explored.
2.6 Customer Loyalty
has been well established that in the vast majority of financial services categories, customer and client defection rates are substantially lower than they are compared to most other markets. The tendency of customers to remain with their existing financial services provider has traditionally and, as the practice has shown, been quite strong. It is important to note though that defection patterns differ significantly by the financial service category. For instance, life insurance policyholders have an intrinsic interest in staying with the same insurance provider, since changing insurance carriers may lead to the reassessment of the application, a need for new health exams, and potential higher rates and lower coverage levels. Credit cards accountholders, on the other hand, may feel less obligated to stay with the same company because the negative impact of switching is limited, the switching cost itself is generally low, and changing credit card companies may in fact considerably lower borrowing costs due to intense competition within a certain category. The incentives offered by competitors in the credit card markets often outweigh any potential switching costs, resulting in lower rates of customer retention. However, this is to be expected, since such behavior is simple psychology and occurs frequently in other industries, simply because low switching costs or any other competitor with more alluring services can and do take customers away.though there are certain benefits that low customer defection rates present to financial services marketers, this does necessarily reflect customers true preferences for their existing financial services providers. Still, this behavioral pattern may limit financial services providers willingness to improve their current offerings and service provision and thus become more competitive. Customer retention in financial services may oftentimes simply tell us that many customers and existing clients alike lack initiative to find the most competitive offerings, which means that they are not necessarily attracted by the very best offering, and may, in reality, fail to take into account all possible competing options available to them. Even with the knowledgeof competitive offerings, clients may still choose to remain with the current financial services provider once considering the possible inconveniences associated with switching. Such inconveniences in switching may happen to be in transactions that often have to occur, billing arrangements that may have to be rearranged, and contracts and paperwork that would have to be redrafted, negotiated, and, signed, as well as other related administrative formalities and procedures that could be regarded as nuisances by the clients.traditional resistance that consumers have towards switching financial services providers has over time resulted in creation of a non-competitive environment or in an environment with an unhealthy level of competition. Since clients tend to remain with their current provider, they may seek very little information on competing offers and the chances of them terminating their relationship with their current financial services provider has been minimal thus far. The end-result is that financial services organizations may lack motivation for self-improvement, offering their customers sub-standard products and services, which are ultimately not as appealing and useful as they could have been. The harmful impact of this on the management and leadership of today s financial organizations is to be noted. For instance, a research conducted by the American Bankers Association has revealed that the prevailing number (more than 50%) of all CEOs do not have formal plans to guide their short-term and long-term marketing and promotional activities. Even though this figure is troubling, it happens to be a peculiarity of the industry, which is caused by a highly regulated market environment and lack of healthy competition. The companies have not bee forced to develop strategies to better market its products and subsequently serve their customers. This relaxation of the industry regulations will however challenge the mode of conduct and the need for strategic marketing in the sphere should and most probably experience a significant increase in the coming years.shape of the financial services sector in the coming, let us say, ten years, is also likely to be significantly different from its current states, largely due to the rapid integration of new technologies into financial services and changing consumer base preferences, underlying needs and tastes. Moreover, consumers growing level of education and awareness on financial decision-making and a marketplace that is becoming overly fragmented will demand thoughtful approaches to the marketing practice and promotion itself. An example of that would be the growing...
