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7.3.4 Trust

Once an exchange relationship exists between the customer and the bank, then the aspects of service provision tend to become paramount. If contractual partners enter repeated exchange relationships, it can be worthwhile for banks to refrain from exploiting an unequal distribution of information—in other words, an information advantage for the bank. This might mean selecting the best product for the customer even though it does not—at least in the short term—maximise the yields of the bank.

If customers develop the perception that they are not being exploited, they are more likely to trust their bank in the future.[1]

Fig. 7.6 Relevant characteristics of a bank service and a bank as an organisation for creating customer satisfaction (Source Own illustration)

A decisive factor in developing a win-win situation between the bank and the customer, therefore, is the building of trust. Trust can be defined as the willingness of customers to engage with a company or corresponding partner without ordering or making any further checks on his future behaviour (Bruhn and Georgi 2010, p. 13) (Fig. 7.6).

7.3.5 The Connection Between Customer Loyalty und Customer Satisfaction

7.3.5.1 Customer Loyalty

The concept of customer loyalty has frequently been subject to discussion, but never uniformly defined. Customers with a voluntary attachment to their company are also known as loyal customers.[2] Customer loyalty does not only describe the previous behaviour of customers, but also the customer's intended behaviour in the future. Below, customer loyalty is understood as a positive feeling on the part of the customer with regard to his relationship with the bank.

The essential psychological aspect is that customers want to be satisfied. They are willing to and interested in justifying in hindsight their initial decision in favour of a bank by perceiving only the positive aspects of the relationship. For example, after developing an attachment to a bank and in the event of insecurity about the quality of the financial services provided, they tend to search for information that confirms their previous decision in favour of the present bank and not to check the offers made by other banks. Such information might include the positive view of friends towards the selected bank. This tendency to justify a decision in retrospect reinforces the chosen behaviour and can lead to an even stronger bond between a customer and his bank.[3]

The consequences of the “critical mass” effect could play a role in this context. In the digital age a new product or service develops a breakthrough market success when it reaches a critical mass of users—one often speaks of 13 % of the user basis—which then triggers an exponential development due to the network effects. Until this “juncture of diffusion development” is reached, products find it difficult, but thereafter they dominate the market. Conversely, however, it also means that a negative downward spiral can occur. Applied to customer trust, this means that customers remain loyal for a long time, but in the digital age a critical mass of dissatisfied customers can endanger existence. This mechanism can be dangerous for banks (Koye 2005).

The measurement of customer loyalty is still in its infancy, compared to the measurement of customer satisfaction. Either the actual behaviour shown can be measured ex-post, or the behavioural intention ex-ante. Ex-post methods include measuring a company's share of turnover or market. However this reveals nothing about the relation of new and existing customers. Ex-ante, indications can be found on the behavioural intentions of existing customers by means of questionnaires on complaints satisfaction or the intention to repurchase (Nerdinger und Neumann 2007, p. 141).

7.3.5.2 The Connection Between Customer Satisfaction and Customer Loyalty

By now the connection between customer satisfaction and customer loyalty is undisputed. Customer satisfaction is the psychological cause of the attachment of a customer to his bank and is therefore the key factor in customer loyalty (for an overview see Nerdinger and Neumann 2007, for a detailed analysis of customer loyalty from a psychological perspective see Meyer and Oevermann 1995). Satisfied customers are in a state of psychological balance. To preserve this balance, they act loyally and repeated opt for the service in question. Satisfaction can act as a positive behaviour reinforce and increase the likelihood that an exchange relationship will be sought repeatedly with a certain company. The more frequently a customer experiences this positive reinforcement of his behaviour, the closer he attaches himself to the respective provider (Bruhn and Georgi 2010, p. 16) (Fig. 7.7).

Fig. 7.7 The connection between customer satisfaction and loyalty (The illustration was developed on the basis of an American customer satisfaction barometer. Source: Huber et al. 2006, p. 74)

However, there does not appear to be a linear connection between customer satisfaction and loyalty.[4] With negative customer satisfaction values—in the migration phase—an increase in customer satisfaction has a large impact on customer loyalty. With average customer satisfaction values—in the satisfaction phase—an increase leads to only slight growth in customer loyalty. In contrast, an increase in customer satisfaction where there are already high values—in the trust phase—leads in turn to a clear increase in customer loyalty. Where there are very high customer satisfaction values—in the saturation phase—an increase in satisfaction is once again accompanied by only a marginal change in customer loyalty. It is therefore important to be aware of the current satisfaction level of the customer. Most sectors are in the satisfaction zone with their customers—an increase in customer satisfaction does not lead to a growth in customer loyalty. This explains the often marginal effect of customer satisfaction programmes (Huber et al. 2006).

7.3.5.3 Bank-Specific Drivers of Customer Loyalty

The first studies have now been conducted that analyse in detail which factors of customer satisfaction have an effect on the customer loyalty of private and retail banks, and to what extent. Below we present the study by Bruhn and Georgi (2010). The authors identified the factors that are prerequisite for establishing successful customer loyalty. There are three main areas that can be analysed individually as

Fig. 7.8 Possible drivers of customer loyalty in private and retail banks (Source Own illustration based on Bruhn and Georgi 2010, p. 412)

sub-chains and which allow the integrative optimisation of customer loyalty management (Bruhn and Georgi 2010, p. 410) (Fig. 7.8). The perceived value of a service or product is influenced by the perceived product offer, the perceived service, and the perceived price. The perceived product offer refers to the various aspects of product quality. In banks this could mean product transparency or the quality of the products—for example in terms of historical performance. With perceived service, customers evaluate the service based on the sales channels offered, for example. With price perception, a distinction can be made between cognitive features (such as price knowledge) and affective features (such as price attractiveness or fairness).

The relationship quality is determined by the perceived relationship marketing. It indicates how the relationship with the bank meets customers' expectations.

A high relationship quality means that customers perceive their relationship to the bank to be strong. The relationship behaviour of the company is characterised, for example, by the type of individualisation of communication or by proactive advisor contacts—which are connected with openness and honesty towards the customer and precise knowledge of the customer's situation (for an analysis of the communication quality in customer interactions based on empirical findings in private banking, see Bruhn und Georgi 2010, p. 3 ff.). Relationship quality depends heavily on the perception and needs of the customer. Therefore it is not necessary for a customer advisor to provide the same degree of intensity in individual customer care for every single customer. Previously, individual customer service was always associated with the level of wealth—the wealthier, the more individual the service. In the digital age this customer group segmentation needs to be broken up. In matters of payment transactions, for example, all customers have access to a hotline, which is always available, in contrast to customer advisors. For products with a greater need for consultation, the customer is provided with product specialists, for example. By means of such modularised service structures, the balance between permanent availability and specialised expertise and needs-related advice quality can be safeguarded. Brand image describes the customer's perception of a brand. The brand or the image is influenced by perceived brand communication. Typical tools of brand communication include classic advertising, sales promotions, sponsoring and public relations.

A so-called global perception occurs in the sub-chain for each sub-chain, as a combination of all activities. The three global perceptions (perceived value, relationship quality and brand image) lead to the expression of customer loyalty. An empirical customer survey studied the influence of the individual sub-chains and the global perception on customer loyalty. It revealed that the two global perceptions “perceived value” and “relationship quality” had a similarly strong impact on customer loyalty. The influence of the brand image on customer loyalty, on the other hand, is disputed. This might be because brand image tends to be more of a strong driver in the initial choice of provider, and over the course of the relationship the perceived value and the relationship quality take on greater significance for customers.

Of all the factors of the three sub-chains, the perceived relationship marketing seems to have the greatest significance for customer loyalty. Therefore, an intensive relationship management would appear to be even more important for the success of customer loyalty than the perceived price or service (Fig. 7.9) (for a detailed analysis of the influence of individual drivers on global perception, see Bruhn and Georgi 2010, p. 427).

Fig. 7.9 Possible drivers of customer loyalty (Source Own illustration)

Banks can therefore control customer loyalty by means of the three areas perceived by the customer, the “perceived value” of the financial service, the “relationship quality” and the “brand image”. This control is optimised by means of the three identified sub-chains. Other bank-specific analyses revel further drivers of customer loyalty. For example, the quantity of services availed of seems to exert an influence on customer loyalty (Homburg and Scha¨fer 2000).

7.3.5.4 Customer Classifications: Of Mercenaries and Terrorists

Customer loyalty and customer satisfaction are therefore not connected linearly. But even when customer loyalty is controlled optimally, it is no guarantee that satisfied customers will stay or that dissatisfied customers will switch to other banks.

That is why, against this background, the analysis of customers is an important element in order to truly derive perfectly tailored customer loyalty activities.

Huber et al. (2006) describe four customer groups. “Loyal customers” are satisfied with the service provided by their bank and do not intend to switch. “Terrorists” are dissatisfied customers who wish to change providers. At the same time they tend to inform other market participants of their bad experiences. “Mercenaries” are satisfied with the product, but often wish to switch brands (see Huber et al. 2006). This customer group is probably relatively small in banking, as the image of a bank cannot be presented externally by consumers to the same extent as an automobile brand, for example. “Prisoners” are permanently dissatisfied, but due to high barriers they cannot switch banks easily. It is likely that the not inconsiderable costs of switching banks—at least in the past—go some way to explaining the existence of such “prisoners”. A key factor for the previously high costs of switching was the time involved in changing banks. In an age where less effort is required to switch banks, the effect has been seen less and less. Banks now even offer support for moving a bank account. Globalance Bank offers this service with a “change butler” online tool (Globalance 2013a, b).

Calling dissatisfied customers “terrorists” is not very appropriate in the digital age. Other authors use the terms “demanding satisfieds”, “stable satisfieds”, “resigned satisfieds” and “stable and demanding satisfieds” (Stauss and Neuhaus 2006).

In order to optimally control these elements of customer loyalty, it is of fundamental importance to gain information about the needs of the customers and to use this information as a true determinant. This means rejecting the previously dominant communications logic: turning away from the pure communication of information and towards two-way communication and the evaluation of existing information about the customer. This is usually comprehensively available online, and can be gleaned in great detail by analysing social networks.[5]

  • [1] Even in a limited exchange relationship, in which each party actually has the incentive to behave in an opportunistic manner if the other party is also doing so, this behaviour can be overcome if there is a type of provider who has no incentive to behave opportunistically in the short term. The opportunistic providers then have an incentive to imitate the behaviour of the other type of provider. For the first game-theoretical aspects see Kreps and Wilson (1982) and Kreps et al. (1982).
  • [2] Cf. on other concept of customer loyalty such as the reduction of perceived risks by means of the repeated purchase of a product, or also learning theory experiences (Nerdinger and Neumann 2007, p. 134 f.).
  • [3] People attempt to attain a balance in their cognitive system and to dismantle dissonances (cognitive dissonance theory). The cognitive system is composed of various individual cognitions (opinions, knowledge). Relationships can be harmonious or dissonant. A dissonant feeling is unpleasant, people try to avoid or minimise it. This can be done by adding new consonant cognitions, which change the dissonant cognition or behaviour (Nerdinger and Neumann 2007, p. 134 f.).
  • [4] This seems to be the case at least in intensely competitive industries (Anderson et al. 1997).
  • [5] Social networks can be used as indicators to evaluate in real time the most valuable capital of a bank—the customer basis (Capellmann et al. 2012).
 
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