Companies interested in retaining customers should complete a two-phase process: first, they must determine what is important to customers and second, they must make sure their organization is capable of filling those needs reliably.

By Michael Sullivan

It is usually more profitable in the long run for a company to keep existing customers than to find new ones. Financial services businesses – which are often in danger of being perceived as a commodity by customers – should take this to heart and work to deliver a level of service that keeps customers from switching to a different provider. Experience has shown, however, that most financial services businesses have much to learn about keeping customers.

For example, the financial analysts at one insurance company knew quite well that customers who stayed with the business for a number of years – who usually went on to purchase additional products, expand coverage as their family situations changed and give referrals – were more profitable than new customers. Yet the sales force at this company received more than twice the commission on new business than they received from policy renewals. Naturally, the agents preferred spending their time on finding new customers. Therefore, despite knowing the importance of keeping customers, the company’s renewals rate hovered just above 80 percent.

The leadership at a company that is sincere about retaining customers should work to achieve this goal by completing a two-phase process: 1) determine what is important to the customers during “moments of truth,” which are interactions between customers and employees, and 2) make sure their organization is capable of filling those needs reliably. After focusing on these efforts, the company will reap the financial benefits of loyal, long-term customers.

Phase 1: Define What Is Important To the Customer

Many believe the largest contributor to customer loyalty is what occurs during interactions with the company’s employees – meaning these interactions are even more important than the specific products or services being offered. Therefore, it should come as no surprise that the first step in improving customer service is to identity what is important during moments of truth. What happens at these interactions determines how customers perceive a company and how likely they will be to stay with it or take their business elsewhere.

Some company leaders may already have a tacit knowledge of these moments of truth. But to be serious about serving customers better, that knowledge must be explicit. Managers should document and reach consensus on the key moments of truth for the company. The insurance company mentioned above focused on four main points of interaction: when a new customer is secured, renewals, claims and policy changes. (A bank would have different points of interactions depending on the number of services each customer used, such as making deposits, withdrawals and investments or applying for loans.)

Once the moments of truth are identified, the next step is to find out what customers require during those interaction points. Company leaders cannot rely solely on internal experts or even experienced staff for this; they must get the information directly from customers themselves. Methods of obtaining the voice of the customer (VOC) are plentiful, and the key is to use as many sources as possible. Surveys work for establishing broad patterns, but focus groups, one-on-one interviews and even direct observations of interactions are necessary to truly understand what is important to customers.

The insurance agency can be used to illustrate this point as well. The company established teams around each of their four moments of truth. The team working on automobile renewals knew that most renewals were handled automatically. Twice a year, 45 days before the renewal date, customers who had purchased auto insurance would receive a notice via mail requiring payment for the renewal.

The team talked to customers facing a policy renewal and discovered that they wanted to be contacted by an agent during the renewal period, particularly if they were going to be seeing a rate increase or when they were to experience a life change that could impact their premium (such as a teenage child preparing to begin driving). They did not want to be bombarded by calls throughout the year, nor did they want to have to initiate the conversation with agents.

Phase 2: Deliver Better Customer Service

Once a company’s leaders know what their customers want, the next step is to change policies and practices to enable better customer service.

The insurance company and its agents, for example, were surprised that customers wanted to be contacted. To meet that need while still allowing agents to spend a reasonable amount of effort on finding new business, they made two major changes:

  1. Setting up guidelines for when existing customers should be contacted by phone. With the new guidelines, agents would contact customers who were going to receive an increase of more than 5 percent in their premiums and those who had a child who would be turning 16 within a year. Customers facing large increases felt that being contacted prior to renewal demonstrated that the company truly cared about them as people rather than policy numbers. The contact allowed agents to explain the cause for the increase and explain options to decrease their premium (e.g., through increased deductibles or changes in coverage amounts). Contact with customers whose children would be turning 16 gave agents a chance to discuss coverage options with the parents and encourage the parents to begin talking to their children about safe driving practices.
  2. Adjusting the commission rates to establish more parity between new business and renewal customers. This adjustment allowed agents to spend more time with existing customers without feeling like they were endangering their own livelihood.

In tests of these changes within a few trial regions, the company saw an immediate bump from 83 percent to 89 percent renewals, with very little investment up front. Further, the opportunity to discuss coverage options prior to renewal allowed the agents to build a stronger relationship with their customers; the customers valued the insight and options provided during these conversations. Revenues also rose because agents were able to sell additional insurance products and increase coverage amounts to existing customers based on a better understanding of their needs.

Keep Customers Happy

Some surveys show that only about 50 percent of bank customers are “highly satisfied” with their provider, well below the 70 percent rate for most other industries. The reason why even dissatisfied customers usually do not switch banks is the difficulty and inconvenience involved in doing so. Yet the low satisfaction figure, combined with the increase in margin pressures within the financial services sector, demonstrates the opportunity that companies have to get out in front of their competition – provided they are willing to put a little time and effort into understanding their current customers and making changes to better meet those customers’ needs.

With this kind of VOC undertaking, it is important go beyond generalities or half-hearted measures. Practitioners need to have direct contact with customers and hear them explain in their own words what is important to them. Like the insurance company described here, financial services companies may have to change policies that affect how their customer service staff members deal with customers; but, if done correctly, these changes may significantly differentiate a company from its competition and allow the organization to grow at the expense of its competitors.

About the Author: Michael Sullivan is an engagement director with George Group – now a part of Accenture. He has more than fifteen years of experience leading, coaching and facilitating the implementation of continuous improvement initiatives in various industries, including financial services. Mr. Sullivan holds bachelor’s degrees in accounting and management as well as a master’s degree in project management. He also is a certified project management professional. He can be reached at [email protected].

About the Author