Building customer loyalty in tough times.

• Position: MARKETING NEWS

AT THE MOMENT, THE BANKING INDUSTRY AT LARGE is faced with a "crisis of confidence" among its consumers, which is threatening customer loyalty, according to David Albert, vice president, GfK Customer Loyalty, New York (a division of GfK Custom Research North America).

Since customer loyalty is essential for sustaining and growing business, banks today need to repair and strengthen customer loyalty in order to achieve both short- and long-term success, he notes.

Why is customer loyalty critical? Research shows that happy, loyal customers are 15 times more likely to say that they will add accounts within the next year, Albert says. They are also six times more likely to expect their business with their primary bank to increase during the next year. It is the loyal consumers who generate positive word-of-mouth, contributing significantly to customer acquisition, he points out.

Larger banks are bearing the brunt of consumer discontent, Albert says, and it is leading to a disproportionately large number of "exit bound" customers. Three of the five largest banks face a significantly greater challenge than regional/community banks.

To begin the customer retention process, banks must first identify the specific features of the customer experience that drive loyalty--key enhancers. Albert notes that these may be different than the elements of the customer experience that drive dissatisfaction. "This is not a simple task particularly considering the complex, multifaceted relationship banks have with customers," Albert says. Once these key enhancers are identified, banks must then focus on improving service delivery in these areas in order to create a customer experience that is unique among their competitors, which is itself an essential factor in fostering loyalty.

Two of the most important "key enhancers" for banks to focus on when providing service that exceeds consumer expectations are:

* Advocacy for customers. An increasing number of bank customers are looking for institutions that will look out for them. In both banking and investments, firms that offer a "watchful role" with customers and provide guidance are out-performing the competition when it comes to loyalty.

It is in this area that banks have room for improvement. Less than half of overall customers feel that banks look out for their best interests more than they expected. Drilling down further, only 3 percent of "at risk" customers...