Challenges to Customer Retention for Banks
The objective of any business is to be the leader in its industry. Banks
face a unique set of customer service challenges that exceptional customer
service must handle effectively to maintain long-term customer relationships. For this reason,
the company must put in place measures to ensure maximum retention. However,
this company will probably face challenges in implementing such an initiative
that prevent it from meeting its goals.
There has been a rapid improvement in banking's financial system over
the last two decades. However, due to liberalization, privatization, and
globalization, the banking sector has become a dynamic and fastest-growing
service sector subject to increasing competition.
(Kaynak and Kucukemiroglu, 1992; Hull, 2002) On the other hand, banks compete with financial institutions and non-banking organizations. Moreover, most
of a bank's product improvements can be copied, so banks can differentiate
themselves by offering almost identical services.
According to Panda (2003), high-quality relationships between customers
and service providers determine customer retention in the service industry.
Customer service has become the most crucial non-price factor in a
competitive financial market (Kotler, 2003). For this reason, banks must
develop customer service-focused approaches to retain their current customers.
Improved service quality at banks and the relationship between customers
and service providers strengthen profitability (Reichheld and Sasser, 1990);
retention strategies are challenged by service quality, customer satisfaction,
loyalty, and switching barriers.
There are both internal and external challenges when it comes to retaining customers. However, most of the difficulties were externally influenced by competition, pricing, customer expectations, the nature of customers, trust, and brand perception.
- A challenging customer service environment
- The lack of regular follow-up with the clients (a lack of personal touch)
- The competition that offers lower prices
- Low customer satisfaction
- Customer relationship management
- Constant focuses on acquiring customers
- Increasing competitiveness (competitive advantage)
- Maintains a consistent level of engagement, attention, and value
- Uncertainty regarding customer information
- Calculating the client lifetime value
- Hard to measure the overall customer experience
- Difficult to measure customer behaviour
With changing market conditions, the banking sector started changing
its business practices like developing customer loyalty programs, marketing
strategies for customer retention, focusing on the perceived service quality of
their services and products, and adopting a distinctive and unique approach to
reach out to their customers and meet future challenges (Mishra et
al.,2010).
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