All businesses want to grow—that is the nature of business. However, focusing all your attention on acquiring new customers may not always be the best strategy.
Recent research in the U.K. shows that businesses may benefit by focusing on retaining existing clients with better service, rather than trying to snare new clients with tempting offers. I recently reviewed this research, which used the retail banking sector as a case study, and found some interesting results that may also apply to other service organizations.
From a growth perspective, banks, for example, may have a goal to increase their share of the retail banking market (i.e., services like chequing accounts) and may invest heavily to attract clients from their competitors. The study, conducted last year by the U.K.’s Financial Conduct Authority, examined the effects of two motivational forces on chequing account holders:
“Pull” factors, such as positive incentives to move to a new bank.
“Push” factors, including negative experiences with the client’s existing bank that encourage the client to look elsewhere.
According to the U.K. study, most clients who already switched banks attribute their decision to a “pull” factor—they were positively attracted by the offer of an alternative provider. However, the majority of clients who have not changed banks state that only a “push” factor would encourage them to make a switch. Thus, no matter how attractive the offers from other banks, only a breakdown in the client experience with their current bank would prompt a switch.
The U.K. research also showed that the main reason clients do not switch banks is that they are happy with their existing provider—73 per cent of respondents gave that reason as their primary response. With concerns about the switching process also coming into play, it is not always easy to convince clients to move banks on the strength of “pull” factors alone. In this case, special offers, gimmicks or incentives may not be particularly effective.
Interestingly, when clients do decide to switch, many may do so without warning their bank or even making a complaint. As a result, dissatisfied clients may maintain a relationship with their current banking provider (albeit with lower levels of trust, advocacy or product usage) without showing any apparent signs of dissatisfaction. At this time, they may become receptive to the “pull” factors offered by other banks to switch over.
So what can we learn from these dynamics? Delivering an excellent client experience is important. By creating effective feedback loops with clients and using these insights to challenge yourself to improve the client experience (by being quicker, more cost-effective or providing more value), you can minimize “push” factors and hopefully increase client retention. At the same time, you may help create a significant reputational “pull” factor for clients dissatisfied with a competitor.
When looking to improve the way your business provides client experiences, ask yourself the following questions:
What measures do you have in place to gauge current client satisfaction levels and identify potential “at risk” relationships?
Do you gather data on lost clients to better understand their motivation for leaving and potential triggers?
Do you have strategies in place to address the largest “push” factors that could cause your clients to switch to a competitor?
Although your business may not have the same types of client interactions as a bank does, the U.K. study’s general ideas of “push,” “pull” and client satisfaction appear to apply broadly to most service organizations. By retaining clients with better service, not only can you help ensure your current client base does not start looking elsewhere, but you may also be able to boost your reputation and attract new clients, effectively growing your business for years to come.