are the type of customers that providers are most likely to attract in their customer acquisition campaigns – especially if these seek to lure them with special offers – but they are also the type most likely to depart again once the incentives lapse.
Newspapers and broadcast media have also played their part in this process by educating customers not to tolerate second-rate service and encouraging them to search actively for the best deals available. Consumer rights organizations have highlighted instances of overcharging and exposed bad practices within the banking sector – and most others as well. Many websites now offer dispassionate price and product comparisons for different financial products, making it far easier for people to find alternative providers. Also, new entrants have naturally focused their offerings on the perceived shortcomings of the established providers, thus actively educating consumers to the alternatives, and these factors have led to increasingly savvy and demanding financial services customers.
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