Banking on Customer Loyalty

With rapid changes in the financial sector, clients are becoming experienced and discerning in the purchase of financial services. The paper suggests that the MFIs should respond by adopting a business strategy to enhance customer loyalty.

The paper defines loyalty and attempts to demonstrate that customer loyalty is the primary driver of long-term financial performance. The author breaks loyalty into:

• No loyalty: customers do not become loyal at all;
• Inertia loyalty: customers borrow as they have nowhere else to go;
• Latent loyalty: customers feel loyal but may not want to borrow all the time;
• Premium loyalty: high affinity and repeat patronage by customers.

The paper mentions that loyalty is linked to profitability. Some of the strategies that are employed by organizations are:

• Life cycle strategy: serving unprofitable clients in anticipation that they will become profitable over time;
• Portfolio diversity: considering the portfolio mixture at one point in time.

The author remarks that for MFIs to make a lasting and tangible impact on the lives of their customers, they need to serve them on an ongoing basis. He concludes by describing indicators to measure and monitor customer loyalty:

• Customer retention/desertion;
• Primary behavior 3-D loyalty: monitoring of longevity, range of services and share of purchases;
• Secondary behavior: monitoring the number of referrals made by existing clients, and using customer surveys to enquire whether clients would recommend the organization.