Objectives
• At the end of this training, you will
– Identify reasons why customer retention is critical for any
business
– Understand why customers leave the financial institutions or
the groups they belong to
– Determine challenges associated with the group lending
methodology
– Identify strategies for retaining customers in the financial
institution and the group
Content
• What is customer retention?
• Group lending and its benefits
• Why members desert groups or the FI
• Customer retention techniques
Customer retention
• What is customer retention?
• The process where customers continue to buy
products and services within a determined time period
– Simply put…
• the ability of a business to keep its customers over a specific period
of time
• the activities and actions that businesses take in order to reduce the
number of customers who leave.
• The goal of customer retention is to help businesses keep as
many customers as possible.
Why is customer retention so important?
• Because…
– Acquiring new customers can cost as much as five to seven
times more than simply retaining existing customers. (U.S. Small
Business Administration and U.S. Chamber of Commerce )
– Customer profitability tends to increase over the life of a
retained customer. (U.S. Small Business Administration and U.S. Chamber of Commerce )
– A 2% increase in customer retention has same effect as
decreasing costs by 10%
– A 5% increase in customer retention increases profits by
25% - 95% (Harvard Business School Report)
Why do customers leave?
• Generally, the following reasons have been identified
in research, why your customers may leave you.
– 68% leave because they are unhappy with the service they
receive.
– 14% are unhappy with your product or service.
– 9% decide to use a competitor.
– 9% for a variety of reasons.
Why do customers leave?
• Lets assume that nothing can be done about the
– 9% who decide to use a competitor and
– 9% who leave for various reasons
• Why?
– Because some customers will still leave you no matter how much
effort you put into making them happy…you can’t win them all
• That leaves us with 82% of our customers
– Let’s focus our energies on what to do to retain this percentage of
our customer base.
Why do customers leave?
• But why do customers leave a financial institution (FI)
or a solidarity group to which they belong in the FI?
– When we know why customers leave, then we can devise
better strategies and techniques to retain them.
– To understand why customers leave, we need to take a look
at what group lending entails
What is group lending
• A lending method which allows a group of individuals - often called a solidarity group to provide collateral or
loan guarantee through a group repayment pledge.
– The incentive to repay the loan is based on peer pressure, if
one group member defaults, the other group members make up the payment amount. (igi-global.com)
• A form of collateral substitute in which borrowers form
groups, all of whose members must maintain a
satisfactory payment record for any group member to be eligible for future loans. (USAID)
1. Solidarity Groups • Normally one loan per group
• Begins with training/ information session
• Targets existing business with regular cash
flow
• Loan amounts are somewhat larger than
other group methodologies
4. Village Bank • MFI/Bank organizes and trains groups
• May use internal account
• Platform for non-financial services
2. Group of Groups • Individual contract with group as co-signer
• Begins with several weeks of meetings and
savings
• Supports new income generating activities
• Platform for non-financial services
3. Self Help Group • Typically involves 2 institutions (NGO & FI)
• Bank/MFI lends to SHG (not to members)
• Begins with 6 month of savings and internal
lending
• Platform for non-financial services
Forms of group lending
Group lending
• The essence of group lending is that it is a way to transfer
onto customers the responsibility for the tasks usually
undertaken by the Financial Institution (FI)
– screening potential customers, monitoring their efforts and
enforcing contracts.
• It therefore has huge benefits for the FI in terms of
reduced loan related transaction costs and risks.
Benefits to the FI
• By shifting screening and monitoring costs to the group, a FI
can reach a large number of clients through the self selection of
group members.
• One of the reasons that self selection is so important is that the
members of the same community generally have excellent
knowledge about who is a reliable borrower and who is not.
• One important feature of group- based lending is the use of
peer pressure as a "collateral" substitute
Benefits to the customer
• Group lending also has a wide range of benefits for the customers or group members. Lets look at some of them:
• Many group-based lending programs target the very poor, who cannot meet the traditional collateral requirements of most
formal financial institutions such as commercial banks and non-
bank financial institutions.
• Group lending therefore enables people who would otherwise
not have access to financial capital due to lack of collateral, to do so. – Thus the very poor and underprivileged can also do business
Benefits to the customer
• Dynamic group membership could lead to
empowerment
• Customers have the liberty to choose their group members,
ensuring that members choose people they trust as credible
borrowers
– Where the group is dynamic enough, they can, as a group, access
various services, not only from the bank. There are NGOs who
provide business development services to community groups and
they can take advantage of this and other services as well.
– People are however, usually very careful about who they admit into
their group, given the threat of losing their own access to credit or
having their own savings used to repay other people's loans.
Group lending
• If the FI is important to the business survival of the
customer and
• If group lending has good benefits for the customer,
– why do the customers still leave and
– What measures can we take to ensure that we retain them?
Why do customers leave the FI?
• Three main reasons have been given why customers will leave
the financial institution (FIs). Some of these are outside our
control, others can be worked on. These are:
Industry structure
How FI is managed
Characteristics of the customer
• Where • there is a fragmented market
• And • There are a lot of competitors who differ in size
• There is fierce competition that can cause current
customers to become highly indebted because they
borrow from more than one institution.
• When customers are highly indebted and cannot pay
their loans, they will leave
Industry structure
Satisfaction with the product
•Customers have needs and the FI has products. Customers want solutions to their needs and if the products do not solve their needs, they will go.
•Are your products flexible enough to meet their needs in terms of credit use, maximum amounts, repayment periods etc.
•Where products are seen as the same from one FI to the other, there is not much incentive to remain. Develop unique products
Emotional involvement with FI
• Customers tolerate their FI’s weaknesses because of the emotional bond they have with loan officers, other staff or the FI itself. Without emotional involvement, they will leave. There must be emphasis on relationship building with customers.
• Loyalty is based on emotions, which is why it is important to identify and meet customer’s emotional needs. When customers emotional needs are not met they will leave. ie To be:
• respected
• Acknowledged
• Remembered etc.
How the FI is managed
Quality of Customer Service
•Customers expect some minimum level of customer service and when they don’t get it, they may leave.
•Key contact points with customers in the lending process are opportunities to provide excellent customer service. Customers however face challenges at these contact points. We’ll look at some of them.
Image or reputation of the FI
•Sometimes, positioning the FI as a small one makes some customers see it as a temporary solution. Once their business grows bigger, they start looking for other service providers. eg. Some institutions are positioned as credit providers so customers only take credit from them but open savings accounts with other institutions.
•Other FIs have earned the reputation of being ruthless when it comes to collection of loans, they use all kinds of methods to get it. People will be reluctant to come to you. Do business with a human face
How the FI is managed
Client Recruitment and Group Preparation
Loan Application
Evaluation and Loan Approval
•Customer receives insufficient or disorganized/random information. •The only information source is the loan officer. Customer is not able to verify information from the institution itself, leading to dependency on the loan officer and creating challenges in obtaining information. •Service is focused on explaining the institution’s products and credit policies instead of understanding the customer’s needs
•Customer is evaluated based on the easiest and quickest credit recovery, more than on the micro-business cash flow. •Evaluation is perceived by customers as indiscreet, invasive, in front of micro-business competitors
Key contact points – Challenges of customers
•Inadequate support to customers in providing relevant information required on loan forms. •Loan processing takes time
Key contact points – Challenges of customers
Disbursement Collections
•Customers are not notified about deductions from loan amount in the form of commissions, forced savings etc. Customers therefore feel cheated •Limited customer knowledge regarding their credit as a result of incomplete orientation meetings, inadequate information from the FI etc.
•Long waiting lines resulting from the overburdened system, insufficient teller windows or insufficient infrastructure. •Contact with cashiers is most unpleasant since they lack customer service training •Time-consuming meetings
Group Activity
• Let’s take another look at the lending process
– 1. For each stage in the lending process, identify
other challenges that customers may be facing,
which have not been discussed.
– 2. For each stage, prescribe ‘workable solutions’ to
the challenges that have already been discussed and
any new ones you have identified.
– Use sheet 1
Characteristics of the customer
• Many FIs take for granted that their customers need credit.
• Customers do not seek credit as such: rather they are looking
for solutions to their needs
• Besides, micro-entrepreneurs have a variety of financial needs
such as
– savings,
– training,
– networking,
– business advisory services and related
– micro business services.
Do you know your
customers’ needs?
Customers leave because
their needs are not being
met.
Why do members desert the groups?
• Let’s now turn our attention to why members leave the
group.
• Two key reasons have been identified as to why
members may desert a group:
– Features of the group lending method
– Interpersonal challenges with group members
Let’s discuss some of the
features of the group lending
method which may be driving
away our customers
Why do members desert the groups?
– Customers suffer through no fault of theirs because a group member has defaulted in their payments.
• Thus the default of one member in a group generally means that further lending to other group members is stopped until the loan is repaid.
– For instance, in the event that several members of a group encounter repayment difficulties, then the entire group is
faced with economic challenges and the group collapses.
– Sometimes a borrower through no fault of her own has liquidity problems. What happens then?
Excessive group pressure and lack of flexibility
Why do members desert the groups?
– Customers have little privacy over their financial
matters as every group member is aware of
payments or defaults of others.
• The use of public payments as a way of shaming
customers is unattractive
Lack of privacy
– Customers are entitled to limited or fixed loan amounts
whether it serves their needs or not
– Customers are forced to make payments at fixed periods ie.
weekly, whether it corresponds with their cash flow or not .
– It is sometimes unrealistic to impose regular payments in
areas with highly seasonal occupations, such as agriculture.
Lack of flexibility with respect to credit
Fixed payment durations
– Customers feel detached from the FI as no real relationship
is established on an individual level between loan officers
and customers, especially where the practice is that the loan
officer deals with the group leader more frequently, not
necessarily all group members.
– Attending meetings can be costly, both in terms of time and
money, particularly in sparsely populated areas.
Individual relationship with the FI is not established over time
Making time to attend meetings
How do we overcome this
challenge?
– Customers need to find other borrowers in order to be
eligible for a loan
– This comes with its own risks that most customers do not
want to bear
– In sparsely populated areas and urban areas, customers
might not have good information on each other and may
therefore make wrong choices in selecting group members
– a mistake they will have to pay for dearly in the form of
financial punishment by being forced to repay other people's
loans due to their lack of " financial discipline"
The risk of finding credible borrowers to partner with
– A group loan product may not be suited to the needs of a
particular area or business
– You need to do your own assessment to determine if the
social/geographical/business context is ideal for group
lending
Group-based lending does not work well in all contexts
or circumstances
Why do members desert the groups
• Interpersonal challenges also play a role in why people leave groups.
• Interpersonal skills are those skills which are necessary for relating and working with others – such as verbal and non-verbal communication, listening, giving and receiving feedback.
• As with any human gathering, there are bound to be challenges because we
– Are all different,
– Come from different backgrounds
– Have different experiences
– Relate to people differently
Why members desert the group
• Being able to understand and work with others in teams or
groups is an important aspect of interpersonal skills.
– The focus is on ensuring teamwork, group effectiveness, decision making, running meetings etc.
• Loan officers need provide interpersonal skills training
from time to time as part of group meetings.
• This will prepare groups to expect such challenges since
they are inevitable as well as give them the skills to handle them
Strategies relating to group lending
• Embark on progressive lending as against fixed credits
– Progressive lending promises larger and larger loans for groups and
individuals in good standing. This will even encourage customers to
quickly pay back their loans since they will receive bigger amounts with
time.
• Match repayment schedules to business cash flow
– Where possible, micro-entrepreneurs involved in the same line of
business should be encouraged to form a group since their business cash
flows may be similar especially in seasonal businesses. This may make it
easier for the FI to match repayment schedules to their cash flow and
make it easier for them to pay back their loans.
Strategies relating to group lending
• Eliminating or relaxing the rules of joint liability.
– Given that many micro entrepreneurs do not want to be
penalized for the defaults of other group members, other
measures to ensure repayments needs to be adopted such
that the rules of joint liability can be relaxed or eliminated.
– FIs can give incentives to customers by threatening to
exclude defaulting customers from future access to loans,
not necessarily punishing the whole group for one person’s
default
Strategies relating to group lending
• Ensuring that existing customers do not contract new
loans either
– From the same institution
• this can be easily done by cross checking internal records
– From another institution in the area
• This can be done by using credit bureaus or designing ways that
promote information sharing between FIs, so that a customer that
defaults on one FI loan would not be able to turn to another FI
within a certain catchment area and be granted a loan
Strategies relating to group lending
• Financial literacy
– Promoting financial literacy among clients may help them in
their borrowing decisions, which in turn may limit multiple
loan-taking.
• Provide short training during group meetings
• Give them hands-on support to help them understand financial
issues
Product & service related strategies
• Be the expert – Provide technical support
• Micro-entrepreneurs are usually people with very little
understanding of business and business skills.
– Provide them with technical skills training, how to manage
their capital etc. and follow up on them.
• No matter what industry your customers operate in, if
you can be an expert to them in the area of managing
their businesses, you will likely retain more customers
Product & service related strategies
• Product or service integrity
• There must always be total consistency between what
you say and do and what your customers experience.
– Long-term success and customer retention belongs to those
who do not take ethical shortcuts.
• The design, quality and serviceability of your product
or service must be of the standard your customers
want, need and expect.
Product & service related strategies
• Service integrity is also demonstrated by the way you
handle the small things, as well as the large.
• Customers will be attracted to you if you are
– open and honest with them,
– care for them,
– take a genuine interest in them,
– don’t let them down and
– practice what you preach … and they will avoid you if you
don’t.
Customer related strategies
• Know your customers’ needs and expectations in
terms of product and service.
• The customer has 2 separate needs that must be met:
– needs relating to your product
• Is your product a solution to their business needs?
• Is it only credit they need as a micro/small business? How about
savings?, technical skills? Etc.
Customer related strategies • Needs relating to your service
– Customers are first and foremost individuals
– As individuals we like to be:
• Heard
• Understood
• Respected
• How well are you meeting both needs of your
customers?
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Other customer retention strategies
• You can also retain customers by
• Reducing attrition
– The easiest way to grow your business is not to
lose your customers.
– Once you stop the leakage, it is often possible to
double or triple your growth rate because you’re
no longer forced to make up lost ground, you can
just stand still.
• Virtually every business loses some customers, but few ever measure or recognize how many of their customers become inactive.
– Take some time to cross check on the number of customers who have left and you may be surprised at how much your institution is losing
• Most businesses, ironically, invest an enormous amount of time, effort and expense in building that initial customer relationship.
– Then they let that relationship go unattended.
• In some cases they even lose interest as soon as the sale has been made, or even worse, they abandon the customer as soon as a problem occurs. Rather than resolve the problem, they spend another small fortune to replace that customer.
By building relationships with customers
• Build trust through relationships
– As the age old saying goes, you do business with people you
trust.
– Trust is essential in business, and building relationships with
clients will give you that trust
– Implement a relationship marketing strategy in order to
ensure consistent relationship building with customers. This
is of particular importance because you are a service-based
business
By giving good customer service
• Customer service is the provision of service to customers
– before,
– during, and
– after a purchase.
• Customer service has often been done badly because it has
been defined badly.
Class Activity: In what ways can we give good customer service
• Before service delivery
• During service delivery
• After service delivery
By following up on old customers
• Bring back the “lost sheep”
• Reactivate customers who already know you and your product. This is one of the easiest and quickest ways to retain customers and increase your revenues.
– It is sometimes easier to go back to a relationship you had which has ended than to embark on a new one, especially if the old relationship is promising change
• There is little point in dedicating a lot of resources to finding new customers when 25-60% of your dormant customers will be receptive to your attempts to do business with you if you approach them the right way, with the right offer.
• Get in touch with former customers
• Remind them of your existence as an institution
• Find out why they’re no longer with you
• Take note of their concerns and act on them
• Demonstrate that you still value and respect them by being
consistent in the areas they had problems with you before
– This approach is cheaper than exploring new relationships with totally
new customers and may lead to some of your best and most loyal
customers.
By taking complaints seriously
• A complaint is a gift
• 96 percent of dissatisfied customers don’t complain. They just walk away, and you’ll never know why. That is because they
– often don’t know how to complain or who to complain to
– can’t be bothered
– are too frightened, or
– don’t believe it’ll make any difference.
• Though they may not tell you what is wrong, they will certainly tell many others. A system for unearthing complaints can therefore be the lifeblood of the institution because customers who complain are giving you a gift.
• Complaints are gift packages waiting to be opened because they:
– Are given freely
– Are not solicited
• You do not incur any cost to get them – free information
– Are unexpected…they come as a surprise (usually)
– Hold the key to happiness for the FI
• If they are well handled
• A complaint gives you:
– Free direct communication from the customer about
• service failures, competitors offerings etc. without the added cost of
conducting a survey
– Readily available market research: they define what
customers want
55
• A complaint gives you the opportunity to:
– Increase customer trust
– Build long term relationships-
• customers will use your services again if they believe complaints are
welcomed and addressed
– Rectify service failures
– Engage customers as advocates
So how should complaints be handled?
• Listen to the customer
• Get a proper understanding of the
problem
• Apologise as if you caused the problem,
not someone else
• Acknowledge the customer’s pain or
frustration
• Explain the action you are going to take
and give a time frame for resolving the
problem if possible
• Thank the customer
• Follow up to ensure that the problem has
been solved
• Don’t take it personally
• Remain calm
• Focus on the problem and not
the person
• Address customers by name
• All communication should be in the first person. – Use “I am sorry” not “we”
• Don’t make excuses or blame others in your organization
• Give the customer your full attention and establish eye contact
• Don’t be defensive
• Be composed at all times
• Don’t take criticisms personally
• Offer an apology even if the disservice is not your fault
• Show empathy by using such phrases as: “I can understand
how you feel”, “I appreciate what you’re saying.”
Tips for handling complaints
• If you don’t know the answer to their problem, don’t lie.
• Call back when you say you will, even if for some reason, you
haven’t been able to obtain a satisfactory answer by then
• Tell them what you can do…not what you can’t do
• Find out what it will take to turn their dissatisfaction into satisfaction
• If they agree to that solution, act quickly before they change their mind
• And remember:
– You can never win an argument with a customer
– If you do, it will be to the detriment of the institution because the customer will leave.
Tips for handling complaints
By building customer loyalty
• What is Customer Loyalty?
– When customers consistently patronize your services over a long period
of time
– When customers use your services often, use other products you have
and bring you even more customers
– Customer loyalty is built by treating people the way they want to be
treated.
Discussion: What practical and simple ways can we use to build loyalty among our unsophisticated customers?
Discounts as an incentive to pay back loans on-time…
Any other ideas ?…
……
……
…..
Other ways to build loyalty…
• Personal thank you messages
• Showing that you care and remembering what your
customers like and don’t like.
• Ask your customers how they’re doing – and take it to
heart!
• Treat your team well so they treat your customers well.