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Customer Loyalty in the Financial Services Industry Market Assessment
Key Note Publications Ltd, January 2000
Exclusive research carried out for Market Assessment by market researcher National Opinion Poll (NOP) Solutions is at the heart of this report. 1,000 adults were asked which aspects of customer service were important to them, and the most striking result is:
The paramount importance of knowledgeable and courteous staff.
There is no substitute for a direct relationship between the consumer and the company. `The more you treat your customers as individuals, by meeting and exceeding their needs, the more loyal they will be and the more inclined to buy further into the brand,' said Simon Avison, managing director of New Solutions, in Marketing (June 6 1996). `The customer needs to see that the company uses information to enhance the brand's benefits to him, rather than as a means to shower him with unsolicited promotions. Banks and building societies could use customer information constructively. Selling new services to their customers should be easy: the bank already holds a customer's details, and, with the data on screen, could offer those customers preferential facilities.'
Other main findings include:
There are many layers of loyalty, resulting from monopoly, inertia, attractive pricing, incentives, and emotional attachment.
Household spending on financial services is at a relatively low level. Average weekly expenditure ranges from £20.20 on pension contributions and life assurance, down to 90p a week for insurances other than motor, contents and medical. Payments vary substantially according to income. The lowest decile paid £1.90 a week on life assurance and pensions, the top decile £67.70 the bottom decile saved nothing a week, the top decile £52.70.
By the end of 1999, the national lottery had reduced by £1bn a year the amount of disposable income available for the purchase of financial services. This is 0.17% of gross disposable income.
The average size of households continues to fall, and is currently 2.4 people, and consequently the number of separate households is rising. Each is a potential customer for contents insurance, and every mortgaged home must have buildings insurance.
Deregulation in financial services, starting in 1982, has resulted in intense competition. Financial companies are diversifying into new sectors, and companies from outside finance are jumping in. At the same time, electronic technology has enabled companies to improve efficiency at the same time as reducing staff.
Centralised call centres are enabling companies to reduce their branch networks, but NOP research for this report shows that 86% of adults regard convenient location of their bank or building society branch as important, and 69% like to deal with a small company that understands their needs.
Profiling techniques, such as descriptive customer classification, help companies make effective use of their customer databases for targeting and marketing.
The top six aspects of customer service, according to our NOP survey, are:
well-informed staff who give advice
easy-to-understand information and literature
rapid response to queries
fair recompense for mistakes
Women are more likely than men to require a convenient location, a small company understanding their particular needs, rewards and discounts. Differences between age groups are not substantial overall, except for the over 64 group, although the 35-44s rate rewards and discounts more highly than any other group, and the over 45s are less inclined to require 24-hour availability, and less enthusiastic about telephone and computer banking.
Poor customer service is costing hundreds of millions of pounds annually. A customer with a complaint tells nine other people on average. Over five years of poor customer service, sales are likely to be a third lower than if service were good. Lost sales have disproportionately severe effects on profits.
Almost nine customers out of 10 attach importance to receiving recompense if a bank or building society makes a mistake.
Supermarket multiples Tesco and Sainsbury have entered banking, offering savings, current account and mortgage facilities in partnership with the Royal Bank of Scotland, and Bank of Scotland respectively.
Home visits are of importance to less than half the adults questioned by NOP.
Direct sales have made some headway in the life and pensions markets. Telephone sales are a significant element of customer service for only 58% of those questioned, although this rises to 74% for those aged 15-24.
Rewards and discounts are significant for 73% of adults questioned. They are of most importance to those aged 35-44 (82%).
By March 1999, there were 5,740,000 Tessa accounts (nearly one for every 10 people) and 20,540,000 PEP plans. 3,505,000 people held ISAs in July 1999, and by the end of March 2000, the number had soared. It is fair to say that these are the richest members of UK society and 50% have no savings at all.
More than 60% of women, and more than 60% of C2s and DEs expect to rely on the state pension or other state benefits at some stage of their lives.
ISAs are highly popular with the saving section of the population, reaching a sales total of £8.6bn from April 1999 to February 2000, PEPs and Tessas - tax efficient savings - grew to £70.35bn by March 1999 and £30.1bn to March 1999 respectively. Life and pensions and unit trusts are likely to show steady growth ahead of inflation, to £131bn and £133bn. Deposit accounts are expected to increase only in line with inflation. In the insurance sector, accident and health premium income is expected to rise little more than the RPI.
Consumers need education in personal finance. The launch of the Personal Finance Education Group is a move in the right direction. The introduction of personal financial planning to the National Curriculum under the `Citizenship' syllabus planned for 2001-2002 will be a move in the right direction. The trend among some banks (NatWest's website for students on financial planning and the Co-operative and Lloyds TSB in community banking) towards more involvement in social inclusion of poor populations in areas short of bank branches, has considerable government support. There is considerable scope to widen the uptake of financial services among sections of the population which can afford to provide for themselves, but who at present do not see the need, or who find the financial world too complex.