The financial services industry has undergone significant change in recent years which has been accompanied by forces that seek to both strengthen customer loyalty as well as to weaken the relationships.
With the financial services environment changing, the challenge for management i" to seek ways to increase the customer base. This is done through both offering a wider and more attractive range of financial products at a competitive price to attract new customers as well keeping the existing customers by increasing customer loyalty.
It is well established that an effective customer loyalty program through customer retention is the most effective way of generating profits. The managerial problem is that customer loyalty is a post event concept where repeat business is the measure of customer loyalty. What is required is an effective customer loyalty framework that enables better predictive ability.
One such framework contends that customer loyalty can be viewed as the strength of the relationship between an individual's relative attitude and repeat patronage and hypothesises that all else being equal, the lower the perceived differentiation among competing offerings, the less likelihood of loyalty formation.
Whilst in principle agreeing with this hypothesis, it was found from research undertaken on motor vehicle leases that service quality is a way in which financial services can be differentiated and has significant implications for customer loyalty programs. The implication" of the study is firstly that higher service levels do lead to increased customer loyalty, and secondly, that customers hold different value propositions that cannot be predicted by demographic factors.