In: Accounting
Consider the relationship you currently have with your current bank or financial institution.
a) Following are the major benfits of a bank to keep its customers:
1. Banks can persuade the customers to buy their other products as loyal customers tend to spend more money.
2. By providing loyal services, free word of mouth advertising takes place and thereby banks can get new reference of customers.
3. It is favourbale for the bank to keep its old customers rather than finding new cutsomers and it builds strong relationships.
4. If a customer is sticking on a particular bank for a long period of time, it denotes the success of the bank in such a competitive world.
b) Potential switching barriers
1. Switching costs : switching costs are the perception of the magnitude of the additional costs required terminating a relationship and securing an alternative one
2.Relational benefits : By switching to a competitor, the customer would lose the benefits from the relationshipspecific investments not readily available from the competitors. Hence, even if a customer is dissatisfied with his/her bank services the fear of losing relational benefits makes him/her decide in favor of staying with the bank
3. Availability and attractiveness of alternatives : consumers may perceive few alternatives in the market because of the fact that many of the alternatives are not in their evoked set or simply they do not perceive the alternatives as more attractive than the current relationship.
4. Transaction costs and offers : The special discounts and offers provided by a bank to a loyal customer may not be available in a competitor, therefore switching to another bank may create fear in the minds of consumers in losing their exclusive benefits.
C) Following are the factors to be considered while taking into consideration to calculate life time value of a customer to the bank :
These inputs are used together to determine average annual profit on a per customer basis. This information is then combined with customer retention rates, other costs of retention and up selling, as well as initial customer acquisition costs to determine the customer lifetime value for the bank.