Loyalty & Wallet Share

Loyalty. There is almost universal agreement that it is an objective – if not the objective – of customer experience management. It is highly correlated to profitably. It lowers sales and acquisition costs per customer by amortizing these costs across a longer lifetime – leading to extraordinary financial results. In retail banking a 5% increase in loyalty translates to an 85% increase in profits.

Loyalty is Emotion Driven

Banks often see themselves as transaction driven; delivery channels are evaluated on their cost per transaction. As a result, there is a lot of attention given to and investment in automated channels which reduce transaction costs and at the same time offer more convenience to customers. Win-win, right? The bank drives costs out of the transaction and customers get the convenience of performing a variety of transactions untethered by time or space. However, while transaction costs and convenience are important, loyalty is often driven by an emotional connection with the institution. An emotional connection fostered by interaction with actual employees at moments of need for the customers –moments with a high level of emotional importance to the customer – moments of truth.

Moments of truth are atypical events, where customers experience a high emotional energy in the outcome (such a lost credit card, loan application, or investment advice). In one study published in McKinsey Quarterly, positive experiences during moments of truth led to more than 85% of customers increasing wallet share by purchasing more products or investing more of their assets (Beaujean et al 06)

Impersonal alternative channels lack the ability to bind the customer to the institution. It’s the people. Effective handling of moments of truth requires frontline staff with the emotional tools or intelligence to recognize the emotional needs of the customer and bind them to the institution.