'Relationship marketing' important than ever

Practice in financial services industry:

B W S PREMARATHNE Chartered Marketeer, CIM (U.K)

There are sound financial reasons for the growing popularity of relationship marketing in the financial services industry.

Most of the financial institutions in Sri Lanka are still in the transactional marketing than relationship marketing.

Transactional marketing focuses on single sales than focusing on customer retention, customer loyalty and life time value of a customer which is one of the differences between transactional marketing and relationship marketing.

Just a couple of decades before, the financial market was not up to the required standard but today the financial market in Sri Lanka has become extremely competitive.

The customers were asking a question from the financial institutions 'why banks and finance companies hate customers' now the customers have been questioned by the financial institutions 'why customers hate banks and finance companies' as the customers are more demanding than ever, now they are in a win-win situation in the heavily competitive markets.

Challenges for financial institutions in building relationships

Unlike other organizations, the financial institutions are unscrupulously stagnated in maintaining a long term relationship with the customers. It has been created inherent in the nature of business in any financial institution, the two major functions of a financial institution are lending and borrowing, simply taking money from the public and giving out to the public.

For an example, a FMCG company can manufacture a number of good quality products and sell them to customers at the random and get the money at the point of sale and then halt the sale (end). But for a financial institution, it is different. If a financial facility is granted to a client, the transaction is not finalized at the point of sale, which will be extended for a long period until the last cent is recovered.

1. Recoveries of debt

Recoveries of debt is a critical point in maintaining the relationship with the lending customers.

Recoveries is one of the most important parts of its operations in a financial institution, where it emphasizes taking the given money back to repay the interest and the principle to the depositors and other money lenders. Understanding the value of profitable customers is a very important aspect in maintaining the relationships.

Recoveries process is a part of the marketing function of a financial institution. Recoveries Department plays an important role in retaining profitable customers since they are being closely dealt with the customers. Understanding the customer behaviour is most important for the marketing staff as well as the recoveries staff.

So train your recoveries staff to deal effectively with profitable customers. Loss of an existing client is easier than attracting a new customer.

2. Keeping depositors happy

Trust is the heart of building relationships with borrowing customers (depositors). How to build the trust? Simply by paying their interest on time, repay their money as that they demand and giving them a memorable customer service.

Anybody who has given money to the financial institutions (deposits, Savings or in other terms) expects to get their return and or the principle without any delay and inconvenience. You may have internal controls which are very important for the smooth functioning of an organization but think of the customer service, without motivating and inculcating the strict controls, if so the customers are unhappy with your services and leaving the company for the competitors. For an example, think of a customer, 'who goes to a bank to withdraw the money at ATM machine and if the machine is out of service, how do you feel', if you are the customer. Relationship can only develop, if both parties receive something of value. Organizations benefit by retaining customers and the customer should benefit from being a valued customer. If you want to retain customers, keep the systems up to the standard, improve the service quality and the operational efficiency.

3. Price competition

The rate of interest is the most attractive factor in financial services sector, this could be the critical reason in damaging relationships and leaving the customers to competitors.

The lending customers are concerned about the lower interest rates, while depositors are much particular about high rate of return for their investment.

The low rate lending deals and high rate borrowing deals are contributing to the reduced profit margins for the financial institutions.

Hence, be strategic to balance between two objectives to increase the cumulative profitability by increasing the volumes rather than calculating profitability as individual business.

However, losing a customer is a big loss in the competition, specially, when compared with the cost of acquiring the new customers. (Advertising, promotional cost).

The customers are more scrupulous than ever. They are being influenced by a network of contracts or they are having prior experience in the deal. Hence marketers should be more tactful when offering packages to customers.

'Don't make promises unless you can't deliver them'. It is easy to damage relationships when there is a gap between what customers expected and what they really experienced.

Attracting and retaining customers

Most of the companies spend enormous money on advertising and promotions to attract new customers, eventually, they are failed to retain them for a considerable period at least to cover up the cost of acquiring of customers.

Retaining of known customers is a key component of increasing profitability in a financial organization. 'A bird in hand is better than a flying bird'.

This is most applicable to financial institutions, because the success of a financial organization depends on the trust worthiness of the both parties as we know our customers than the competitors.

Organizational growth = Attracting new customers + Retaining existing customers

The above formula describes the organization's growth in view of marketing (Author). Most of the organizations emphasis on one aspect of the formula, mostly, attracting new customers.

Think of how we can design a special package for existing clients. For example supermarkets use loyalty programs as an effective tool to retain existing customers. Our existing client is an asset for a competitive organization.

Moment of truth MOT

Customer MOT can be defined as 'In customer service, instance of contract or interaction between a customer and an organization that gives the customer an opportunity to form an impression about the firm, that is, make or break an organization's relationship with its customers.

Managing relationship and managing problems are especially important for financial organizations so train your marketing and customer interacting staff to effectively managing the most important moment 'Moment of Truth' in building relationships.

Financial organizations should develop new marketing models to enhance their competitive positions. Relationship marketing is an appropriate marketing tool for the financial services industry.

The concept is based on the idea that companies responding to their customers as individuals are likely to be rewarded by greater loyalty and superior financial benefits.

The understanding of relationship marketing seems to be quite superficial. The term RM is widely popularized but there Is no proper understanding of how relationship marketing is applied in practice.

Relatively few organizations are able to measure customer profitability and customer life time value (CLV). Indeed, most of the organizations are unaware of the time period of their existing relationships and they have no objectives for customer retention, although retention is heart of the relationship marketing.

The successful implementation of RM has undoubtedly been constrained by poor information systems, organizational culture, attitudes of staff and capabilities of the organizations.

RM requires major changes in business practice across the organization, all departments of the company should be customer oriented and working towards customer satisfaction.

Leaving a profitable customer from the organization is much more similar to cutting down a tree just before getting the cream of full yield. (Author)