Customer Loyalty In Australian Financial Services - Market Research Reports On Aarkstore Enterprise

Introduction

Introduction

Customer loyalty is set to become more important as competition returns to the Australian financial services market. The global financial crisis allowed the major domestic banks to capture much of new banking business, but with new entrants set to enter the market, customer loyalty is expected to gain in importance. This report analyzes a broad spectrum of topics associated with customer loyalty.

Scope

*Looks at the key drivers of customer loyalty and its state across different product categories.

*Analyzes which factors are most important to customers when considering staying with or switching providers.

*Provides analysis of best practice for financial services providers.

*Analyzes upcoming developments in customer loyalty.

Highlights

There are relatively few opportunities for financial institutions to acquire transaction account customers, with most opportunities closely tied to consumers' life events. An obvious opportunity is providing young people with their first transaction account. Customers can also be acquired when they move location or change jobs.

Besides their effect on customer loyalty and satisfaction, many loyalty schemes derive their value from the information that is gathered about customers during its implementation. This dimension is even more important in other industries, such as the retail industry.

As with the relationship between customer loyalty and profitability, customer loyalty and satisfaction are positively, but not perfectly, correlated metrics. As a result, an effective loyalty scheme does not necessarily have to drive customer satisfaction.

Reasons to Purchase

*Gain a thorough understanding of the customer loyalty issues Australian financial services providers are facing and what they are doing about it.

*Identify and evaluate the most successful strategies in customer retention and acquisition in different product categories.

*Understand upcoming developments in customer loyalty and where the opportunities will be.

Table of Contents :

"Overview 1

Catalyst 1

Summary 1

Executive Summary 2

Background of 'Customer Loyalty in Australian Financial Services' 2

Customer loyalty can be caused either by satisfaction or apathy 2

Western European countries have a high level of customer loyalty in financial services 2

Transaction accounts are key products for engendering customer loyalty 2

Additional product holdings are not necessarily correlated with higher satisfaction 3

Opportunities to reach customers are often tied to customer life events 3

Competitive dynamics 4

Mutual society MFI customers are polarized about rates and convenience 4

The major banks have different strategies, strengths and weaknesses across product types 5

First-time accountholders are a key customer group 5

Savings account loyalty has eroded due to the rise in online savings accounts 5

Mortgage customer loyalty has leveled off as the market has matured 5

Credit card rewards programs have diminished in importance over the last several years 6

Loyalty: insights and recommendations 7

Devising the optimal loyalty scheme should focus on long-term profitability 7

Loyalty schemes can be characterized according to five features 7

Financial services share loyalty drivers with other industries 8

Set-and-forget industries share the same drivers of customer loyalty and churn 8

Churn management is an important operational challenge in the telecommunications industry 8

Hybrid products will make deposit products even more important for customer loyalty 8

Transaction accounts and savings accounts will merge into a single product 8

The merged deposit product will change the rules of customer loyalty 9

Recommendations for financial services providers 9

Pre-emptive measures toward switching are the most effective 9

Deposit account loyalty should be a key focus for financial services providers 10

Credit card reward schemes should offer more options 11

Risk-based pricing schemes should be considered by Australian mortgage lenders 11

Table of Contents 12

Table of figures 13

Table of tables 14

Background of 'Customer Loyalty in Australian Financial Services' 15

Customer loyalty is not always linked with satisfaction 15

Customer loyalty can be caused either by satisfaction or apathy 15

29% of transaction accountholders keep their provider for reasons other than satisfaction 17

Customer loyalty in financial services has decreased, partly due to the increasing number of market participants and products 18

Customer loyalty has decreased over the last two decades but has recently increased 19

From an international perspective, Western European countries have a high level of customer loyalty 19

Transaction accounts are key products for engendering customer loyalty 24

Transaction account stickiness may be challenged by expanded regulation 25

Propensity for switching is much higher for savings accountholders 25

Additional product holdings are not necessarily correlated with higher satisfaction 27

Opportunities to reach customers are often tied to customer key events 29

Global utility companies attempt to retain moving customers 30

Competitive Dynamics 32

Mutual society MFI customers are polarized about rates and convenience 32

Mutual society MFI customers are more likely to value the convenience of a single institution 32

Mutual society MFI customers are more polarized regarding the trade-off between rates and convenience 34

The major banks have different strategies, strengths and weaknesses across product types 37

Transaction account holding strongly influences take-up of other products 37

The proportion of long-time transaction accountholders varies between the major banks 37

First time accountholders are a key customer group 38

Dissatisfaction with a previous provider is a relatively common reason for switching account provider 40

Account switching propensity varies between institutions 41

Savings account loyalty has eroded due to the rise in online savings accounts 43

The major banks were slow to respond to online savings accounts 43

Online savings accounts have driven a convergence of rates 43

Online savings accounts have led to increased fee aversion across product types 44

Switching savings accounts is seldom planned and often rate driven 45

Cross-selling savings accounts to transaction accountholders is a classic bank strategy 47

Mortgage customer loyalty is relatively often built around disincentives 48

Refinancing has leveled off as the market has matured 49

Deposit products have a surprisingly high impact on mortgage provider 50

Credit card rewards programs have diminished in importance over the last several years 52

Each driver of card provider choice has been targeted by a different major bank 52

Cardholder loyalty varies by institution 53

Loyalty: Insights and Recommendations 56

Devising the optimal loyalty scheme should focus on long-term profitability 56

The optimal loyalty scheme engenders loyalty and satisfaction in profitable customers while collecting data 56

Evaluating the long-term profitability of loyalty schemes is a challenge 57

Customer satisfaction is a possible but not necessary effect of an effective loyalty scheme 58

Gathering information is a characteristic of many loyalty schemes 59

Loyalty schemes can be characterized according to five features 59

Loyalty schemes offered exclusively to new customers are in most cases a mistake 60

Disincentives can be a way to deliberately lose customers 61

Unprompted rewards can delight the customer if appropriately structured 61

Australian banks can draw insights from five-stage development model for card loyalty 61

Stage one: non-credit card loyalty schemes 61

Stage two: loyalty as a means of customer acquisition 61

Stage three: loyalty penetration declines as some issuers begin to withdraw their schemes 62

Stage four: move the program on or focus on price 62

Stage five: market maturity and co-brand settlement 62

Financial services share loyalty drivers with other industries 63

Set-and-forget industries share the same drivers of customer loyalty and churn 63

Churn management is an important operational challenge in the telecommunications industry 63

In the utility sector there are nine main steps toward true understanding of the customer 64

In Canada, banks have partnered with supermarkets to offer convenient interaction and drive loyalty 66

Hybrid products will make deposit products even more important for customer loyalty 67

Transaction accounts and savings accounts will merge into a single product 67

The merged deposit product will change the rules of customer loyalty 68

Recommendations for financial services providers 68

Pre-emptive measures toward switching are the most effective 68

Deposit account loyalty should be a key focus for financial services providers 69

Credit card reward schemes should offer more options 70

Risk-based pricing schemes should be considered by Australian mortgage lenders 71

NAB has recently introduced risk-based pricing for broker mediated mortgages 72

APPENDIX 74

Supplementary data 74

Methodology 88

Further reading 88

Ask the analyst 88

consulting 88

Disclaimer 88

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http://www.aarkstore.com/reports/Customer-Loyalty-in-Australian-Financial-Services-45130.html

by: Aarkstore Enterprise

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