The December issue of Banking Strategies (link below) has an interesting piece on customer loyalty, and introduces an interesting concept: customer sacrifice.
Commoditization dissolves loyalty
The backdrop to this story is that the whole retail banking industry is characterized by increasing commoditization. Product and price innovations are quickly matched. Reasonably fast, accurate and responsive service levels are thought to be table-stakes to compete at all.
It's tough to build loyalty in commoditized products and services. Mostly what you have is habit, not real loyalty. So customer experience is now on the radar as the way to differentiate and gather more loyal customers.
Loyalty pays - d'oh
And there is pretty significant proof that loyalty pays: this research showed that loyal custmers bring 24% more deposit business and 14% more consumer loan business to their primary bank, as well as being three times more likely to recommend their bank. These stats are not new, and many researchers have found similar data. [and dear reader, I'm sure you know this, even if you didn't know the stats!]
Defining sacrifice instead of satisfaction
The sacrifice concept is interesting. Sacrifice occurs when customers have a high desire to receive services, but do not feel that their bank [substitute your category here] is providing them. In the research discussed in the article, they identified eight experience attributes where customers are experiencing significant sacrifice, such as:
- branches open evenings and weekends
- being rewarded for the size and length of my business
"I'm getting rewards from many of the other companies I deal with, why not my bank?"
- staff at the branch have been there a long time
"It's too much trouble to get to know people at the branch. They are different every time I go in there."
- branch staff knowledgeable so don't have to refer me to specialists
"I waited in line to talk to someone and then I had to wait again to talk to the person I really needed to see."
The attributes where there is low sacrifice are areas that are either unimportant, or the level of delivery is acceptable, or both, such as:
- having a childrens' play area
- staff take time to chat with me
- offering product bundles addressing comprehensive needs, (such as home buying)
Sacrifice is measured differently from satisfaction, and this difference is important, because it potentially shows how to break through the wall of "satisfied" to "loyal."
Customer Satisfaction = what customer expects to get LESS what customer perceives they get
Customer Sacrifice = what customer wants exactly LESS what customer settles for
Are your customers settling?
An analogy is drawn to the airline industry, where the last few years of horrible service have lowered expectations. So satisfaction scores are not as low as one might expect. Sacrifice scores, on the other hand, show that few of us are getting what we'd like to get, and we're all settling. Settling equals no desire to build a loyal relationship.
Paul McAdam and B. Joseph Pine, who wrote the article, Customer Experiences Rule, say that you have to choose whether you are going to live at the commodity end of your market, or the experience end. If you choose commodity, then you need to focus on cost and prices. If you choose experience, then you will need to focus all your resources on putting the customer at the centre.
Abbott's corollary: if you aren't an 800 pound gorilla that can push unit costs waaaay down, you don't really have a choice, you need to focus on customer experience or get caught in the horrible middle, neither cheapest nor best.
References:
Customer Experiences Rule, by Paul McAdam and B. Joseph Pine II, Banking Strategies, Novenber-December 2006.
Pine was co-author, with James H. Gilmore of The Experience Economy: Work is Theatre and Every Business a Stage , 1999.
