Enhancing Client Loyalty

Microfinance Supervisor’s ForumMarch 11-12, 2005

Crown Hotel, Naga City

What is LOYALTY?

Loyalty is the attachment a client feels for a bank’s staff, products,

and services

Avails self of your products regularly;

Purchases across product & service lines – loan, savings (esp. voluntary), others

� Refers others

R� esists the pull of the competition

How would you know a loyal client?

What kind of “loyalty” do your clients have?

• No loyalty - who offers the best deal?

• Inertia loyalty - nowhere else to go

• Latent loyalty – seasonal clients

• Premium loyalty - proud of their affiliation to the bank

The Customer Lifecycle

Profitable

Profitable

Begins to Be Profitable

Labor-Intensive/ Not Profitable

Not Profitable

Customer Life Cycle…

• First few loans - cost of providing a loan is more than the revenue it generates.

• Loyal clients - produce increasing profits over time.

• Client desertion - causes serious growth problems!

Impact of Client Desertion

• Lost profits • Bank subsidizes the competition • Drop in outreach and portfolio loan staff tends to look for new clients may lead to increased risk in portfolio quality, or neglect of existing clients.• Disgruntled clients may bad mouth the bank,

poor image• Bank may lose its staff.

First step to enhance loyalty: measure client retention, dropouts

Client Retention

• Study what makes clients loyal

• Monitor the number of referrals made by a client and how recent they are

Client Dropouts

• Study why clients voluntarily leave

• Strategize how to bring them back.

First, make sure bank products suit the client’s needs;• Product review

• Listen to what clients say

• Determine how to satisfy customer demand while satisfying the needs of the bank

Elements to Consider in Formulating Client Loyalty Strategy

Elements to Consider in Formulating Client Loyalty Strategy

Second, create formal mechanisms to monitor client preferences. For example:- On the loan application, ask why the client chose to apply with the bank- Complaints or suggestion box- Focus group discussions- Train staff to listen to and report client complaints

- Customer surveys - Exit interviews of clients voluntarily

leaving

Mechanism to monitor…

• Track client feedback using a database

• Process and examine feedback data on a monthly basis to identify trends

Elements (con’t)…

• Does bank have appropriate incentives– to transition group clients to individual

clients and to commercial clients in line with growth?

– for existing clients to identify new clients?– Offer incentives to good clients (such as

rebates, gifts, etc.)

Elements in Formulating Client Loyalty Strategy: Offer Incentives

• Regularly review product policies, procedures – Are your good repeat borrowers leaving because

of overly conservative policies, such as: • Very low loan sizes (Can you provide larger loans to

good repeat borrowers?) • Requiring 2 co-makers even when client’s income is

sufficient to cover loan and/or deposit balance is large.• Prohibiting withdrawal from deposits and/or punishing

clients who make a withdrawal by drastically reducing their loan entitlement

– Allow some agricultural income to be factored into cash flow analysis, but only during the season

Elements … Client Loyalty Strategy: Review/Modify Product Policies

• Review/modify forced savings policies– Begin to transition compulsory savings into

voluntary savings, but continue to offer collection of savings deposits

– Block only the minimum amount of savings needed to guarantee loan

Elements … Client Loyalty Strategy:

• Balance disciplining clients with serving them (be able to handle differently those who can pay but refuses to pay from those who really cannot pay at that moment)

Elements … Client Loyalty Strategy:

• Create other innovations on product features and adding products in response to client needs

- Offer seasonal loans to good clients in preparation for peak sales (i.e., Christmas and fiestas)

- Link with other institutions to offer other products (eg. Rewards program) and services (eg. Insurance and ATM cards)

Elements … Client Loyalty Strategy:

• Market rural bank’s strength as the one-stop shop for ME’s full range of financial service needs, including checking, savings, as well as other loans

• Develop an image that will enhance the client’s confidence in banking with you

Client Loyalty Strategy:

Enhancing client loyalty is the bank’s most important

business strategy!

An overall client loyalty requires:

-excellent service -a commitment to responding quickly to client complaints-a commitment to offer products & services that respond to client needs -identifying dissatisfied clients to try to win back their affections.