Abstract: Historically, bank customers have tended to stay put. Most people like their bank and they don't spend hours thinking about their banking relationships, says N.W. Pope, executive vice-pres- ident, First Hawaiian Bank, Honolulu. Even if something goes wrong, customer has been likely to accept a screwup now and then, says Pope, whose bank has $6.6 billion in assets. Pope says banks have benefited from customers' inertia and their belief that changing banks is too much of a hassle. But this won't last long, Pope and other bankers believe. Younger customers are more likely than their parents were to leave a bank in search of greater convenience, lower prices, higher deposit interest rates, or better service. Bank and nonbank competitors are luring young and old with products like mutual funds. Such services as automated teller machines and telephone banking make banks more like interchangeable utilities than firms that develop customer loyalty. Were none of these forces in effect and typical 15%-20% annual attrition rate among bank customers to stay constant, one could still see merit in efforts to retain customers. It's generally cheaper to retain an account or customer than it is to acquire a new one, and relationships tend to become more profitable longer a bank maintains them. WHAT IS RETENTION? Customer retention is a loose label. For example, offering mutual funds, expanding ATM access, improving customer service, offering a new checking account, and redecorating lobby could all be considered means to retaining customers. Philosophies about how a bank should go about it vary widely--some people think banks should try to keep all customers; some feel they should slough off those who are unprofitable. Some people believe that customer tenure is a byproduct of good products and services, while others feel it's necessary to have special retention programs. Some think advertising can help, others think it can't. WHY PEOPLE LEAVE. There are probably as many reasons why customers leave as there are customers who says Sam Irvin, vice-president of MDS, Atlanta, a consulting firm that analyzes characteristics and behavior of customers who have left and compares them to customers who've stayed to produce an attrition predictor model. cannot control some departures--people die or move away. But Red Pope estimates that 14%-17% of closed accounts are closed for controllable reasons, often price or service. At Premier Bancorp, primary reason customers defect is because bank is no longer convenient for them--either they've moved or they no longer need account, according to L. Biff Motley, executive vice-president at Premier and president of Bank Marketing Association. The second most common reason is pricing. The third reason is that they're dissatisfied with policies, procedures, or service. An extremely disproportionate share of people who close accounts and leave bank are younger notes Motley. Motley points out that there's a difference between account closings and customer defection. We average 2,000 or 3,000 account closings per quarter, yet number of households that leave bank is much lower, he says. For some people, the account is just way they manage their money. The vast majority of closed accounts are for reasons that shouldn't alarm bankers, he says. The desire for more convenient service delivery is main reason people leave, believes John P. Hickey, chairman and CEO, Bank One Fort Worth (Texas) and chairman of ABA's retail division's customer retention task force. Banks have really got to adapt to customers' changing attitudes and preferences, he says. Take a look at home shopping networks, mail order industry, telephone ordering. It's becoming more and more common for people to do business this way. Smiling and being pleasant is not enough anymore, says Hickey. …
Publication Year: 1993
Publication Date: 1993-09-01
Language: en
Type: article
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Cited By Count: 8
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