UploadedFile 130529265670065073

Building Customer Loyalty
Craig F. Churchill and Sahra S. Halpern

2001
This project was made possile y a grant !rom "S#$%&s 'icroenterprise Best (ractices) as well
as a grant !rom the Consultati*e +roup to #ssist the (oorest ,C+#(-.
Craig F. Churchill is the %irector C#L'.#%/0 &S 1esearch and (olicy "nit. Founded
in 1234) C#L'.#%/0 pro*ides technical assistance to micro!inance institutions since
1234) in addition to research and ad*ocacy wor5 to ad*ance the industry and in*estments
in select micro!inance institutions or !unds. (rior to joining C#L'.#%/0 ) 'r. Churchill
was the Coordinator o! the 'icroFinance 6etwor5) wor5ed as %irector o! 1esearch and
(rogram .*aluation at #CC$/6 $nternational and ser*ed an as ad*isor to +et #head
Financial Ser*ices in South #!rica. He is the author and editor o! o*er 20 micro!inance
pulications and articles) including Client7Focused Lending8 The #rt o! $ndi*idual
Lending ,C#L'.#%/0 ) 1222-) and a recent wor5 on micro insurance !or "S#$%&s
'icroenterprise Best (ractices.
Sahra S. Halpern is the 'icroFinance 6etwor5&s 9unior 1esearcher. Her primary
research in*ol*es routine interaction with directors and managers o! 6etwor5 memer
institutions. 's. Halpern is the editor o! the 6etwor5&s Con!erence Summary 2000)
'icro!inance in the 6ew 'illennium.
Tale o! Contents
Tale o! Contents
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2 .6H#6C$6+ C"ST/'.1 L/=#LT=................................................................. 11
'.#S"1$6+ L/=#LT=................................................................................................... 11
(rimary Beha*ior8 47% Loyalty................................................................................ 11
Secondary Beha*ior .................................................................................................. 14
0H#T '#;.S # C"ST/'.1 L/=#LA ............................................................................ 14
.6H#6C$6+ L/=#LT= ................................................................................................... 1>
(roduct %esign and %e*elopment ............................................................................ 1?
Customer Ser*ice ...................................................................................................... 13
Building 1elationships .............................................................................................. 20
Branding.................................................................................................................... 21
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/1+#6$B#T$/6#L C"LT"1........................................................................................... 23
H"'#6 1.S/"1C. %.:.L/('.6T ............................................................................... 22
Hiring !or Loyalty ..................................................................................................... 22
Training !or Loyalty.................................................................................................. 40
1ewarding ................................................................................................................. 42
'#6#+$6+ C"ST/'.1 L/=#LT= ................................................................................. 4C
C L.#16$6+ F1/' =/"1 L/SS.S ........................................................................ 4@
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"6%.1ST#6%$6+ %.S.1T$/6 ........................................................................................ C2
i
Tale o! Contents
%esertion 'onitoring Tool8 .<it $nter*iews............................................................. C4
"sing .<it $n!ormation !or Customer 1eco*ery ....................................................... C?
> (1.:.6T$6+ %.F.CT$/6S .................................................................................. C2
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$%.6T$F=$6+ %$SS#T$SF$.% C"ST/'.1S ....................................................................... >1
T//LS T/ .6C/"1#+. C/'(L#$6TS ............................................................................ >4
Tool D18 Create a Complaint and Suggestion System ............................................. >4
Tool D28 .stalish a Customer Ser*ice %es5........................................................... >C
Tool D48 $mplement a Complaint Solicitation Strategy ........................................... >>
Tool DC8 $nstitute a Customer #d*isory Board ........................................................ >@
C/'(L#$6T 1.S/L"T$/6 .............................................................................................. >3
H/0 T/ $6T.1(1.T #6% "S. C"ST/'.1 C/'(L#$6TS ................................................ ?0
.stalish a Customer Feedac5 %ataase ............................................................... ?1
.stalish a Chain7o!7Command to Ta5e #ction on Complaints............................... ?2
$mpro*e Customer Ser*ice Training ......................................................................... ?4
? '.#S"1$6+ C"ST/'.1 S#T$SF#CT$/6........................................................ ?>
T//LS T/ ' .#S"1. C"ST/'.1 S#T$SF#CT$/6 ............................................................ ?>
Tool D18 Euestions on Loan #pplications ............................................................... ??
Tool D28 Customer Satis!action Sur*eys.................................................................. ?3
Tool D48 Targeted Customer Sur*eys ...................................................................... @0
Tool DC8 Focus +roups ............................................................................................ @4
Tool D>8 'ystery Shopping ...................................................................................... @C
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@ '.#S"1.'.6T T//L T.CH6$C#L 6/T.S ................................................... @2
S"1:.=S ........................................................................................................................ @2
Sur*ey %esign ........................................................................................................... @2
Creating a Success!ul and .!!ecti*e Sur*ey.............................................................. 31
Field Testing ............................................................................................................. 3C
Sur*ey #dministration............................................................................................... 3>
(L#66$6+ # F/C"S +1/"( ........................................................................................... 3>
How to Choose the Topic.......................................................................................... 3?
How to Choose (articipants and .nsure Their #rri*al............................................ 3?
Setting "p the %iscussion ......................................................................................... 3@
The 'oderator .......................................................................................................... 32
S#'(L$6+...................................................................................................................... 21
How to Sample .......................................................................................................... 21
.rrors and Their ConseFuences ............................................................................... 22
#6#L=S$S ...................................................................................................................... 24
%ata Collection and (rocessing ............................................................................... 24
Eualitati*e Studies .................................................................................................... 2C
Euantitati*e Studies .................................................................................................. 2@
.rrors and Their ConseFuences ............................................................................... 23
"se o! 1esults............................................................................................................ 22
ii
Tale o! Contents
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iii
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i*
List o! #re*iations
List o! #re*iations
#B#
#T'
#S#
B1#C
B1$
Banco#%.'$
C.1"%.B
C%
C+#(
%F$%
F$6C#
;71.(
'F$
'$S
6+/
(1/%.'
(1$%.
"S#$%
#le<andria Business #ssociation
#utomatic Teller 'achine
#ssociation !or Social #d*ancement
Bangladesh 1ural #d*ancement Committee
Ban5 1a5yat $ndonesia
#sociaciJn (ara el %esarrollo de la 'icro7empresa) $nc.
Centenary 1ural %e*elopment Ban5
Certi!icate o! %eposit
Consultati*e +roup to #ssist the (oorest
%epartment !or $nternational %e*elopment ,+reat Britain-
Foundation !or $nternational Community #ssistance
;enya 1ural .nterprise (rogram
'icro!inance $nstitution
'anagement $n!ormation System
6on7go*ernment /rganiKation
(romociJn y %esarrollo de la 'icroempresa
(romotion o! 1ural $nitiati*es and %e*elopment .nterprises
"nited States #gency !or $nternational %e*elopment
*
*i
#c5nowledgements
#c5nowledgements
T
he 'icroFinance 6etwor5) with the !inancial support o! "S#$%&s 'icroenterprise
Best (ractices (roject ,'B(- and the Consultati*e +roup to #ssist the (oorest
,C+#(-) has underta5en this project to document and de*elop micro!inance
industry standards o! customer loyalty and customer satis!action strategies.The
'icroFinance 6etwor5 is a gloal association o! the world&s leading micro!inance
institutions. The authors than5 'B( and C+#( !or their support.
The authors would also li5e to than5 #nita Campion) %irector o! the 'icroFinance
6etwor5) who pro*ided important insight in her editing o! the te<t. /ther readers include
'onica Brand o! #CC$/6 $nternational) "S#L %a*id Crac5nell o! the %epartment !or
$nternational %e*elopment ,%F$%- o! +reat BritainL 9a*ier FernandeKand Carlos
Laarthe o! Compartamos) 'e<icoL Brigit Helms o! C+#() ased in 0ashington) %CL
9ason 'ei5le o! F$6C# ;yrgyKstanL 6hu7#n Tran o! 'B() ased in the "nited SatesL
%ir5 B. :an Hoo5 o! Centenary 1ural %e*elopment Ban5) "gandaL and Charles
0ater!ield. The authors are deeply grate!ul !or their contriutions.
'any 6etwor5 memers pro*ided *aluale in!ormation regarding their own e<periences
regarding customer in!ormation gathering and customer incenti*es !or loyalty.$n
particular) the authors would li5e to than5 6ail .l Shami o! the #le<andria Business
#ssociation ,#B#-) .gyptL (edro 9imeneK o! Banco#%.'$) %ominican 1epulicL
#l*aro 1etamales o! Banco del %esarrollo) ChileL %r. #.'.1. Chowdhury o! B1#C)
BangladeshL %ir5 B. :an Hoo5 o! Centenary 1ural %e*elopment Ban5) "gandaL Carlos
Laarthe and 9a*ier FernandeK o! Compartamos) 'e<icoL 9ason 'ei5le and +alina
+rine*a o! F$6C#) ;yrgyKstanL +ary 0oller o! F$6C# $nternationalL 0itold
SKwaj5ows5i o! FundusK 'i5ro) (olandL 1ashid 'alima o! (1$%. TanKaniaL and
%ouglas Lea*ens o! (1$%. #!rica.These indi*iduals pro*ided the authors with
important in!ormation regarding customer satis!action inno*ations at their institutions)
and this guide could not ha*e een completed without them.
Below is a description o! the micro!inance institutions that contriuted to this pulication.
M
M
M
The #le<andria Business #ssociation ,#B#- o!!ers small loan siKes with !ew
prereFuisites) !le<ile loan repayment conditions and technical assistance. #B#
pro*ides a *ariety o! consulting ser*ices to national) regional and international
institutions in*ol*ed in micro) small and medium7siKed usiness de*elopment.
The #ssociation !or the %e*elopment o! 'icroenterprises) $nc. ,#%.'$-) was an
6+/ with a strong record in credit !or micro and small enterprises in Latin #merica.
$n 122@) #%.'$ opened Banco#%.'$) a regulated !inancial institution that !inances
micro and small enterprises) with more than 23 percent o! loan siKes under "SN4000.
Bandesarrollo 'icroempresas is a susidiary o! Banco del %esarrollo. Bandesarrollo
o!!ers a *ariety o! products) including indi*idual and solidarity lending. #s o!
*ii
#c5nowledgements
M
M
M
M
M
M
%ecemer 1223) Bandesarrollo 'icroempresas ser*ed more than 1>)000 orrowers)
appro<imately 4)000 sa*ers) and had a loan port!olio *alued at o*er N1? million.
B1#C) a twenty7se*en year old rural de*elopment program) pro*ides !inancial
ser*ices to the landless poor and marginal !armers. 'ost o! its three million
customers are women. B1#C is also in*ol*ed in education and training) health care
and !amily planning) and community organiKing.
Centenary 1ural %e*elopment Ban5 ,C.1"%.B- is a commercial an5 that operates
thirteen ranches throughout "ganda. #ppro<imately 22 percent o! C.1"%.BOs
usiness relates to micro!inance. $ts mission is to pro*ide appropriate !inancial
ser*ices to all "gandans in a sustainale manner.
Compartamos pro*ides credit to low7income women in 'e<ico. Compartamos
recently trans!ormed into a regulated !inancial institution) a status that will grant
access to commercial !unds to satis!y an increasing demand !or ser*ices.
F$6C# ,Foundation !or $nternational Community #ssistance- ;yrgyKstan is part o!
F$6C# $nternational) $nc.) a nonpro!it organiKation with a!!iliates in 1@ countries.
F$6C# ;yrgyKstan o!!ers microcredit) small enterprise loans) usiness training)
technical support) and access to alternati*e credit sources.
FundusK 'i5ro was estalished y the (olish7#merican .nterprise Fund) set up in
1220 y a special act o! "S Congress to stimulate the de*elopment o! pri*ate
enterprise in the !ormer communist countries o! .astern .urope. $t now has a
nationwide networ5 o! ranches ser*ing microenterprises with indi*idual and group
loans.
(romotion o! 1ural $nitiati*e and %e*elopment .nterprises ,(1$%.- TanKania ases
lending on the solidarity group method o! sel!7selected memers) and a 47tier loan
guarantee system to ensure repayment. Customers are in*ol*ed in the administration
o! the program8 they elect leaders to o*ersee group discipline) loan appro*al and
repayment.
/ther institutions that are documented in this guide include the !ollowing.
M The #ssociation !or Social #d*ancement ,#S#-) is an 6+/ in Bangladesh that
specialiKes in deli*ering credit to women. $t operates o*er 300 ranches.
M BancoSol) located in Boli*ia) is the world&s !irst commercial an5 dedicated to the
microenterprise sector. $t o!!ers a *ariety o! competiti*e products.
M Caja Los #ndes is a pri*ate !inancial !und in Boli*ia.$ts ojecti*e is to promote
e!!icient !inancial intermediation to the economically underpri*ileged social sectors.
M CalpiP) a !ormal !inancial institution in .l Sal*ador) aims to pro*ide an e!!icient and
sustainale source o! !inancial intermediation to the micro and small usiness sectors.
M ;a!o 9iginew) structured as a credit union) is the largest 'F$ in 'ali.
M ;71ep Ban5) a pri*ate institution) conducts acti*ities including micro!inance ser*ices)
research) product de*elopment) in!ormation dissemination) and consulting ser*ices.
M 'ianco) a pri*ate an5) o!!ers micro!inance products including wor5ing capital and
!i<ed asset loans) sa*ings) !oreign currency e<change) and !oreign wire trans!ers.
M Sa!eSa*e) an 6+/ in Bangladesh) pro*ides !inancial ser*ices to slum dwellers
through a daily deposit and loan payment collection ser*ice.
*iii
(re!ace
(re!ace
The importance o! customer loyalty and customer satis!action has ecome increasingly
apparent to micro!inance practitioners as the micro!inance industry has matured during
recent years. $n the past three years) Centenary 1ural %e*elopment Ban5 has grown y
nearly 400Q in terms o! total assets and numer o! customers ser*ed. This dramatic
growth has in part resulted !rom the use o! many o! the customer ser*ice oriented policies
presented in this technical guide) Building Customer Loyalty.
Centenary conducted customer ser*ice sur*eys !or the past two years in all o! its
ranches and conducted an impact assessment in two o! its ranches in 1222. %espite the
!act that the initial sur*ey indicated that 3> percent o! the Ban5Os customers were satis!ied
with its ser*ices) Centenary launched an initiati*e to impro*e and e<pand satis!action
among its customers.To create customer loyalty through ma<imum customer
satis!action) Centenary instituted customer ser*ice des5s) upgraded its so!tware to enale
it to ser*e depositors more Fuic5ly) hired additional cashiers and loan o!!icers and
introduced new loan products in response to customersO recommendations. CentenaryOs
management has learned that listening to customers results in higher pro!its) which ha*e
actually impro*ed at twice the growth rate o! the Ban5 o*er the last three years.
#s 'F$s around the world !ace increased competition and mo*e towards
commercialiKation) the importance o! Building Customer Loyalty is readily apparent.
Competition and commercialiKation are !orcing 'F$s to ecome more e!!icient) and
greater customer loyalty leads to lower operating costs and etter !inancial per!ormance
!or 'F$s.
The pulication demonstrates how customer loyalty impro*es pro!itaility) and e<amines
what !actors contriute to impro*ed customer loyalty. $n doing so) it e<plores the
importance o! Fuality product design and de*elopment as well as the signi!icance o! good
customer ser*ice. #dditionally) the authors point out how an 'F$Os structure can enhance
customer loyalty) and that 'F$ sta!! memers must e ale to respond Fuic5ly to
customersO Fuestions) complaints and credit applications i! the institution wishes to
promote customer loyalty. The guide is !ull o! tools to help 'F$s o! *arious siKes and
structures promote customer loyalty.
This latest pulication in the 'icroFinance 6etwor5 series) geared not only !or its
memers ut also !or all micro!inance practitioners) will allow 'F$s to etter ser*e t eirh
customers and mo*e toward impro*ed !inancial results and ultimately) sustainaility.
%ir5 B. :an Hoo5
Chie! .<ecuti*e
Centenary 1ural %e*elopment Ban5
%ecemer) 2000
i<
(re!ace
<
$ntroduction
$ntroduction
R %oes your organiKation ha*e a prolem with customer retentionA
R %oes your micro!inance institution ,'F$- e<perience roller coaster growth patternsS
periods o! e<pansion !ollowed y consolidationA
R %o a lot o! !irst7 and second7time orrowers decide that they don&t need your ser*ice
anymoreA
R #re you losing a steady stream) or e*en a tric5le) o! your longstanding customers to
the competitionA
R /r) i! there isn&t another 'F$ in the neighorhood) do customers grumle aout your
products and ser*icesA
This document is written !or anyone wor5ing in an 'F$) especially middle and senior
management) who answers yes to any o! the Fuestions ao*e. The !ollowing chapters
will help you to calculate the e!!ect o! customer turno*er on producti*ity) port!olio
Fuality) employee satis!action) and your own cost structure. This document will pro*ide
tools to monitor and impro*e customer satis!action) many o! which are used y memers
o! the 'icroFinance 6etwor5. $t will also pro*ide guidelines !or de*eloping a customer
loyalty strategy that can dramatically impro*e your organiKation&s ottom line.1
Bac5ground to Loyalty
'ost microloans were originally designed with rigid controls to compensate) or in some
cases o*ercompensate) !or the !act that the loans were unsecured.0hile group
mechanisms) li5e solidarity groups and *illage an5s)
were the most o*ious !orm o! collateral sustitute) otherHad microloans een
elements were also considered important) including
!reFuent repayments) regular meetings) !orced sa*ings)designed !rom the
small loans !or short terms) and Kero tolerance !orcustomers& perspecti*e)
delinFuency. To deli*er small loans e!!iciently) 'F$s
adopted a one7siKe7!its7all approach to product design.they might loo5 *ery
Had microloans een designed !rom the customers&di!!erent.
perspecti*e) they might loo5 *ery di!!erent.
Some micro!inance institutions used their loan products as a screening de*ice. #nyone
who had di!!iculty repaying was weeded out) and not permitted to recei*e suseFuent
1
HBottom lineI re!ers to the 'F$&s net pro!it or loss.
1
$ntroduction
loans. This approach created an operational culture in which sta!! memers were
encouraged to e<clude orrowers o*er time. This product7dri*en approach also assumed
that the customers who weren&t weeded out would continue to orrow again) again) and
again.
The resulting e<perience with these rigid credit products was largely success!ul. 'F$s
ser*ed mar5ets with an insatiale demand and customers who were not particularly
discriminating. Large *olumes o! no*ice orrowers were thrilled that an organiKation
was willing to ta5e a ris5 and lend to them. #nd i! 2> percent or more o! the customers
were 5ic5ed out ecause they didn&t meet the strict on7time repayment reFuirements)
there were plenty o! prospecti*e orrowers to ta5e their places.
Howe*er) the landscape is changingSin some regions it is changing *ery Fuic5ly.$n
many countries) 'F$s are losing their monopolistic control o*er the mar5et and
customers are ecoming e<perienced purchasers o! !inancial ser*ices. The micro!inance
industry is also learning that some o! its original assumptions are not true) or are no
longer *alid. For e<ample) some o! the rigid controls designed to e<act timely repayment
are e<cessi*e) which unnecessarily encourages customers to stop orrowing or go
elsewhere. #nd many customers do not want to orrow repeatedly. They don&t
necessarily li5e eing in det. /ne siKe does not !it allL in !act) microentrepreneurs are
Fuite heterogeneous.
The realities o! increasing competition) a more discerning clientele) and adjusted
assumptions suggest the need !or a di!!erent approach to micro!inance. This pulication
proposes an alternati*e perspecti*e ased on the con*iction that enhancing customer
loyalty is an e<tremely important usiness strategy !or a micro!inance institution. # loyal
customer is one who ma5es regular purchases) re!ers others) and stic5s with one
institution o*er the long run. .*ery critical element in*ol*ed in managing micro!inance
operationsS!rom product pricing to sta!! incenti*es) !rom mar5eting to eligiility
reFuirements) !rom customer screening to the menu o! a*ailale ser*icesScan ,and
should- e !ormulated to promote loyalty. 0hile most 'F$s recogniKe the importance o!
customer retention) !ew ha*e designed entire usiness strategies to ma<imiKe customer
loyalty.
The loyalty approach is !ounded on the principle that micro!inance should e demand7
dri*en. %emand7dri*en means that 'F$s should pro*ide ser*ices that are tailored to the
reFuirements o! their target mar5et ased on in!ormation pro*ided y those customers.
To that end) this pulication suggests ways to listen and learn !rom your customers) and
to incorporate that learning into product design and ser*ice deli*ery.
#out This (ulication
This document lays the !oundation !or a customer loyalty strategy in a micro!inance
institution) and then pro*ides tools and suggestions to carry it out. Chapter 1 presents the
economics o! customer loyalty and demonstrates that the retention o! good customers has
a pro!ound e!!ect on the income statement o! a micro!inance institution) y sustantially
reducing e<penses as well as increasing re*enue. 'F$s that are not ale to retain repeat
2
$ntroduction
customers are li5ely to e<perience the unwanted circumstances o! high delinFuency) low
producti*ity) ine!!iciency) sta!! turno*er) and reduced impact.The second chapter
de!ines customer loyalty and pro*ides strategies !or enhancing customer commitment to
the 'F$. Chapter 4 discusses the organiKational de*elopment o! a customer loyalty
strategy) including sta!! training) incenti*es and institutional culture.
Chapters C through ? pro*ide tools to measure customer satis!action and enhance loyalty)
as summariKed in Figure 1. The est source o! in!ormation aout ways to impro*e
products and ser*ice) customer satis!action) and ultimately loyalty) comes !rom
customers who ha*e le!t the organiKation.Chapter C pro*ides in!ormation aout
measuring customer de!ection and learning !rom lost customers through e<it inter*iews.
The ne<t chapter tries to sol*e the prolems o! disgruntled customers e!ore they !eel
compelled to de!ect y soliciting and resol*ing complaints.Chapter ? suggests
techniFues !or measuring customer satis!action so that the organiKation has an ongoing
means o! 5eeping its !ingers on the pulse o! its customers) e!ore they ecome
dissatis!ied and de!ect. Chapter @ contains technical in!ormation !or carrying out some o!
the customer satis!action research) including methods o! conducting !ocus groups) tips on
sampling) and sur*ey design.
Figure 18 Tools to 'easure Customer Satis!action and .nhance Loyalty
Chapter
Chapter C8 Learning !rom Lost Customers
Tools
'easuring Customer 1etention
.<it $nter*iews
Customer 1eco*ery Strategies
Complaint and Suggestion System
Customer Ser*ice %es5
Complaint Solicitation Strategy
Customer #d*isory Board
Complaint 1esolution TechniFues
'ar5et 1esearch through Loan #pplications
Focus +roups
Customer Satis!action Sur*eys
Targeted Customer Sur*eys
'ystery Shopping
Chapter >8 (re*enting %e!ections
Chapter ?8 'easuring Customer
Satis!action
/*erall) the tools and methods suggested in this document ma5e it possile !or an 'F$ to
learn !rom its most *aluale resource) its customers. This has se*eral desired e!!ects.
First) the institution can use in!ormation !rom its customers to impro*e the design o! its
products and ser*ices. The impro*ed products and ser*ices etter meet the reFuirements
o! its customers) therey !ostering the institution&s e!!ecti*eness in helping customers to
o*ercome po*erty. #nd customer loyalty is enhanced) not only ecause customers
appreciate the impro*ed products and ser*ices) ut also ecause the 'F$) through the use
o! customer satis!action tools) demonstrates that it cares aout the customers& wel!are.
4
$ntroduction
C
The .conomics o! Customer Loyalty
1
C
M
M
M
M
HThe real cost o! losing customers is the opportunity cost. 0hat loan le*el would she
ha*e reachedA The customer who ta5es her place in the group only rings in ?@ percent o! what
the original customer would ha*e.I
9ason 'ei5le) F$6C# ;yrgyKstan
ustomer loyalty is an important determinant o! long7term !inancial per!ormance.
'icro!inance institutions in Bangladesh) Boli*ia) and other countries are !inding
that i! they do not 5eep customers satis!ied and loyal) competition ,!rom other
'F$s) moneylenders) or e*en commercial an5s- will lure their customers away. But
competitors are not the only arrier to customer retentionL unmet customer demand !or
oth Fuality products and !riendly and e!!icient ser*ice can also contriute to massi*e
customer e<its.
This chapter will e<plain e<actly how costly it is to lose customers and the *alue o!
customer loyalty. Loyalty is the attachment a customer !eels !or an organiKation&s sta!!)
products and ser*ices. # loyal customer is someone who8
'a5es regular purchases
(urchases across product and ser*ice lines
1e!ers others
%emonstrates an immunity to the pull o! the competition.2
Li!e Cycle Strategy
'ost success!ul micro!inance institutions employ a li!e cycle strategy as a way o!
pro*iding sustainale or pro!itale !inancial ser*ices to the sel!7employed poor.
Following the li!e7cycle strategy) the institution needs to
retain customers at least until they generate enough returns to
'F$s typically rea5
co*er the losses that they generated during their initial loane*en on a customercycles. 'F$s typically rea5
e*en on a customer only a!ter
the !ourth or !i!th loan.4only a!ter the !ourth
For the !irst !ew loans) the costs o! acFuisition and screening)
on top o! the regular transaction costs) are usually higher than
re*enue produced y low loan alances. /nly a!ter se*eral
2
4
or !i!th loan.
+ri!!in ,122>-.
Brand ,2000-.
>
loans do the costs come down ,through more e!!icient ser*icing o! repeat customers- and
the re*enue increases ,through larger loans- to reach the point where that loan generates
positi*e net income. #nd still it will ta5e se*eral more loans e!ore the 'F$ produces
enough re*enue to co*er the losses o! the early loan cycles.C
'ianco in (eru estimates that it does not rea5 e*en ,e.g. co*er its costs- until a!ter the
!ourth loan cycle. $! this customer lea*es e!ore the rea57e*en point) 'ianco will lose
money. $! this customer de!ects to orrow !rom a competitor) and she uses her e<emplary
credit history with 'ianco to access etter terms !rom another 'F$) then not only did
'ianco lose money on the customer) ut it is e!!ecti*ely susidiKing the competition.
The Signi!icance o! (ort!olio %i*ersity
#n alternati*e way o! measuring customer pro!itaility is to consider an institution&s
port!olio mi<ture at one point in time) as shown in Figure 2. $! we assume that the cost o!
pro*iding a loan is asically constant regardless o! the loan siKe) and that the price o! the
loan ,the interest rate- also remains constant) then pro!itaility ecomes purely a !unction
o! the siKe o! the loan. #s a customer&s loan siKe increases o*er time) so does the re*enue
!or the 'F$.
Figure 28 %istriution o! Costs ,Loans- and 1e*enue ,:alue- y Loan SiKe >
C0Q
Loans
4>Q
40Q
(ercentage
2>Q
20Q
1>Q
10Q
>Q
0Q
T2
00
200
7C0
0
C00
730
0
300
71?
00
1?0
074
200
420
07?
C00
:alue
Loan 1ange in "SN
Loans pro*ided y the organiKation in Figure 2 ,an actual 'F$ in .l Sal*ador- start
ecoming pro!itale somewhere around N1000) where the re*enue ,*alue- e<ceeds the
cost ,loan-. 0hile the simpli!ying assumptions do not wor5 !or institutions that o!!er
C
>
For more in!ormation aout port!olio di*ersity and !inancial *iaility) please see #ppendi< B.
+heen et al) 1222
?
#B#8 1educed Costs !or 1epeat Borrowers
The #le<andria Business #ssociation reFuires the
!ollowing procedures !or a !irst7time loan) ut not !or a
repeat loan) ma5ing repeat loans less e<pensi*e8
U # *isit !rom the e<tension o!!icer to oser*e usiness
operations
U # *isit !rom the ranch manager
U #n audioV*ideo presentation aout #B# policies
*ariale pricing) or i! the costs o!
originatingaloan*ary
signi!icantly y loan siKe) the asic
premise still holds that larger loans
are susidiKing smaller loans to
some degree.
Since 'F$s tend to increase a
customer&s loan siKe o*er time) this
Se*enty7!i*e percent o! #B#&s loans are to repeat
e*idence suggests that customers
customers.
need to continue orrowing until
their loan siKes surpass a certain threshold) a!ter which they ecome pro!itale.?
The in!ormation in Figure 2 can also e interpreted in a way that can e damaging to an
'F$. The alternati*e interpretation is that 'F$s should target larger orrowers in order
to susidiKe smaller loans. 1ather than see5ing out customers who need larger loans)
'F$s should concentrate their energies on promoting customer loyalty o! their core
constituency) and on retaining low7ris5 repeat orrowers) which will naturally create a
di*ersi!ied port!olio o*er time. Following this system) and ta5ing into account the
increased e!!iciencies o! lending to long7term orrowers) loyal customers with low loan
alances can e more *aluale than the customer with a large loan who ne*er orrows
again.
0ord7o!7'outh 'ar5eting
0ord7o!7mouth mar5eting is perhaps
more important in micro!inance than
other ser*ice industries. 'ost 'F$s
can&ta!!ordla*ishmar5eting
udgets) so !ree re!errals are
particularlyattracti*e.Loan
applicants who h een re!erred ya*e
e<isting customers o!ten already
5now the rules o! engagement)
which can lower the acFuisition costs
o! new customers.For e<ample)
'F$s that use a group lending
methodology!indthatmany
prospecti*e customers arri*e on their
doorstep with their groups already
!ormed.
(romoting Customer 1e!errals8
Banco del %esarrollo and 'ianco
#ccording to customer satis!action sur*eys) many
customers o! Bandesarrollo ,Chile- were re!erred to
the an5 y e<isting customers. To !ully ene!it
!rom the lower acFuisition cost o! these re!errals)
Bandesarrollo now as5s current customers to gi*e
them the names o! !riends who might e interested in
micro!inance ser*ices.Bandesarrollo 5eeps a
dataase o! the names o! these re!errals) and then
sends them mar5eting materials through the mail and
calls them to o!!er ser*ices. #out hal! o! the
re!errals ecome new customers.
'ianco gi*es customers an incenti*e to re!er new
customers. Bas5ets o! non7perishale groceries are
on display at each ranch) and when an e<isting
customer re!ers a Fuali!ying loan applicant to
'ianco) the customer recei*es a as5et o! groceries.
?
See #ppendi< B !or a graphical depiction o! the relati*e *alue o! customers o*er time.
@
Lowers 1is5s
$mpro*ed
Customer
Loyalty
1educes Costs
$ncreases (roducti*ity
Facilitates +rowth
$mpro*es
(ro!itaility
NNNN
#dditionally) the relationship etween the re!erral and the re!errer could pro*ide *aluale
in!ormation to a character lender. $! a prospecti*e customer is re!erred y a good client)
who is willing to *ouch !or his character) that would re!lect more !a*oraly on the
applicant than i! the re!erring customer was a !irst7time orrower with chronic
delinFuency prolems. 0ord7o!7mouth mar5eting there!ore reduces costs associated
with loan losses and customer screening.
$mpro*ed .!!iciency and (roducti*ity
The retention o! repeat customers has a dramatic e!!ect on e!!iciency and producti*ity.
Based on an analysis o! si< 'F$s in Latin #merica) +heen et al estimate that the a*erage
cost o! attracting one new customer is aout one !i!th o! that customer&s total unit loan
cost.@ This !inding suggests that) through lower acFuisition costs alone) repeat orrowers
are 20 percent less e<pensi*e to ser*e than new customers. #nd o! course) lower
acFuisition costs are not the only ene!it generated y repeat customers.
# loyal customer is li5ely to e a low ris5 orrower. Since this person has orrowed
again and again) the institution has amassed su!!icient in!ormation to ma5e wise credit
decisions. There!ore) i! loyal repeat customers represent a greater percentage o! the
port!olio than new clients) then the 'F$ is li5ely to e<tract a cost sa*ings in the !orm o!
lower loan losses.
Besides the acFuisition costs) new customers are e<pensi*e to ser*e ecause they reFuire
a signi!icant amount o! support. $ndi*idual orrowers may need loan o!!icers to complete
the applications !or themL group orrowers may need to !ind additional group memers
and learn the roles and responsiilities o! the group. 'icro!inance institutions can
@
+heen et. al. ,1222-
3
signi!icantly reduce the costs o! deli*ering a loan to repeat orrowers in good standing.3
To reduce transaction costs) 'F$s can shorten loan applications !or repeat loans) reFuire
!ewer usiness e*aluation *isits y loan o!!icers) or allow less !reFuent repayment y
customers in good standing) all o! which reduce transaction costs. The list o! e!!iciency
inno*ations is long and growing.
Customer loyalty not only impro*es the 'F$&s e!!iciency ratio) ut it also enhances
producti*ity. Since repeat orrowers with good repayment records ta5e signi!icantly less
time to manage than new customers) loan o!!icers with loyal customers can manage
larger *olumes.
Loyalty Facilitates Healthy +rowth
$! good customers start deserting) your *olume will li5ely remain stagnant ecause the
new recruits will just replace your customers who ha*e le!t. #nd since the de!ectors
proaly had larger loan alances than their replacements) you might actually see your
port!olio decrease. #t F$6C# ;yrgyKstan) !or e<ample) when a customer deserts her
replacement only rings in an a*erage o! ?@ percent o! the original orrower&s pro!it) and
that&s only a!ter the completion o! the !irst loan cycle) which is !our months long.
Some micro!inance institutions e<perience roller coaster growth cycles. These 'F$s
rapidly e<pand and then contract to !i*e or ten thousand outstanding loans ecause they
can arely ring in enough customers to replace the ones who are lea*ing. %uring the
early 1220&s) ;71ep in ;enya !aced this common e<perience. %uring the years etween
1220 and 122>) ;71ep e<panded !rom one ranch to 1? ranches) and loan o!!icers were
gi*en onus incenti*es ased on their port!olio siKes. Throughout this e<pansion) loan
o!!icers !ound it easiest to e<pand their port!olios y o!!ering large loans) and so
increased the amount o! each suseFuent loan) o!ten y a larger amount than the
customerSor the groupScould handle. 0hen some group memers had much larger
loans than others) many o! the smaller loan customers deserted ecause they did not want
to guarantee such large amounts. #t the same time) loan o!!icers neglected !ollow7up
acti*ities with customers who had larger loans) ecause the sta!! was too usy drumming
up new usiness. 'any o! the larger loans ecame delinFuent. ConseFuently) this rapid
e<pansion) in addition to se*eral write7o!!s o! prior loans) ultimately led to a @.@ percent
decrease o! the loan port!olio in 122@.2
#n 'F$ that !ocuses on the loyalty and satis!action o! its current customers ,and a
reasonale amount o! new ones- will ha*e much greater success with customer retention
and a low7ris5 port!olio. 'anagement at ;71ep recogniKed this in time) and in 9anuary
1223) it introduced its HBac5 to BasicsI plan. ;71ep retrained loan o!!icers to adhere to
its original philosophy) which included asic principles o! micro!inance and a
3
See Brand ,2000- !or e<amples o! impro*ing e!!iciencies in deli*ering loans to repeat
customers. $n their research) howe*er) +heen et al concluded that 'F$s ma5e !ew) i! any)
changes in the screening and processing phases !or repeat customers) and there!ore are not ta5ing
!ull ad*antage o! the opportunities to reduce unit loan costs !or repeat orrowers.
2
Campion and 0hite ,1222-
2
commitment to the microenterprise sector. ;71ep also reduced the ma<imum initial loan
siKe) reduced the rate o! suseFuent loan increases) and shortened loan terms) all o! which
were intended to encourage a steady stream o! usiness !rom its target mar5et.
The Social $mpact o! Customer Loyalty
# single N100 loan is not going to ma5e a dramatic di!!erence in most people&s li*es. But
i! that customer&s usiness grows so that it can ma5e use o! increasingly larger loans) the
usiness is li5ely to spin o!! impact ene!its such as increased income and assets !or the
household) and perhaps e*en jo opportunities !or other low7income persons. .*en i! the
usiness ne*er grows) regular and sustained access to !inancial ser*ices can stailiKe a
household&s income and reduce its *ulneraility to ris5s.
$n !act) the commitment to customer loyalty emodies the dual mission o! micro!inance.
#s customers impro*e their economic situation) they ecome more *aluale customers.
Their sa*ings alances increase) and o!ten their loan siKes do as well. These more
success!ul customers then susidiKe the ser*ices to customers with the lowest loan
alances..!!orts to retain them ha*e the dual e!!ect o! enhancing impact and
pro!itaility.
0hile the e<act economics o! customer loyalty *ary y institution) an 'F$ that attempts
to estimate the tangile and the intangile ene!its o! customer retention will e amaKed
y the results. %emonstrating the ene!its o! customer retention) and the associated costs
o! customer de!ections will help orient the organiKation toward an unwa*ering
commitment to promoting customer loyalty. The !ollowing chapters pro*ide suggestions
on ways to enhance and institutionaliKe customer loyalty.
10
.nhancing Customer Loyalty
2
T
HThe time has come !or micro!inance to address the needs o! the customers instead o! just the
Carlos Laarthe) Co7%irector) Compartamos
o enhance loyalty) the !irst step is to measure it. 0ith a set o! aseline data) an
'F$ can gauge whether its e!!orts to impro*e loyalty are or are not success!ul.
#lthough loyalty) de!ined as a !eeling or an attachment) may seem li5e an elusi*e
and sujecti*e characteristic) you can monitor it. The chapter discusses ways o!
measuring loyalty and then highlights ways o! creating *alue that are designed to enhance
customer loyalty
'easuring Loyalty
(rimary Beha*ior8 47% Loyalty
To measure loyalty) it is necessary to measure customers& actual repurchasing eha*ior.
Besides trac5ing customer retention rates) which is discussed in Chapter C) 'F$s may
also want to monitor the three dimensions o! customer loyalty8
length ,longe*ity-) readth ,range o! ser*ices-) and depth ,share
o! purchases-.
# longe*ity measure is the a*erage numer o! years that a
customer has used your ser*ices. $! an 'F$ has an a*erage
customer li!e o! 2 years) it can monitor customer longe*ity to
determine whether or not it is increasing customer loyalty. $n
this case) the distriution o! longe*ity is more important than the a*erage numer o!
years that all customers ha*e accessed ser*ices. $! a mature 'F$ is ale to grow while
5eeping the percentage o! new customers elow 20 to 2> percent) then it has promoted
loyalty success!ully.
For 'F$s that o!!er a *ariety o! *oluntary !inancial ser*ices) another measure o! customer
loyalty is the readth o! their relationship. # customer who has two di!!erent sa*ings
accounts) a housing loan and a usiness loan) and a li!e insurance policySand her
husand) mother and daughter all ha*e sa*ings accountsSis a much more loyal customer
than someone who just has an outstanding loan. Some institutions add products with the
speci!ic intent o! enticing customers to increase their readth o! ser*ices. #!ter a sur*ey
indicated customer interest) Caja Los #ndes made plans to cross7sell housing loans to
11
e<isting customers) thus enhancing the readth o! the relationship. To measure the
readth o! relationship) 'F$s need to ha*e an in!ormation system that is organiKed
around the customer) as well as the product) and i! possile pro*ides the opportunity to
estalish !amily lin5ages. 6ot only is the !amily lin5age in!ormation use!ul to measure
loyalty) ut it also helps loan o!!icers to 5eep an eye on household o*er7indetedness.
#nd rememer) i! one memer o! this !amily ecomes
to de!ect) youThe ultimate measure o! dissatis!ied and
decidesdecide to !ollow. might ha*e aig loss when the others
loyalty is the customer&s
share o! purchases.
.<clusi*ity is an important indicator o! loyalty and
measures the depth o! a customer&s relationship with
your institution. $n !act) the ultimate measure o!
loyalty is the customer&s share o! purchases ,the degree to which a customer uses your
institution !or all her !inancial ser*ices needs-.Some 'F$s ha*e created regulated
!inancial institutions speci!ically to pro*ide customers with Hone7stop shopping.I
'ianco ,!ormerly #cciJn Comunitaria del (erW-) !or e<ample) trans!ormed !rom an
6+/ into a an5 ecause a an5 could o!!er the most products and ser*ices to its
customers) including *arious loan types and short7term certi!icates o! deposit.
To measure depth ,i.e. share o! purchases-) there are *arious points to consider. 0ith
deposits) !or e<ample) what percentage o! a customer&s sa*ings or assets is held youry
organiKationA For loans) does the customer ha*e outstanding dets with other lendersA
Besides indicating the degree o! loyalty) these details are also important !or two other
reasons. First) i! a customer does ha*e outstanding loans !rom other sources) you need
that in!ormation to gauge whether he
hasthecapacitytorepay.Loyalty and %et
"n!ortunately) customers ha*e a
disincenti*e to pro*ide you with $t is unreasonale to assume that all customers
accurate in!ormation) since it might will want to orrow all the time. Credit7only
ad*ersely a!!ect your loan decision programs ha*e natural desertion rates that *ary
either y reducing the siKe or rejecting y region. Some customers will no longer need
to orrowL others will only orrow when they
the application outright.'F$s that asolutely ha*e to. $t is di!!icult to e a staunch
operate in en*ironments ser*ed y ad*ocate o! customer retention !or organiKations
e!!ecti*e credit ureaus ,such as that only pro*ide loans) ecause most people
Boli*ia) Chile) .l Sal*ador- are more don&t li5e eing in det perpetually.
li5ely to e<tract truth!ul responses in
'icrocredit programs need to !ind a alancethis regard.
Second)in!ormationaoutthe
customer&s use o! sa*ings and loans
!rom other sources pro*ides priceless
in!ormation!ornewproduct
de*elopment.Tomeetonus
reFuirements) loan o!!icers sometimes
o*erloo5 indetedness reFuirements
and disurse loans to unFuali!ied
etween ma<imiKing customer loyalty and
aggressi*ely thrusting loans on people who do
not need or want them. /ne way to ma5e sure
that microlenders aren&t too *igilant in their
pursuit o! loyalty is y de*eloping a realistic
estimation o! their natural retention rate. $! it is
?0 or @0 percent) then that can e used to
estalish sta!! enchmar5s !or retention) rather
than ad*ocating !or a Kero desertion rate.
12
applicants. This eha*ior needs to e care!ully monitored and loan o!!icers should e
ad*ised against this practice) as it will li5ely hurt their loan port!olio per!ormance.
Secondary Beha*ior
1e!errals) endorsements) and spreading the word are e<amples o! secondary eha*ior that
indicate customer loyalty. #lthough it is di!!icult to Fuanti!y the rumor mill) there are
two ways o! measuring this secondary eha*ior. The !irst is to monitor the numer o!
re!errals made y e<isting customers and how recent they are. Customers who regularly
re!er other customers could e categoriKed as highly loyal ad*ocates. Loyal ad*ocates
who stop ma5ing re!errals may ha*e had a ad e<perience) or !or some reason are less
enthusiastic than they once were. By trac5ing re!erral sources) you can identi!y waning
enthusiasm and try to recti!y the situation.
0hile an acti*e list o! re!errals is a strong indicator o! a customer&s loyalty) the opposite
is not necessarily trueL not all loyal customers are outgoing and 5now lots o! other people
who are potential customers. #nother way o! measuring the secondary eha*ior is to use
customer sur*eys to inFuire whether they would recommend your organiKation to their
!riends and neighors. The answer to this Fuestion is a good loyalty indicator) and the
simple tas5 o! as5ing the Fuestion may stimulate another round o! re!errals.
$ntent to repurchase is an additional sign o! loyalty. %uring the loan cycle) the 'F$ can
systematically as5 customers whether they plan to orrow again. Their answers are
indicators o! !uture eha*ior) rather than guarantees) ut this in!ormation pro*ides use!ul
insights. $ntent to repurchase is a strong indicator o! satis!action) and satis!action is a
strong predictor o! loyalty. This relationship is discussed in more detail in Chapter ?.
0hat 'a5es a Customer LoyalA
1epeat patronage does not necessarily demonstrate customer loyalty. 'F$s that operate
in monopoly7li5e conditions are particularly *ulnerale to this Hinertia loyalty)I
especially i! they are not wor5ing hard to ma<imiKe satis!action. 'F$s that do not stri*e
!or e<cellence in customer satis!action are susceptile to customers jumping ship when
another institution comes along to o!!er etter ser*ices.
#n 'F$ cannot e<pect lind allegiance !rom its customers. But i! the institution is loyal
to its customers) i! it is committed to pro*iding them with a ser*ice that they *alue) and it
continues to re!ine and impro*e that ser*ice as its customers& needs change) then
customers are li5ely to repay the !a*or in the !orm o! loyalty.
But what e<actly is customer *alue A 0hether they do it consciously or not) customers
consider a comple< set o! !actors when they choose etween competing organiKations.
#s shown in
Figure 4) total customer *alue is the aggregate o! !our types o! *alues8 product) ser*ices)
personnel and image. To deli*er *alue) an 'F$ needs to consider all !our) and needs to
determine how its customers percei*e their relati*e signi!icance.
14
Figure 48 6et Customer :alue
(roduct
:alue
Ser*ices
:alue
(ersonnel
:alue
'onetary
(rice
Total
Customer
:alue
Total
Customer
Cost
Time Cost
.nergy
Cost
(sycho7
logical
Cost
$mage
:alue
#dapted !rom ;otler ,122C-
M (roduct :alue8 #re !inancial products designed to meet the speci!ic and dynamic
reFuirements o! your customersA
Ser*ice :alue8 %o customers recei*e Fuality ser*ice !rom your organiKationA
their complaints addressed in a timely mannerA #re they treated with respectA
#re
M
M (ersonnel :alue8 #re your employees 5nowledgeale) responsi*e) and committed to
your customersA %o they estalish personal relationships with customersA
$mage :alue8 %oes your institution&s image add *alue to the customerA M
/n the other side o! the diagram are !our categories o! costs that customers also consider.
The price o! the productSthe monetary costSis just one aspectL other !actors are time)
energy) and psychological costs. 0hile it is impossile to Fuanti!y the costs and *alue)
these !actors are weighed and alanced against each other
to produce a net customer *alue. $! you can 5eep your netCustomers consider a
customer *alue ao*e that o! your competition) then you
comple< set o! !actorsshould e ale to retain your customers.
when choosing !inancial
institutions) and these
!actors are weighed and
alanced to produce a
net customer *alue.
(art o! maintaining this alance in*ol*es managing
customer e<pectations . $! customers o*erwhelmingly
e<pect your 'F$ to pro*ide Fuic5 turnaround !or ser*ices
,ser*ices *alue-) and your institution egins to !all short
on timeliness) customers will react more strongly than i!
they had low e<pectations !or turnaround. Sta!! ha*e an
important role in creating realistic e<pectations !or
customers.$! employees don&t 5now the terms o!
products inside and out) they may create !alse e<pectations. Sa!eSa*e minimiKes !alse
e<pectations y !ully and care!ully e<plaining terms to customers in simple language.
Sa!eSa*e also supplies customers with a written copy o! its terms and conditions. By
5eeping customers !ully aware o! their responsiilities and options) you can help them to
assess the *alue o! your institution.
1C
FundusK 'i5ro) which o!!ers group loans) screens potential customers to decrease !alse
e<pectations. %uring a meeting with potential customers) ranch managers e<plain the
ris5 o! orrowing with a group) and as5 the potential customers what they would do i! a
group memer disappears with the orrowed money. FundusK 'i5ro wants customers to
understand the real ris5s and responsiilities inherent in group guarantees.
.nhancing Loyalty
#n institution can enhance customer loyalty y creating customer *alue through product
design) customer ser*ice) uilding relationships) and randing. But e!!orts to create
customer *alue) and thus enhance loyalty) need to e *iewed through the lens o! reality.
#n 'F$ could ma<imiKe product *alue y not charging interest) and it could impro*e
ser*ice *alue i! it were open 2C7hours a dayL
perhaps douling salaries would result in etter
personnel *alueSut it proaly would not stay in
usiness *ery long.
'anaging a micro!inance institution in*ol*es
!inding the per!ect alance etween control)
e!!iciency) and customer satis!action.0hile
e<amples in this guide emphasiKe satis!action)
historically micro!inance has placed greater
emphasis on e!!iciency and control. $n the interest
o! e!!iciency) many 'F$s o!!er one asic product
that allows them to streamline and simpli!y their operations. To achie*e control)
particularly o*er credit ris5 in the asence o! collateral) 'F$s ha*e e<pected customers to
jump through hoops) such as attending wee5ly meetings and handing o*er !orced sa*ings.
$n the interest o! alancing control) e!!iciency) and satis!action) a customer loyalty
strategy reFuires micro!inance managers to step ac5 and Fuestion their assumptions. %o
staggered disursements ha*e a su!!icient impact on port!olio Fuality to justi!y the
administrati*e hassle !or oth the group and the 'F$A How many wee5s o! pre7loan
meetings are really necessary to gauge an applicant&s willingness to repayA $! a !irst7time
orrower can repay a loan o! N>0) does it really ensure !uture successA
Certainly) the answers to these Fuestions will *ary depending on the local circumstances)
ut the point is to Fuestion assumptions) and in doing so) analyKe each aspect o! products
and ser*ices to achie*e a alance etween control) e!!iciency) and customer satis!action.
Customer loyalty allows 'F$s to unite these components) ecause with higher a!!inity
repeat orrowers) 'F$s can lower their controls) streamline deli*ery systems) and tailor
ser*ices to customers& needs.
1>
(roduct %esign and %e*elopment
To impro*e product *alue) the !irst step is to ensure that your e<isting
products meet your customers& needs.'any !eatures o! microcredit
products are poorly suited to the customers& reFuirements. The tools
descried in suseFuent chapters can e used to understand your
customers& !inancial ser*ice needs and use that in!ormation to impro*e your e<isting
products and de*elop new ones.
$mpro*ing product *alue is not a one7time e<ercise. # commitment to customer loyalty
means creating li!elong relationships y pro*iding products and ser*ices that will
de*elop as your customers& needs e*ol*e. Today&s microentrepreneur may need a
retirement sa*ings account !or the !utureL her children may need education sa*ings plans.
$! her usiness grows) it may need payroll ser*ices or she may want to o!!er employee
ene!its. $! you can anticipate these upcoming needs through customer sur*eys) !ocus
groups) and other in!ormation7gathering tools) you will e well positioned to o!!er new
products to your customers e!ore the competition can. Banco#%.'$ did just this8 y
anticipating customers& !uture needs) the an5 chose to estalish a window !or small7
scale usiness products instead o! allowing its HgraduatingI customers to mo*e on to the
competition.
$! a micro!inance institution does not use its 5nowledge aout customers to de*elop the
products or ser*ices that they need ne<t) it is lea*ing the door open !or another institution
to lure them away. The competiti*e micro!inance mar5et in Boli*ia pro*ides a case in
point. BancoSol) which e<clusi*ely o!!ered solidarity group loans !or many years) was
slow in de*eloping an indi*idual loan product !or customers who were outgrowing their
groups. 0hen Caja Los #ndes entered the mar5et in !ull !orce) pro*iding only indi*idual
loans) it easily enticed BancoSol&s est customers ecause it o!!ered what they wanted.
BancoSol had unwittingly susidiKed the competition since it had helped these customers
Customer (re!erences Shape (roduct %esign at F$6C# ;yrgyKstan
Through a comination o! research techniFues) including !ocus groups) sur*eys) and
management *isits to customer groups) F$6C# ;yrgyKstan learned aout changes
customers would li5e to see added to its loan products. $n response to their pre!erences)
F$6C# made the !ollowing alterations8
6ew (roducts
w Small .nterprise Loan ,S.L- customers wanted more !le<ile loan terms. F$6C# is
now wor5ing on a new re*ol*ing credit line option !or mature S.L groups.
w Customers indicated a pre!erence !or indi*idual loans) so F$6C# is de*eloping a new
collateraliKed loan product !or :illage Ban5 graduates.
(roduct 'odi!ications
w +roups were unhappy ma5ing wee5ly payments) so F$6C# is now allowing a semi7
wee5ly option.
w $n the past) there was a 27wee5 delay etween loans) which !rustrated customersL
F$6C# is wor5ing on cutting that time in hal!.
1?
H0e ha*e seen people with e<cellent payment
histories egin to !all delinFuent. 0hen we as5
why) the answer is that our ser*ices were *ery
important in the eginning) and that their
usinesses are growing) ut a!ter three years
o! wor5ing with us they need other 5inds o!
ser*ices ,o!ten indi*idual loans with higher
amounts-. So) the moti*ation to repay is not
the same as the eginning X the priority to
repay is !alling down !rom the !irst place to
almost last. $! we do not grow with our
customers) gi*ing them the ser*ices and
products they will need in the !uture) they will
!all delinFuent and e*en lea*e the institution.I
7 Carlos Laarthe) Compartamos
estalish a credit history) which they then
used to orrow !rom Los #ndes.
#lthough it is tempting to use new
products to garner new mar5ets) it almost
always ma5es more sense to o!!er new or
impro*ed products to e<isting customer
segments.=ou already ha*e a good
understanding o! that mar5et) and it will
e easier !or you to uild sales *olumes
with customers who already 5now you.
6ew products !or e<isting customers also
enale you to increase the readth o! your
relationship with them) which !urther
strengthens the loyalty ond.
(1$%. TanKania is wor5ing on a new product !or customers who are interested in sa*ing.
This demand was made o*ious when many customers dropped out to access their
compulsory sa*ings) and then re7joined shortly a!ter !or another loan. The new product
will allow customers to withdraw a certain amount !rom their mandatory sa*ings) and i!
they choose) they will e ale to open a *oluntary sa*ings account ,once (1$%.
surpasses some legislati*e hurdles-.
For credit7only programs) one use!ul way to enhance customer loyalty is y de*eloping
*oluntary sa*ings products) assuming the en*ironment and institutional capacity permit.
'icrocredit alone does not pro*ide the institution with a su!!icient array o! ser*ices to
estalish li!elong relationships. Customers will not want to e in det !ore*er) and at
some point they will see5 out opportunities to uild their assets. 0hile in some
regulatory en*ironments there are signi!icant ostacles to moiliKing deposits) i! your
organiKation recogniKes the potential loyalty ene!its o! o!!ering *oluntary sa*ings) then
you may !ind a way to ma5e it possile. This might mean creating a regulated !inancial
institution) a course pursued y many 'icroFinance 6etwor5 memers) ut it could also
in*ol*e de*eloping a joint product with a an5ing institution) which #B# has done with
great success. # thorough cost7ene!it analysis o! the
proposed product is a necessary step prior to # commitment to customer
underta5ing this or any new product de*elopment.
#nother way to uild li!elong relationships is to o!!er
customers other usiness ser*ices.Banco del
%esarrollo sends out !lyers to potential customers to
ad*ertise its ser*ices. The !lyer says) H$t doesn&t
matter i! you don&t want to ta5e a loan right nowL you
can still count on Banco del %esarrollo. 0e also
o!!er usiness de*elopment courses and technical assistance that will help you impro*e
your usiness. Sta!! at the an5 can tell you aout our programs.I B1#C also o!!ers
usiness ser*ices. For poultry !armers) which comprises a large segment o! B1#C&s
orrowers) it de*eloped a model !or poultry sector de*elopment. The (oultry (rogramme
loyalty means pro*iding
products and ser*ices that
will e*ol*e as your
customers& needs e*ol*e.
1@
includes assistance !or reed de*elopment) !eed supply) health care) supply o! inputs)
*accination) and technical support. B1#C uses mar5et segmentation to pro*ide ser*ices
to customers in other sectors as well) including li*estoc5) agriculture) en*ironmentally
responsile !orestry) and !ishery.
Customer Ser*ice
'icro!inance institutions o!ten recogniKe ser*ice *alue ) ut they don&t
always ha*e an enthusiastic commitment to impro*ing customer ser*ice.
#n 'F$ that is committed to pro*iding Fuality customer ser*ice does the
!ollowing8
M
M
M
M
M
1egularly chec5s to ensure the customer is satis!ied with products and ser*ices
See5s out customer complaints and relishes the opportunity to resol*e them
#cti*ely solicits customer suggestions !or impro*ements
0or5s to disco*er new ways o! meeting customers& e*ol*ing needs
Stri*es to e<ceed customers& e<pectations
Customer ser*ice egins at the top. .<ecuti*e management sets the tone !or how sta!!
should treat the customer y how the company treats its sta!!. $t needs to ensure that the
head o!!ice pro*ides its ranches ,its internal customers- with Fuality ser*ice so they can
in turn pro*ide their customers ,e<ternal customers- with the est possile ser*ice.
Senior management also needs to step out o! the o!!ice on a regular asis and tal5 to
customers) oth internal and e<ternal. (ancho /tero) the
!ounding managing director at BancoSol) regularly spent
0ord7o!7mouthdays in the ranches wor5ing as a teller to 5eep in touch
tothe ser*ices
mar5eting needs to e with customers& demands and wereensure thatthe needs o!pro*ided y the main
o!!icemeeting
10
culti*ated y creating the ranches.
e<periences that your
customers will want to
tell others aout.
The !irst chapter made the case !or customer re!errals) ut
word7o!7mouth mar5eting does not just happen y itsel!.
Customers !eel compelled to recommend your ser*ices to
someone else ecause they ha*e recei*ed something
*aluale !rom you. By !ocusing your sta!!&s attention on
this issue) you can encourage them to culti*ate word7o!7mouth mar5eting y creating
positi*e e<periences that their customers will want to tell people aout. #nd i! that story
is so compelling) it may ecome grist !or the rumor mill and reach ears se*eral
generations away.
/n the !lip side) ad news tra*els a lot !aster than good news. /ne person&s negati*e
e<perience can Fuic5ly e translated into H$&*e heard lots o! people are eing treated
un!airly at 'icroBan5.I #nd dissatis!ied customers are more li5ely to tell people aout
their unpleasant e<perience than a satis!ied customer.
10
Churchill ,122@-
13
6inety percent o! dissatis!ied customers whose prolems are not sol*ed will ne*er do
usiness with the institution againL ut when customer complaints are recei*ed)
responded to) and !i<ed) there is a 20 percent chance that the !ormerly unhappy customer
11
will return.Complaints also pro*ide a *aluale source o! customer satis!action
in!ormation. # dataase o! customer ser*ice complaints can help categoriKe issues to
!ocus on the underlying reasons !or the complaints. Chapter > addresses this issue in
detail.
$t is not su!!icient) howe*er) to !ocus on complaints) ecause perhaps as !ew as one in
!i!ty dissatis!ied customers actually *oices concerns. 'F$s need to use tools that ma5e it
possile to regularly gauge the tenor o! customer sentiment. They also should ma5e it
easy !or customers to communicate with them. For e<ample) ranch managers at #B#
meet new customers as an important internal control !unction) which also creates an
opportunity to solicit their opinions) ma5e them !eel com!ortale aout e<pressing
themsel*es) and let them 5now that #B# has an open door policy.
Bac57o!!ice 1oles in (ro*iding Customer Ser*ice
#lthough micro!inance literature concentrates on the transactions etween loan o!!icers and
customers) another critical set o! customer ser*ice relationships e<ists8 etween !ront line sta!!
and the ac5 o!!ice. Loan o!!icers) tellers) and other ranch sta!! are the pulic !ace o! an
institution) ut they cannot !unction without the critical inputs pro*ided y the !inance)
administration) human resources) '$S) and other head o!!ice departments. 0ithout timely
disursements and reports) without petty cash and tra*el reimursements) i! receipts aren&t
processed or training pro*ided) !ield sta!! cannot pro*ide e<ceptional customer ser*ice.
"n!ortunately) !ield sta!! do not always recei*e e<ceptional ser*ice !rom the head o!!ice. Since
they operate one or two steps remo*ed !rom the customers) head o!!ice sta!! need to ha*e the
institution&s mission rought to li!e. 1egular opportunities to shadow loan o!!icers or meet with
customers at the ranches allow ac5 o!!ice sta!! to interact with microentrepreneurs and
appreciate how much the customers *alue the 'F$&s ser*ices. This reminder o! the realities o!
!rontline sta!! can moti*ate ac5 o!!ice wor5ers to ma5e li!e easier !or their colleagues in the
!ield) who in turn will pro*ide etter ser*ice to their customers.
'anagement at Compartamos has seiKed onto this philosophy. .ach year at Compartamos) the
head o!!ice sta!! spend one day with a loan o!!icer) *isiting customers. This day enales them to
more !ully understand the meaning o! their wor5) which increases their jo satis!action and in the
end ene!its the customers.
SpecialiKed customer ser*ice training !or head o!!ice sta!! can also help them to connect with
!rontline employees. %e*ise wor5shop acti*ities !or these employees to con*ey the !ollowing
messages8
w
w
w
w
w
11 #t
How can you ser*e the ranches etterA
#*oid the HBlame +ameI8 #ssume you are part o! the prolem and !i< it.
Solicit complaints and relish the opportunity to sol*e them.
Be responsi*e) not de!ensi*e.
+enerate empathy8 (ut yoursel! in the shoes o! the !ield sta!!.
the customer.
the end o! theBars5y ,1223- day) e*ery employee needs to rememer where his or her paychec5 comes !rom8
12
Building 1elationships
$n micro!inance) the personal relationship etween customers and !ront7line
sta!! is more important than in most ser*ice industries) ma5ing personnel
*alue o! utmost importance. Loan o!!icers who create close relationships
with their customers de*elop a si<th sense in e*aluating an applicant&s
character and repayment capacity. #t Banco#%.'$) inter*iews with oth
customers and loan o!!icers re*eal that the strong relationship etween the two is an
essential element o! the an5&s history o! e<cellent repayment per!ormance.
Some 'F$s may !ind that educated loan o!!icers loo5 down on illiterate or otherwise
underpri*ileged customers. Communicate to them that this eha*ior is counterproducti*e
and unacceptale. # constructi*e relationship encourages customers to e !orthright
aout pending delinFuency prolems) which enales them to e sol*ed more easily and
with less stress on e*eryone. #nd most importantly) that personal relationship reeds
customer loyalty.
%esertion can ecome a prolem i! 'F$s !ail to communicate with their customers a!ter
the loan is oo5ed. "sually) this a!ter7loan care is approached as a delinFuency
pre*ention techniFue) ut it is perhaps more important as a means !or encouraging repeat
usiness. 0hen !rontline employees create relationships with customers) rather than just
oo5ing loans) they place an appropriate emphasis on post7disursement acti*ities. To
generate personnel *alue) loan o!!icers still conduct customer *isits) ut the purpose o!
the *isit is not to *eri!y how the customer used the loan or to ma5e sure that he didn&t
s5ip town. 1ather) it is to see how usiness is doing) how the !amily is doing) and to see
i! the customer is !aring well with the ser*ices pro*ided. To ma5e such *isits cost7
e!!ecti*e and to minimiKe their impact
on loan o!!icer producti*ity) the loan
Sa!eSa*e&s Con*enience
o!!icer stops y customers& homes on.Fuals Customer Satis!action
the way to or !rom regularly7scheduled
loandisursementorcollection Customers at Sa!eSa*e) Bangladesh) appreciate the
acti*ities.0hile these *isits are personaliKed and committed ser*ice that this 'F$
in!ormal) loan o!!icers must maintain a pro*ides. Customer satis!action research indicates
sense o! pro!essionalism during the that Sa!eSa*e&s e!!orts to pro*ide oth con*enient
and !le<ile ser*ices are the most important sources
*isits so as not to imply rela<ed o! satis!action. Some o! Sa!eSa*e&s policies that
attitudes toward timely repayment.
customers *alue the most include8
FundusK 'i5ro) in (oland) !ound that
sta!! resisted uilding relationships
with customers ecause they didn&t
!ully understand the e<pectations o!
micro!inance loan o!!icers.Since
(oland had operated in a closed
economy !or so many decades) loan
o!!icers could only identi!y their jos
with those o! an5ers) who were not
!ocusedonuildinglong7term
relationships with customers.#!ter
w
w
w
w
w
w
To allow customers to sa*e the amount they
choose to at the time they choose.
To allow customers to withdraw when they
choose.
To go to the customer e*ery day to collect
sa*ings) which ma5es it easy to sa*e.
To allow customers to sa*e *ery small
amounts.
To pro*ide ser*ice without wee5ly meeting
reFuirements.
To pro*ide indi*idualiKed sa*ing and lending
ser*ices.
20
determining that loan o!!icers& inaility to estalish such relationships was increasing
customer e<its) FundusK 'i5ro egan to inter*iew and test prospecti*e employees !or
personality traits that are conduci*e to positi*e relationship7uilding.Loan o!!icer
candidates now ha*e to sign a contract that recogniKes relationship7uilding as an integral
part o! their employment y stating that one o! their most important tas5s is to !orge
strong ties with customers.
The relationship etween the customer and the organiKation can e rein!orcedSand the
customers& loyalty strengthenedSthrough a *ariety o! customer in*ol*ement acti*ities.
Some 'F$s ha*e customer ad*isory oards) which pro*ide a channel !or *aluale
customer !eedac5) ut also ad*ance the commitment that the customer and the 'F$ ha*e
to each other. %epending on their a*ailaility) ad*isory oard memers can per!orm a
range o! !unctions that will deepen the relationship) such as ser*ing on a credit committee
or inter*iewing prospecti*e loan o!!icers to ma5e sure they ha*e the right approach
toward customer ser*ice.
Branding
/! the !our) perhaps the most o*erloo5ed customer *alue is image. This
prioritiKation is understandale gi*en that image *alue proaly carries the
least weight with micro!inance customers. =et precisely ecause it is
generally underutiliKed) 'F$s) particularly those in competiti*e mar5ets)
may e ale to generate the greatest additional customer *alue through an e!!ecti*e
randing strategy.
# rand is an image) culti*ated through mar5eting strategies) that identi!ies the products
or ser*ices o! one company and di!!erentiates them !rom those o! its competitors. #
rand is more than just a name or an easily recogniKale logo. $t con*eys a comple< le*el
o! meaning aout the company) its products) and its
customers.Strong rands generate loyalty ecause
# rand di!!erentiatescustomers li5e eing associated with the
image that the
company or its products represents.
the products and ser*ices
For e<ample) through tal5ing to customers) BancoSolo! a company !rom those
has disco*ered that customers do not want a Han5 !oro! its competitors.
the poor)I since they pay their dets) pay their ills) and
ha*e usinesses. BancoSol customers do not want to e
reminded o! their economic status) they simply want a an5. BancoSol&s mar5eting
department has twea5ed the an5&s image through mar5eting materials and
ad*ertisementsSso that it re!lects this sentiment. 6ew mar5eting materials oast) H0e
lly e<plain all o! its products. # piece o! mar5eting material
!or indi*idual loans contains a picture o! a middleclass man with a caption proclaiming
that ser*ices are Hsimple and rapid.I #nother mar5eting piece asserts that BancoSol will
5eep deposits secure with state7o!7the7art technology.
21
Banco#%.'$ also ta5es steps to ma5e its image 5nown. 1adio ad*ertisements !eature
customer testimonials) !ollowed y the slogan) HBanco#%.'$ is the an5 that always
gi*es you a hand.I The principle is that Banco#%.'$ wor5s hand7in7hand with
customers who are e<perienced in their !ield and are capale o! using credit wisely and
paying real rates o! interest. Li5e BancoSol) Banco#%.'$ treats its customers as
partners.
Loyalty $ncenti*es
Besides a *alue7creation strategy) some usinesses rely on carrots) and in some cases
stic5s) to enhance customer loyalty. Companies that realiKe the importance o! repeat
customers ha*e de*eloped incenti*e programs to enhance customer retention. The
!ollowing are some e<amples o! how this wor5s) or could wor5) in micro!inance8
M :$(s. Some micro!inance institutions) such as CalpiP ,see o<-) classi!y their est
customers as :ery $mportant (ersons ,:$(s-) which entitles them to pre!erred
ser*ices that include a lower interest rate) !aster loan processing) and access to
additional !inancial products. This approach rewards timely repayment ,rather than
punishing delinFuency-) lowers administrati*e e<penses) and pro*ides customers with
a tangile reward !or their repeat patronage. :$(s at Banco#%.'$ are issued
'asterCards) which they can use to withdraw cash at ranches and #T's) or pay
electricity) telephone) and other ills.$ncome reFuirements and an e<cellent
repayment record Fuali!y customers !or this ser*ice) which may in the ! ture e usedu
to automate the disursement and repayment process) which will undoutedly !urther
oost customer satis!action. These same customers are also eligile !or home
impro*ement loans.
'ilestone #wards. #wards can e
gi*en to customers who meet certain
milestones. For e<ample) they may e
classi!ied as Hgolden customersI once
they ha*e een with you !or !i*e years)
and this could entitle them to recei*e
one loan at hal! price. /r perhaps
once they ha*e success!ully repaid ten
loans without delinFuency) they can
recei*e their 11th loan at a discounted
rate. These types o! programs not only
reward repeat patronage) ut they also
create disincenti*es !or desertion since
a customer on his ninth loan will want
to ma5e sure he stic5s around !or at
least one more cycle so he can get his
reward.
Bul5 Buying %iscounts. Some 'F$s
ha*e negotiated discounts !or their
The :$( Treatment at #B# and
C.1"%.B
#B# allows its :$( customers to postpone
payment o! a loan installment !or one month
without a negati*e impact on their repayment
status. The customer is eligile to recei*e this
Hshi!tI i! he reFuests it e!ore the due date o!
the installment) has recei*ed three successi*e
loans !rom #B#) and has a clean trac5 record.
#B# doesn&t lose pro!its) ecause it reFuires
one month&s interest at the time o! the shi!t) and
customers a*oid sullying a clean trac5 record in
a time o! temporary hardship.
Centenary1ural%e*elopmentBan5
,C.1"%.B- rewards its est customers with
reduced !ees. 0hen a orrower pays three
loans on time) her e!!ecti*e interest rate is
lowered !rom C3 percent to 40 percent) and she
maintains that rate as long as she continues
paying promptly.
M
M
22
customers !rom wholesalers. To ma5e this a loyalty incenti*e) the institution needs to
issue special identi!ication cards that e<pire when the loan term endsL i! the customer
renews the loan) then the card can e updated.
M 6ewsletter or 'agaKine. 0here 'F$s ser*e mostly literate entrepreneurs) they may
enjoy recei*ing a !ree suscription to a magaKine or newsletter with tips on running
your own usiness. #B# sends a !ree newsletter out to its est customers.
Training Courses. Some 'F$s) including #B#) B1#C) and Banco#%.'$) o!!er
training courses or mentoring as a part o! their ser*ices. #ssuming that the 'F$
charges !or these ser*ices) it can o!!er discounts !or :$( memers.
M
The e<perience with loyalty incenti*es in other industries suggests that the !irst company
to introduce such a program will ene!it the most) especially i! the competition is slow to
respond. /nce the whole industry has similar reward programs) then the companies that
o!!er the most distinct programs) that o!!er rele*ant ene!its to their customers) and that
are operated most e!!iciently) can succeed in using loyalty incenti*es to !orge mutually
rewarding relationships with their customers.
$t is important to note that repeat customers can e more demanding and discerning than
!irst time customers. Their e<pectations increase o*er time. #s a result) these incenti*e
programs ha*e to 5eep e*ol*ing as well. $n general) incenti*e programs can create
administrati*e headaches and ecome more troule than they are worth. They need to e
approached as a long7term strategy ecause it can ecome a pulic relations nightmare i!
the organiKation decides to close down its rewards program. (erhaps the most important
ad*ice in de*eloping loyalty incenti*es is to 5eep it simple and rele*ant) and to ma5e sure
(re!erred Ser*ices at CalpiP
customer rating system that enales its est
customers to access pre!erred ser*ices. The rating system comines Fuantitati*e and Fualitati*e
indicators on a scale o! 1 to >. The Fuantitati*e measure is ased on the a*erage numer o! days late
per repaymentL customers who a*erage less than 4 days recei*e an e<cellent rating ,1- and those
etween three and !i*e recei*e a good rating ,2-. "sing the same scale) the loan o!!icer also gi*es
the customer a rating ased on his or her cooperati*eness. So that i! a customer missed a payment
ecause o! a good reason li5e a death in the !amily) the loan o!!icer rating can ma5e sure that she
isn&t unduly penaliKed.
Customers who recei*e a 1 or 2 rating !or se*eral standard loans ecome eligile to access a second7
tier o! pre!erred loan products) including seasonal loans and automatic credit. Seasonal loans are
short7term wor5ing capital loans intended !or periods o! pea5 demand. They can e accessed
concurrently with other microenterprise loans !or customers whose pre*ious loan was repaid with a
1 rating and who ha*e ne*er e<ceeded a 2 on any loan. CalpiP&s automatic credit is similar to a
line o! credit) e<cept that each time customers draw down on their credit limit) they sign a separate
loan contract. To access automatic credit) the customer must ha*e repaid three standard loans with a
1 rating or maintained a 1 rating !or 12 months. /nce they are eligile !or automatic credit)
customers recei*e a H(re!erred CustomerI identi!ication card and the loan o!!icer conducts a
detailed analysis o! the usiness to set the credit limit. The interest rate on the automatic credit is
also lower than on the standard loan product to reward those customers and encourage their loyalty.
From Churchill ,1222-
24
that the interests o! all parties are aligned.
These measures o! enhancing retention are primarily applicale to larger 'F$s)
particularly those that operate in competiti*e mar5ets. # smaller) newer 'F$ is more
concerned aout attracting new customers than retaining old ones. #nd all 'F$s should
ma5e sure that the costs o! customer7centered initiati*es do not outweigh the ene!its.
Howe*er) the earlier an institution emraces a commitment to oth Fuality customer
ser*ice and understanding how to pro*ide what the customer wants ,rather than trying to
con*ince customers that they want what the institution o!!ers-) the more that institution
will thri*e.
2C
Creating Loyalty through /rganiKational %e*elopment
4
$
Creating Loyalty through
/rganiKational %e*elopment
H(ro!its and growth are stimulated primarily y customer loyalty. Loyalty is the direct
result o! customer satis!action. Satis!action is largely in!luenced y the *alue o! ser*ices
pro*ided to customers. :alue is created y satis!ied) loyal) and producti*e employees. .mployee
satis!action) in turn) results primarily !rom high Fuality support ser*ices and policies that enale
employees to deli*er results to customers.I
Hes5ett et al ,122C-
n the Customer7Loyalty Chain) descried ao*e and depicted graphically on the
!ollowing page ,see Figure C-) Hsatis!ied) loyal) and producti*e employeesI are a
critical lin5 in the rein!orcing cycle that produces customer loyalty and pro!its. $t is
not possile to design a customer loyalty strategy without considering ways o! hiring)
training) and maintaining this cadre o! satis!ied) loyal and producti*e sta!! memers.
This chapter deals with the organiKational de*elopment aspects o! customer loyalty.
Frontline employees stand at the intersection etween the customer and the company.
They can ma5e or rea5 a micro!inance institution. 6o matter how good the loan and
sa*ings products are) i! they are not deli*ered in a way that generates customer *alue) the
organiKation will struggle. To de*elop a customer loyalty strategy) an 'F$ needs to
maintain satis!ied and producti*e employees who deli*er
Fuality ser*ices. This is accomplished through the !ollowing8
MMMMM
$nstitutional culture o! customer ser*ice
%ecentraliKed structure that empowers !rontline sta!!
memers
Screening methods to hire the right sta!!
Sta!! training on deli*ering *alue
#ligning sta!! incenti*es with a customer loyalty strategy
Frontline employees
can ma5e or rea5
a micro!inance
institution.
2>
Figure C8 The Lin5s in the Customer7Loyalty Chain
/perating Strategy and Ser*ice %eli*ery System
.mployee
1etention
$nternal
Ser*ice
Euality
.mployee
Satis!action
.mployee
(roducti*ity
.<ternal
Ser*ice :alue
Customer
Satis!action
Customer
Loyalty
1e*enue
+rowth
(ro!itaility
2?
M
M
M
M
M
/rganiKational
structure
$nstitutional culture
Human resource
de*elopment
Ser*ice concept8
results !or customers
M
M
Length) readth
and depth o!
relationship
1e!errals
Ser*ice designed and
deli*ered to meet
targeted customers&
needs
#dapted !rom Hes5ett et al ,122C-
Loyalty is reciprocal. The more loyalty you gi*e) to your customers and to your
employees) the more loyalty they will gi*e you. 0hen loyalty is threatened) it proaly
won&t disappear all at once) ut it can gradually erode i! the organiKation does not ha*e a
continuous commitment to achie*ing it. The most e!!ecti*e way o! institutionaliKing this
commitment is y integrating it into the organiKation&s structure) culture) and human
resource de*elopment.
/rganiKational Structure
There is a direct relationship etween the structure o! an organiKation and its aility to e
responsi*e to customers) its capacity to pro*ide Fuality ser*ice) and
its potential to enhance customer loyalty.$n hierarchical
organiKational structures) where appro*al !or e*erything is Common methods
centraliKed in the head o!!ice) sta!! memers cannot respond Fuic5ly!or managing
to Fuestions or complaints ecause they ha*e to see5 higher
authority.
credit ris5 may e in con!lict with aBy contrast) in a !latter
or more horiKontal organiKation) where there
aren&t layers o! middle managers) !rontline employees ha*e to
customer loyalty
assume greater responsiility. $! those employees are capale and
strategy.well trained ,which can e a ig $F in certain laor
mar5ets-) then
they can respond Fuic5ly to their customers. # !lat organiKation is
also more li5ely to in*ol*e !rontline employees in de*eloping new products and setting
polices and procedures. Field sta!! o!ten ha*e e<cellent suggestions ecause they are closer
to the source o! the prolem. To
promotecustomerloyalty)the
%esertion and 'anagement (rolems
organiKationalstructureshould
empower !ield sta!! to respond to
Customer desertion is not caused solely y poor
customers needs.
ser*ice and inappropriate products. %esertion can
also e generated) or accelerated) when an institution
e<periences management prolems. Fraud can
cause desertion i! customers ,especially sa*ers- lose
trust in the organiKation. LiFuidity prolems that
cause delays in !ul!illing loan reFuests can also
stimulate a major e<odus.
0hen people ecome customers o! a micro!inance
institution) the 'F$ and the customer enter into an
agreement8 the customer will repay her loan and) in
return) the 'F$ will pro*ide access to timely and
appropriate ser*ices on an ongoing asis. $! 'F$s
are sincere aout customer loyalty) they will ta5e
their commitment to their customers as seriously as
they e<pect their customers to ta5e their repayment
responsiilities.
0here is loan appro*al authority
locatedA $t is a good credit ris5 and
internal control policy to limit the loan
siKes that can e appro*ed y ranch
sta!!. $! loans are ao*e that threshold)
then they are appro*ed y a credit
committeeL and i! they are larger still)
then they are appro*ed at the head
o!!ice.
This arrangement) howe*er) runs
counter to a customer loyalty strategy.
(resumaly) many larger loans are
going to long7standing and *aluale
customers.These are the *ery
customers that you want to please the most) and yet they aren&t going to e too happy i!
they ha*e to wait two or three wee5s !or their !ile to e re*iewed at the head o!!ice.
2@
$nstead) an 'F$ needs to manage credit ris5 and estalish internal controls without
annoying its est customers. (erhaps a proacti*e loan o!!icer can alert rele*ant authorities
that a large loan reFuest is in the wor5s so that they can plan accordingly. /r the credit
committee can schedule a special meeting to re*iew the !ile. $n sum) the structure o! the
organiKation ,and the allocation o! authority- needs to rein!orce) not undermine) a customer
loyalty strategy.
/rganiKational Culture
The 'F$&s organiKational culture shapes how employees eha*e within the conte<t o! its
policies and procedures. Some policies are set in stoneL others can e ent in special
circumstances to impro*e customer ser*ice. 'F$s need to e care!ul that employees don&t
hide ehind the policy at the e<pense o! customer ser*ice8 H$ am sorry) ma&am) there is
nothing $ can do aout it. That is our company policy.I $! employees understand the
purpose o! the policy) and the organiKation&s culture encourages them to sol*e people&s
prolems) then !rontline sta!! memers can !ind mutually ene!icial solutions that aren&t in
the regulations manual. By creating an en*ironment in which employees see themsel*es as
Hprolem7sol*ers )I they can thin5 o! creati*e ways o! sol*ing their customers& prolems
that may run counter to the letter o! the law as long as they are consistent with its spirit.
'ost 'F$s ha*e *ery strict repayment schedules. Customers need to pay on or e!ore the
repayment date or they will e considered delinFuent and suject to penalties. So what
should a loan o!!icer do i! a customer) ecause o! her usiness& cash !low) will always e
lateA The loan o!!icer should e empowered to help the customer !ind a solution to this
prolem) and in e<treme cases she should e ale to reschedule the repayment date to
accommodate the customer. $! there is a pattern o! strict amortiKation schedules not
matching the cash !low patterns o! customers)
loan o!!icers should !eel com!ortale approaching H0holly negati*e responses to our
management with the prolem) and policies Ysur*eyZ Fuestions represent less than 1
should e changed to alance the needs o! the percent o! the two and a hal! thousand
responses taulated. That is Fuite an
customer with those o! the institution.
achie*ement and Centenary Ban5 sta!!
This !le<ile) prolem7sol*ing approach is an
ideal way o! impro*ing customer ser*ice) ut it
creates some operational challenges. #s soon as
an 'F$ de*ol*es authority to the ranch le*el)
and encourages employees to end policies to
meet customers& needs) its *ulneraility to !raud
increases e<ponentially. There!ore) a shi!t toward
empowered !rontline employees needs to e
alanced with a corresponding increase in internal
control *igilance and a hea*y emphasis on
creating a culture o! honesty and trust.
should ta5e pride in that !act. The large
numer o! people who othered to add
written comments also ears testimony to
the !act that Centenary Ban5 has a lot o!
loyal customers.%oes that mean that
customer ser*ice cannot e impro*edA /!
course it can and customers) in the main)
want a etter ser*ice. They want it
ecause they elie*e that Centenary Ban5
can gi*e it. $t is up to e*eryone to ma5e it
happen.I
7 From a report entitled HLe*els o! Customer
Ser*ice in Centenary Ban5)I carried out y
"'" Consultancy Ser*ices) 65oKi) "ganda.
# culture that promotes teamwor5 also has a
positi*e e!!ect on customer loyalty. 0hen employees wor5 well together) they create a
pleasant en*ironment to e in. Customer ser*ice ene!its since a teamwor5 approach
23
means that customers will e attended to no matter whose customers they are. %uring sta!!
training) continuously emphasiKe the importance o! teamwor5 to instill the *alue in
employees& wor5 ethic. To encourage prolem7sol*ing and teamwor5) some 'F$s award
H.mployee o! the 'onthI priKes to the employee who est li*es y these tenets. (lace a
!ramed picture o! the employee in prominent places in the o!!ice ,accompanied y an
.mployee o! the 'onth caption-) and gi*e the employee a certi!icate recogniKing the
accomplishment.
#n organiKation&s mission statement re!lects and rein!orces the institution&s culture. But
many mission statements) !ull o! lo!ty ideals and goals) ha*e little earing on the daily
transactions etween employees and customers. $t shouldn&t e that way. .*aluate your
e<isting mission statement y analyKing it under the
microscope o! the !ollowing Fuestions8
'ianco&s 'ission Statement
0e are a pri*ate an5 made up o!
highly s5illed indi*iduals) committed
to continued economic de*elopment
o! small and micro7enterprises. 0e
are leaders at satis!ying !inancial
needs through inno*ati*e and
e!!icient products and ser*ices. 0e
5now and *alue each customer)
supporting them in the pursuit o!
success. 'ianco[Tu anco.
1. 0here would your organiKation e without your
customersA
2. %o you thin5 customers care aout your mission
statement written the way it isA
4. Can anyone in your organiKation recite the
mission statement y heartA
C. %oes anyone in your organiKation thin5 aout
the mission statement when interacting with a
customerA
>. 0ho was in*ol*ed in writing the mission
statementA12
The mission statement y itsel! can&t accomplish anything. $t needs to e puliciKed and
promoted. $t needs to e used to moti*ate people) not just to do well) ut to constantly
impro*e. To achie*e and maintain customer loyalty) the organiKational culture should
encourage employees to do etter tomorrow than they did today.
Human 1esource %e*elopment
The deli*ery o! micro!inance products is just as important ,i! not more important- as the
products themsel*es) which heightens the signi!icance o! the people who pro*ide these
ser*ices. This section loo5s at three aspects o! human resource de*elopmentShiring)
training and rewarding employeesSthat are
critical uttresses o! a customer loyalty The hiring o! Fuality employees
strategy.
Hiring !or Loyalty
The longer employees stay with your
organiKation) the more !amiliar they ecome
with your usiness) the more they learn) and the more *aluale they can e. For all
employees who deal directly with customers) the retention o! those sta!! memers can ha*e
12
is an important strategy to
achie*e customer loyalty.
#dapted !rom +itomer ,1223-
22
a power!ul e!!ect on customer loyalty. /*er time) loan o!!icers and customers uild a ond
o! trust. $! that employee lea*es) the ond is ro5en. Sa!eSa*e in Bangladesh !inds that
when it has to let an employee go) some o! his or her customers in*arialy go too. The
retention o! Fuality employees) there!ore) is an important strategy to achie*e customer
loyalty. #nd) as in the case o! loyal customers) the est source o! new employees is !rom
current employees with a good trac5 record.
#n 'F$ should select the right employees e!ore enticing them to stay. To !ind the right
sta!! memers) some 'F$s utiliKe care!ul screening techniFues that test !or appropriate
personality traits) aptitude) and a commitment to the target mar5et. These tools may
include written tests) indi*idual and group inter*iews) and role7play e<ercises. To de*elop
screening tools) it is !irst necessary to identi!y the characteristics o! a loan o!!icer who is
per!ectly suited to promote customer loyalty) and then compare applicants to the archetype.
/ne way to disco*er this archetype is to analyKe data on sta!! turno*er to see i! there are
any patterns in sta!! memers who remain loyal and e!!ecti*e employees. For e<ample)
Banco#%.'$ loo5s !or character) s5ills ,including an undergraduate degree in accounting)
usiness) or economics-) and enthusiasm in its loan o!!icers. The !eatures in Figure >
pro*ide an e<ample o! the ideal candidate that an 'F$ might loo5 !or when hiring a loan
o!!icer.
Figure >8 Sample Characteristics o! the #rchetypical Loan /!!icer
Character
S5ills
.nthusiasm
/utgoing) !riendly) team player) sincere) creati*e
Comination o! Hso!tI and HhardI s5ills) an ongoing
commitment to learning
Care and concern !or the 'F$&s target mar5et) willingness to
wor5 in di!!icult conditions ,!ield wor5er not an o!!ice wor5er-
/nce you ha*e a clear idea o! who you are loo5ing !or) you can de*elop ways o! testing
candidates to see i! t ey compare !a*oraly to the ideal. To screen !or personality traits)h
!or e<ample) you might as5 two candidates to act out a scenario wherey one is trying to
collect a payment !rom the other. # math test can help determine their aptitude with
numers. Competent) e!!icient) and caring loan o!!icers play a large role in retaining
satis!ied customers.
Training !or Loyalty
"nless you are hiring away employees !rom your competitors) you are not li5ely to !ind too
many people who wal5 in the door with the reFuisite s5ills to per!orm the jo. #nd e*en i!
they do ha*e the technical s5ills) they still need to e in!used with your organiKation&s
culture) which should educate them aout the importance o! customer loyalty.
0hen training sta!!) it is essential to highlight and continuously reiterate the *alue o!
customer loyalty.$n de!erence to the dual mission o! micro!inance) alance this
commercial argument with the social ojecti*es8 the only way loan o!!icers can really help
the target mar5et is i! they ser*e the right customers and they pro*ide ser*ices to those
customers o*er the long term.
40
Through training) the 'F$ communicates that anyone who interacts with customers needs
to learn how to go ao*e and eyond the call o! duty. Customer satis!action is the
minimum acceptale le*el o! achie*ement) whereas loyalty is a much more power!ul) and
pro!itale) accomplishment. To teach sta!! to go eyond satis!action and achie*e loyalty)
consider a training e<ercise wherey !rontline employees identi!y ways that they can
achie*e the loyalty7related ojecti*es listed in the le!t7hand column o! Figure ?.
Figure ?8 #chie*ing Loyalty) # Sta!! Training .<ercise
/jecti*e
Be unusual
where the
usual is
e<pected
Help your
customers to
impro*e their
usinesses
+i*e proacti*e
ser*ice
+et to 5now
your
customers
Sample 1esponses !rom Trainees
'a5e *isits to the o!!ice something that customers loo5 !orward to y 5eeping the
atmosphere interesting. Change the posters on the walls e*ery monthL highlight a
moti*ational thought !or the wee5 and the jo5e !or the day. #nything that we can do to
ma5e the customer&s e<perience memorale increases the chances that they will tell
someone else aout us) and increases the chances that they will come ac5 again.
.ach wee5 we could gi*e a di!!erent customer ,at least those who ha*e achie*ed the
pre!erred status le*el- a chance to set up shop in !ront o! our o!!ice to ply their wares or
demonstrate their trade. Co*er an entire wall with cor5oard and allow customers to use
it !or ad*ertising space. +i*e customers a !orum to !orm trade associations i! that will
help them to purchase supplies in ul5.
;eep trac5 o! which loans are coming due) so we can tal5 to them e!orehand aout
what they might want to do ne<t.
$t is hard to rememer 400 or C00 people y name) ut it can ma5e a ig di!!erence i! we
can. 0hen they wal5 into our o!!ice and we greet them y name) they will !eel
com!ortale. .*en etter) ta5e it a step !urther and inFuire aout their spouse and
children as well.
'a5e sure that we ha*e smiles on our !aces) and that we are they genuinely interested
when we as5 HHow are you todayAI %on&t answer the telephone y saying) HHello) this
is 'ic roBan5LI instead say) HThan5 you !or calling 'icroBan5. /ur goal is to ma5e
you happy. How can $ help you todayAI
0hen we gi*e away 5nic55nac5s li5e calendars or 5ey chains) ma5e sure that they are
creati*e so that customers will e proud ,or amused- to show it o!! and it will attract the
attention o! others.
+i*e !riendly
ser*ice
+i*e them a
use!ul gi!t
To ensure that credit o!!icers are creating solid and *aluale customer relationships)
Banco#%.'$ pro*ides an initial two wee5 hands7on training period) as well as on7going
pro!essional de*elopment !or at least !i*e days per year. Banco#%.'$ also holds an
annual sta!! meeting) during which sta!! share e<periences) re*iew pre*ious per!ormance
and discuss !uture goals) all o! which enhance camaraderie among sta!! memers. $n their
sessions) sta!! learn new techniFues and discuss ways to impro*e their relationships with
customers.
/ne o! the most challenging) yet *aluale s5ills is the aility to resol*e customer
complaints. .!!orts to resol*e complaints can dramatically enhance customer retention)
there!ore training !or customer loyalty places an important emphasis on impro*ing
41
resolution techniFues. The most e!!ecti*e way o! teaching these s5ills is through role7
playing e<ercises. For e<ample) one trainee plays the role o! a customer with prolems
ased on a real scenario) and another trainee acts as the employee who tries to help sol*e
them. Then the audience) consisting o! other trainees) critiFues the techniFues used y the
prolem sol*er and o!!ers its own suggestions. For this to e practical) the human resource
department needs to maintain a dataase o! prolems and complaints ased on in!ormation
sent in !rom the ranches. Since new prolems and complaints are continuously arising) it
is a good idea to pro*ide an annual re!resher course on complaint resolution !or all !rontline
employees ,!or more details on prolem identi!ication and resolution) see Chapter >-.
1ewarding
'F$s should *iew their est employees the same way they *iew their est customers8 once
you !ind the right people) do e*ery thing possile to 5eep them. Since it is e<pensi*e to
train sta!!) a high le*el o! sta!! turno*er can e detrimental to the organiKation. $t may e
help!ul to estimate sta!! training costs per person to underscore the importance o! sta!!
retention.
1ewarding sta!! is one way to encourage jo satis!action and) ultimately) a long career with
your institution. #n 'F$ that wants to retain sta!! needs to position itsel! as a premier
employer. This in*ol*es pro*iding a competiti*e compensation pac5age) ut it is much
more than that. This section discusses the !inancial and non7!inancial aspects o! rewarding
sta!! in order to enhance employee loyalty.
'F$s should *iew their est
employees the same way they
*iew their est customers8 once
you !ind the right people) do
e*ery thing possile to 5eep them.
.mployees won&t stay unless they ha*e an
incenti*e to do so. #ll other things eing
eFual) the est people will stay with the
company that pays the most. =et salaries
are already the iggest line item in most
udgetsScan 'F$s really pay moreA
Be!ore answering that Fuestion) try to
calculate the costs o! losing good people)
which includes hiring and training
replacements) higher loan losses and lower producti*ity o! no*ice employees) and the
negati*e impact sta!! turno*er has on customer loyalty. 0hile this estimation will rely
hea*ily on educated guesses) it will proaly show that 'F$s can&t a!!ord not to
appropriately compensate ,and retain- their est employees.
Compensation pac5ages should encourage oth employee and customer retention. #
pro!it7sharing plan can e designed to allow employees to share an increasing percentage
o! the company&s pro!its) the longer they stay with the organiKation. For e<ample) a!ter
three years) they can ha*e access to a Fuarter share) a!ter > years a hal! share) and a!ter 10
years a !ull share.#lthough not designed speci!ically to enhance sta!! retention)
C.1"%.B has a pro!it7sharing plan that gi*es employees ten percent o! the an5&s net
pro!it. The etter the an5 does) the more employees can earn. (ro!it sharing at the ranch
or unit le*el is a major component o! B1$&s sta!! incenti*e scheme.
42
.mployee ownership can help to enhance sta!! retention) ut it comes with the ris5s
associated with any eFuity sta5e. .mployee stoc5 options can e designed so that) a!ter a
minimum numer o! years) sta!! ecome eligile !or an increasing numer o! shares. ;7
1.( in ;enya has such an ownership scheme in which an employee cooperati*e owns a 2>
percent sta5e in the an5. This promotes employee loyalty and aligns company and
employee incenti*es. For this scheme to e e!!ecti*e) employees typically purchase shares
that the company matches at some pre7determined ratio. $! the an5 does well) there can e
a signi!icant upside to such an in*estment) ut i! it does poorly) the employees could see
the *alue o! their in*estment erode so there is a potential to lose money.
(ension plans ,used y (1/%.' and Banco#%.'$- are another method o!
compensation. Sta!! incenti*es can also e aligned directly with a customer loyalty
strategy y rewarding employees !or retaining customers) as #B# does. To recei*e onus
incenti*es) a loan o!!icer at #B# must ha*e repayment rates greater than 2@ percent and he
must ha*e si< new loans and !i!teen repeat loans each month) which emphasiKes the
importance o! customer retention.
Fortunately) all other things don&t ha*e to e eFual. 'F$s don&t ha*e to necessarily pay the
highest wages to ha*e the most loyal employees) although it certainly helps. /ther !actors
that in!luence an employee&s satis!action include8
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Bene!its such as health insurance and *acation time
#n institutional mission where people !eel that they can ma5e a di!!erence
0or5place design that is com!ortale and conduci*e to producti*ity
#n institutional culture that is uniFue so that employees !eel li5e they are part o! a
special team
The Con!lict etween Sta!! 1otation and a Customer Loyalty Strategy
Some 'F$s) including B1$ "nit %esa) the world&s largest micro!inance institution) insist on rotating
sta!! etween ranches on a regular asis as an internal control mechanism. This is ased on the
,correct- assumption that increasing !amiliarity etween sta!! and customers creates opportunities
!or duplicity. But do the ris5s o! collusion outweigh the negati*e impact sta!! rotation can ha*e on
customer loyaltyA
0hen a loan o!!icer mo*es to a new ranch) s ta5es with her local 5nowledge that ma5eshe
customer ser*ice special. She 5nows that 'rs. 9 li5es mil5 in her teaL she 5nows that 'r. 1 always
pays on Thursday e*en though he&s supposed to pay on 0ednesday. Customers who ecome
accustomed to these little things will e<perience a drop in satis!action when the loan o!!icer is
trans!erred. $! the 'F$ operates in a competiti*e mar5et) then the loss o! personaliKed customer
ser*ice may push customers to conclude that it&s time to see what the competition has to o!!er.
Customer ser*ice isn&t the only operational aspect a!!ected y sta!! rotation. Loan o!!icers and
ranch managers de*elop local 5nowledge that enhances customer screening and delinFuency
management. .mployees amass in!ormation that cannot e con*eniently documented in customer
!iles) including relationships with community leaders who supply character re!erences and pressure
points !or e<tracting repayments. $! these employees are trans!erred to other ranches) they ha*e to
learn a whole new set o! customers and community relationships) as do the people who replace
them.
44
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1ecognition o! indi*idual and group accomplishments
Sta!! de*elopment and jo enrichment opportunities
To understand what mi<ture o! these ,and other- non7!inancial rewards is appropriate !or
your employees) you can use many o! the same techniFues designed to learn aout
customer needs. #n employee ad*isory committee is a use!ul sounding oard in the
de*elopment o! new human resource policies.'F$s may also consider conducting
employee satis!action sur*eys and implementing employee complaint and suggestion
systems. The greater *oice you can gi*e to your employees in shaping their wor5
en*ironment) the greater chances you&ll ha*e in creating wor5ing conditions that promote
employee loyalty.
To retain employees) some usinesses hold out the carrot o! promotion prospects.
.mployees on the !ast trac5 remain with the organiKation ecause they see ongoing
opportunities to clim the corporate ladder. But this approach isn&t congruent with a !lat
institutional structure. So how does an 'F$ 5eep sta!! moti*ated without promoting them
away !rom their customersA #n alternati*e to ad*ancement is jo enrichment. 9o
enrichment is ased on the idea that as wor5 ecomes more challenging) an employee&s
moti*ation and enthusiasm will increase. $n a horiKontal organiKational structure) it is more
appropriate to increase the depth o! a jo) y adding more autonomy and responsiility)
than to promote people and create unnecessary layers o! middle managers.
Con*eniently enough) one jo enrichment acti*ity is to in*ol*e !ield sta!! in the process o!
measuring customer satis!action.To participate in customer satis!action research)
employees need to learn new s5ills) such as inter*iewing and analysis techniFues) which
addresses their desire !or sta!! de*elopment.$! this indeed results in etter customer
ser*ice) it creates a win7win7win opportunity !or management) sta!!) and customers. The
!ollowing chapters pro*ide details aout appropriate tools !or understanding desertion)
measuring customer satis!action and enhancing loyalty.
'anaging Customer Loyalty
This guide has addressed what loyalty is) why it&s important) and how to enhance it. The
!ollowing three chapters uild on this 5nowledge y discussing how to manage loyalty) and
present *arious tools !or the tas5. 'anaging loyalty in*ol*es understanding reasons !or
customer e<its) resol*ing customer complaints) and
gathering in!ormation aout customer satis!action.
0ith that 5nowledge) it is possile to increase customer
satis!action and) ultimately) uild customer loyalty.
The customer loyalty management system co*ers three
Kones o! loyalty management8
1. "nderstanding de!ection.0orse than plain
deserters) de!ectors actually lea*e your institution
!or another institution that they percei*e as eing
etter than yours. .<it inter*iews help !igure out
who&s lea*ing and why) and customer reco*ery
4C
strategies can con*ince some customers to come ac5. ,Chapter C-
2. (re*enting de!ection. Be!ore they de!ect) or desert) customers are dissatis!ied)
sometimes !or Fuite a while. $denti!ying dissatis!ied customers and ma5ing them
happy e!ore they lea*e will sa*e a great deal o! time and money in the long run.
,Chapter >-
'easuring customer satis!action. Customers who are satis!ied today may not e
satis!ied tomorrow.For this reason) 'F$s must constantly monitor customer
satis!action. 0hen there&s a slip in satis!action) it&s time to jump in with creati*e
solutions to tac5le the prolems. ,Chapter ?-
4.
$n addition) Chapter @ ta5es a close loo5 at how to uild and use the tools that are descried
in Chapters C through ?.
.ach o! these chapters is !ull o! tools to help you learn !rom your customers. There isn&t
one way to monitor satis!action and enhance loyalty) yet it is e<cessi*e to try to implement
all o! the tools. $t is up to you to choose the comination o! techniFues that is right !or your
institution. $n ma5ing that decision) consider se*eral dimensions o! each tool8 cost)
!reFuency o! use ,on7going or only when necessary-) who will administer the tool ,the 'F$
or a third party-) and o*erall e!!ecti*eness. $! these measures seem too e<pensi*e and time
consuming) 5eep in mind that it costs appro<imately !i*e times as much to !ind a new
customer than to retain an e<isting one) so it is a worthwhile in*estment.14
Figure @ gi*es you a ig7picture *iew o! the steps to increase customer loyalty. .ach step
is associated with tools in this guide ,understanding desertion) pre*enting de!ections)
measuring customer satis!action) enhancing customer loyalty-.
Figure @8 Fi*e Steps to $mpro*e Customer Loyalty
1
Trac5
Customer
1etention
2
1etention "pA
Stays the sameA
1etention %ownA
4
'easure
Customer
Satis!action
C
$mpro*e (roducts
and Ser*ices
>
Happier
Customers)
Higher
1eturns
%ownA
14
1eichheld and Sasser ,1220-
4>
4?
Learning !rom =our Losses
C
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H+i*e me a !ruit!ul error any time) !ull o! seeds) ursting with its own corrections.I
7 :il!redo (areto
osing customers can deal a !inancial low to the organiKation) especially when long7
standing customers stop orrowing. $! that customer lea*es !or good) you !or!eit
short7term and !uture pro!its that customers might ha*e deli*ered. =ou also lose
any re!errals that customer might ha*e made. $! they lea*e with a ad taste in their mouths)
then they might generate negati*e re!errals y ad mouthing you. #nd i! they de!ect to
another ser*ice pro*ider) then you are in e!!ect susidiKing
the competition. HThis *ery minute) your est customers=our est customers
and clients are your competitors& most sought a!ter
1C
0hile you o*iously don&t want to lose good customers) i!
customers are lea*ing) you should see the sil*er lining in
that cloud. Lost customers represent a use!ul source o!
in!ormation aout your products and ser*ices. The more
you understand aout why customers are lea*ing) the etter position you will e in to
modi!y e<isting products) introduce new products) and impro*e ser*ice deli*ery. #nd just
perhaps) y trying to !ind out why t ey le!t) y listening to them and caring aout what theyh
ha*e to say) and y responding to their concerns) you might e*en e ale to woo some o!
them ac5.
This chapter accomplishes three primary ojecti*es8
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are your competitors&
most sought7a!ter
prospects.
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$t pro*ides ways o! measuring customer retention so that 'F$s can understand the
e<tent to which customers are departing.
$t helps 'F$s to loo5 eneath the retention ratio to use e<it inter*iews to learn why they
are lea*ing.
$t discusses ways o! using in!ormation gleaned !rom e<it inter*iews to attract !ormer
customers ac5 into the !old.
1C
+ri!!in ,122>-
4@
.arly 0arning Signs
The !inancial ratios commonly used to e*aluate the health o! an 'F$) li5e !inancial sel! su!!iciency
and return on assets re!lect past per!ormance o! the institution) ut they aren&t good indicators o! how
well the institution will do in the !uture. #s players in an emerging industry) micro!inance institutions
are 5nown !or the *olatility o! their per!ormance. Board memers should not wait until the annual
!inancial statements are produced e!ore they determine how well) or poorly) the organiKation is
doing. $nstead) managers and directors need to monitor a series o! early warning indicators that can
help identi!y possile prolems e!ore they loom into !ull7!ledged crises.
(ort!olio Euality8 #ll 'F$s monitor port!olio Fuality in some waySrepayment rates) delinFuency
rates) port!olio at ris5Sut some ways o! calculating these ratios are more sensiti*e than others. $! the
institution is e<periencing rapid growth) or i! ju*enile loans are a large percentage o! the port!olio)
then managers can e lulled into a sense o! !alse security. To a*oid complacency) 'F$s need to8 a-
shorten the time !rame and - dissect the port!olio.1>
Shorten the Time Frame8 0hile most 'F$s trac5 loans that are 20 days o*erdue) and many monitor
loans that are 40 days late) neither time !rame is su!!iciently sensiti*e !or short7term loans with
!reFuent repayments. To ma5e sure that you&re on top o! things) i! your '$S will permit it) shorten
the time period to @ days or e*en one day. $! you cannot trac5 in real7time the percentage o!
port!olio ,or repayments- that is one day late) then ha*e loan o!!icers note when repayments were
recei*ed late e*en i! those customers ha*e rought their loans up7to7date y the time reports are
sumitted to the head o!!ice. $! the organiKation doesn&t monitor late repayments in addition to loan
Fuality at the end o! the month) there may e a udding port!olio Fuality prolem that is mas5ed y
diligent loan o!!icers who sFueeKe repayments !rom their customers e!ore the oo5s close.
%issect the (ort!olio8 #lthough there may not e discernale di!!erences in an 'F$&s o*erall
port!olio Fuality !rom one month to the ne<t) an analysis o! port!olio susets is li5ely to re*eal that
impro*ements in some areas are mas5ing declines in others. The most common ways o!
disaggregating the data are y ranch and y loan o!!icer) ut 'F$s might also consider monitoring
y usiness su7sectors to see i! some industries are e<periencing prolems. #nother way o! slicing
the analysis is y loan numer to ensure that per!ormance o! new and repeat loans are meeting or
e<ceeding e<pectations.
Sta!! Turno*er8 .*en i! an 'F$ isn&t e<periencing port!olio Fuality prolems) i! it starts to lose an
increasing percentage o! its sta!!) other prolems are proaly right around the corner.
Customer 1etention8 /ne o! the di!!iculties li5ely to stem !rom a sta!! turno*er prolem is an increase
in customer desertion. This indicator) de!ined in detail in the !ollowing pages) can e monitored ased
on data that is readily a*ailale in most micro!inance in!ormation systems.
Customer Satis!action8 /! all the early warning signs) customer satis!action is used least commonly.
#s discussed in Chapter ?) regular and scienti!ic sur*eying o! customer satis!action can pro*ide
*aluale insight into potential threats) such as poor ser*ice) un!ul!illed e<pectations) and inappropriate
products. "n!ortunately) this warning system cannot e implemented y crunching e<isting data.
There!ore) this method is only appropriate !or larger 'F$s) particularly those that operate in
competiti*e en*ironments and ha*e the capacity to collect customer satis!action in!ormation.
1>
C+#( /ccasional (aper 6o. 4 ,9une 1222-) H'easuring 'icro!inance %elinFuency8 1atios Can e
Harm!ul to your Health)I does an e<cellent jo o! e<ploring this topic.
43
'easuring Customer 1etention
'F$s trac5 numerous) i! not countless) per!ormance indicators./ne ratio o!ten
o*erloo5ed is customer retention. #lthough it is not a direct indicator o! !inancial
per!ormance) a drop in retention is a critical early warning signal that troule may e
rewing. Low retention can lead to a reduction or stagnation o! a*erage loan siKe) which
can reduce !uture returns and cause other !inancial haKards.
Trac5ing customer retention ratios is ine<pensi*e and ser*es two purposes. First) it
pro*ides a lunt or general indicator o! customer satis!action. Second) it is important in
!orecasting the o*erall !inancial per!ormance o! the 'F$. To de*elop accurate !inancial
projections) an 'F$ has to ha*e in!ormation aout customer retention so that it can
predict the e!!ect on a*erage loan siKe) which determines re*enue) and on the acFuisition
costs necessary to replace lost customers.
The retention ratio is hea*ily in!luenced y the a*ailaility o! other ser*ice pro*iders.
The ratio is also in!luenced y customer eha*ior8 customers may e HrestingI etween
loans) or they may ha*e closed all loan accounts ut 5ept two sa*ings accounts. Because
it is conte<t7speci!ic) customer retention is not something that can e easily enchmar5ed
etween countries or regions. ConseFuently) there aren&t industry standards that 'F$s
should aspire toward. $nstead) institutions need to compare their current per!ormance to
their past per!ormance to see retention trends o*er time.
0hen the institution measures retention regularly) it can ta5e#ll 'F$s should
remedial steps as soon as dropout le*els increase. Since
include a customermonitoring customer retention is an easy
and ine<pensi*e
way to indicate potential prolems) all 'F$s should include aretention ratio as
customer retention ratio as one o! their asic monthly
indicators.one o! their asic
monthly indicators.
# drop in retention !rom one month to the ne<t does not
always mean that there is a serious prolem. #ll 'F$s
e<perience natural seasonal *ariations . $nterpreting retention ratios in*ol*es not only
monthly trends analysis) ut also a comparison o! this month to the same month in the
pre*ious year.0hile this seasonal *ariation is most o*ious !or 'F$s ser*ing
agricultural communities) uran traders and manu!acturers also e<perience seasonal
di!!erences particularly around !esti*als and the start o! the school year. $n!ormation
aout natural seasonal *ariations helps the institution to plan ahead !or anticipated
!luctuations in product demand. This in!ormation can also help the 'F$ to !orm a
mar5eting plan that re!lects customer needs at *arious times.
1egularly monitoring retention reFuires a simple and straight!orward retention !ormula.
Though there are many to choose !rom) it is est to use an easy !ormula ased on readily
a*ailale in!ormation. The Consultati*e +roup to #ssist the (oorest ,C+#(- de!ines
retention as the comparison etween the numer o! customers who ha*e completed a loan
within the period and those who repaid a loan within the period and ha*e not ,yet-
returned !or a !urther loan. This !ormula can e represented in two ways) presented in
42
Figure 3. 0hile the !irst indicator is a little simpler) not all in!ormation systems can
easily produce the numer o! loans that were paid o!!. 1? For more on customer retention
!ormulas) please see #ppendi< C at the end o! this oo5.
Figure 38 Customer 1etention Formulas
18 6umer o! !ollow7up loans issued during the period
6umer o! loans paid o!! during the period
28 6umer o! loans issued during period X numer o! new customers entering during period
#cti*e customers ,eginning o! period- \ numer o! loans issued X acti*e customers ,end o!
period-
This !ormula egs the Fuestion8 0hat period is most appropriate to monitorA 0hile it
ma5es sense to monitor retention rates !rom one month to the ne<t) i! the period eing
analyKed is that month) the ratio is too sensiti*e. 0ide !luctuations !rom %ecemer to
9anuary proaly do not re!lect a mass e<odus o! customers) ut rather a seasonal
adjustment. .*en an analysis o! the pre*ious three months is not particularly help!ul)
unless you are comparing Fuarters etween years.
The most use!ul way o! trac5ing customer retention is on a monthly asis !or the pre*ious
twel*e months) as shown in the right hand column o! Figure 2. This e*ens out the
seasonal changes and allows !or smoother trend lines that are easier to interpret. $n this
H%esertionI o! %epositors
Calculating a desertion rate !or sa*ings customers can e di!!icult !or se*eral reasons8
M
0hen a sa*ings ser*ice is !irst o!!ered) or the institution is ser*ing customers who are
un!amiliar with sa*ings accounts) customers may test the ser*ice y depositing !unds one
day and withdrawing their money the ne<t.
Because many customers drain their accounts to a are minimum) ut do not other to
actually close them) their accounts may sit dormant !or months or e*en years. There!ore)
when estimating the desertion rate !or sa*ers) the institution should loo5 at account
inacti*ity ,i.e. !or passoo5 sa*ings) no deposits or withdrawals in the past 12 months- as
well as account closings.
The liFuidity !eatures o! di!!erent sa*ings products would determine the period inacti*ity.
For e<ample) the de!inition o! inacti*ity !or a passoo5 account would e *ery di!!erent
than !or certi!icates o! deposit ,C%s-.
Some customers close and open accounts at the same time. For e<ample) a C% may
come due) and rather than renewing it) the customer opens up a liFuid account instead.
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#n institution also needs to monitor a*erage account alance and dissect the analysis y
product and y *arious susets o! the customer ase. #n 'F$ may not see the numer o!
accounts declining) ut it may e<perience declining account alances. 1ather than !ull7
!ledged desertion) this lea5age o alances could re!lect a ris5 management strategy y!
1?
See #ppendi< C and 1osenerg) 1ichard) H'easuring and 'inimiKing Customer %esertionI
customers.
,edited y Halpern) 2000- !or other retention ratios.
M
C0
case) the trend lines start out negati*ely in =ear 2) ut y 9uly the organiKation has
turned things around and shows strong impro*ement in retention through the end o! the
year.
Figure 28 Calculating 1etention 1ates
.nd o!
'onth'onthly Euarterly#nnual
D #cti*e D o! Loans D o! 6ew D o! 1epeat 1etention 1etention 1etention
LoansLoansLoans $ssued1ate1ate1ate
120C>>C?2>022?
12132C?@4111>?C3.4Q
12CC@221>4C43@>3.CQ
140?>1214>2>?3311>.?Q@@.2Q
142?030C>C32>?C2.0Q@1.4Q
12323??24C>41@41.0Q>?.?Q
140@2320>C34C2C3.2Q42.1Q
14C1@@23>4C12CC2.@QC0.2Q
14@C434@C214C??@.@Q>C.3Q
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1C343>1C4C21@213.0Q>@.0Q??.4Q
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2004?2004@341220112.3Q10?.CQ@4.?Q
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$n this e<ample) there are dramatic !luctuations in the monthly retention rate) with pea5s
occurring in #pril and at the end o! the year. 0hen the retention rate e<ceeds 100
percent) it indicates that !ormer customers ha*e returned !or a repeat loan a!ter a HrestingI
period. 'any customers do not want to automatically renew their loan when the pre*ious
one is repaid. $nstead) they wait until there is a speci!ic needSeither a usiness
opportunity such as stoc5ing up !or the holiday season or a personal need such as paying
school !eesSe!ore accessing a suseFuent loan. This resting phenomenon is another
reason why monthly retention has little signi!icance) ut annual retention) trac5ed on a
monthly asis) is *ery *aluale.
#s with other per!ormance indicators) it is important to compare retention ratios !or
*arious susets o! the port!olio. Low retention in some ranches or y some loan o!!icers
C1
may mean that there is a customer ser*ice prolem that warrants an inter*ention. The
mystery shopping tool descried in Chapter ? is one way to get to the root o! !altering
customer retention rates in speci!ic ranches.
"nderstanding %esertion
%espite the intrinsic *alue o! the customer retention rate as an early warning indicator)
this ratio cannot tell the organiKation how to sol*e the prolem ecause it does not
e<plain why customers are deserting. So) when retention rates suggest troule) the 'F$
must unco*er the reasons !or
desertion.These reasons do not
The e<it inter*iew is the most
always relate to satis!action. $n theimportant means o!
collecting
!ollowing e<amples) only aout hal!
o! the dropouts le!t ecause they
in!ormation to impro*e the Fuality
weredissatis!iedwiththeo! your products and
ser*ices.institution&s products and ser*ices.
w
#B# sur*eyed C22 !ormer customers to !ind out why they le!t. The organiKation
determined that C? percent o! the dropouts le!t ecause the loan siKes and terms were
not suitale) 2C percent le!t ecause they otained another jo) 12 percent stopped
their usiness) and 11 percent deserted !or *arious other reasons.1@
(1/%.' conducted a sur*ey o! 1)C00 customers and disco*ered that C2 percent le!t
ecause o! prolems with their solidarity groups) 20 percent le!t temporarily due to
sales cycles) 3 percent le!t ecause o! personal prolems) @ percent due to mar5et
prolems) > percent ecause o! prolems with the an5&s ser*ices or products) and 13
percent le!t !or other reasons.13
BancoSol !ound that 40 percent o! its deserters de!ected to the competition) primarily
ecause o! BancoSol&s high interest rates and the in!le<iility o! the group
methodology that the institution used at the time. Hal! o! the deserters were resting
and intended to return in the near !uture !or another loan) and the remaining 20
percent did not e<pect to need a loan in the ne<t year.12
Compartamos conducted a series o! e<it inter*iews and !ound that 22 percent o! its
lost customers departed !or personal prolems. Lac5 o! time) reFuired wee5ly
meetings) and distance accounted !or 12) 1@) and 12 percent o! dropouts respecti*elyL
10 percent le!t due to de!aultL 3 percent ecause the interest rate was too highL and
poor usiness accounted !or the remaining ? percent.20
w
w
w
These cases show us that not e*ery customer who deserts is unhappy with products and
ser*ices. $t is inappropriate to try to lure all lost customers ac5 into the !old. Howe*er)
1@
13
Churchill ,122@-.
$id.
12
Sel!7reported data ,1222-.
20
Sel!7reported data ,1222-.
C2
!or those 40 to >0 percent o! deserters who le!t due to dissatis!action) it is worth the e!!ort
to get them ac5. $! only these 'F$s had 5nown why customers were unhappy e!ore
they de!ected) the institutions could ha*e done their est to increase the satis!action o!
those customers and encourage them to stay on.
1easons !or lea*ing the institution are *arious and e<amining them helps the institution to
learn how to etter ser*e its customers. .<it inter*iews and the customer reco*ery
process are tools that help 'F$s to understand why good customers are deserting) and
what to do aout it.
%esertion 'onitoring Tool8 .<it $nter*iews
.<it inter*iews enale the institution to learn what lies ehind the retention ratio y
determining who is lea*ing and why. /! all the tools discussed in this document) the e<it
inter*iew ,or lost customer analysis- is the most important means o! collecting
in!ormation to impro*e the Fuality o! your products and ser*ices. There are two
ojecti*es o! e<it inter*iews8 ,1- to learn at the point o! departure) when the customer is
potentially most dissatis!ied) why he or she chose to lea*e) and ,2- to gain ,some-
customers ac5 y using the in!ormation to de*elop a customer reco*ery process.
.<it inter*iews can e per!ormed either as needed or on a regular asis. Smaller 'F$s
and organiKations with limited '$S capailities might conduct e<it inter*iews when they
egin to e<perience a retention prolem. $n this case) they should conduct a rigorous
sampling e<ercise ,see Chapter @- o! lost customers so that the !indings !rom the study
are representati*e. # possile downside o! this Has neededI approach is that there is a
uilt7in delay etween identi!ying a retention prolem and learning what lies ehind it.
$n addition) it may e di!!icult to !ind some !ormer customers and their memories o! why
they le!t may not e particularly !resh.
Larger organiKations) particularly those
that operate in competiti*e mar5ets)
should consider integrating e<it inter*iews
into their normal course o! action.
0hene*er someone ma5es his or her !inal
loan repayment) the loan o!!icer or teller
could conduct a simple inter*iew. This
ma5es it possile !or the 'F$ to
communicate with and learn !rom its
entire customer ase on a regular asis)
including customers who are interested in
renewing their loans.This immediate
action is help!ul ecause it could pic5 up
signs o! dissatis!action e!ore they mutate
into de!ection. /!ten it is not one incident
or issue that causes customers to lea*e) ut
rather it is a series o! little things that uild
up o*er time.The downside o! the
integrated approach is that it is *ery costly
C4
Learning !rom Losses at ;a!o 9iginew
0ith the #$'S e<it inter*iew tool) ;a!o
9iginew in 'ali learned that hal! o! its
customers who le!t did so in 'ay) just e!ore
the rainy season. This 5nowledge helped the
institution plan ahead in terms o! its cash
!low. #nother 2> percent o! customers le!t
ecause their usinesses were not pro!itale.
0ith this in!ormation) ;a!o 9iginew could
potentially de*elop a training program to
impro*e customers& usinesses s5ills and
enhance customer loyalty. $t could also
impro*e screening methods to ensure that it
is lending only to entrepreneurs who ha*e
good potential !or pro!itaility.
7 From The S..( 6etwor5&s Learning !rom
Customers8 #ssessment Tools !or 'icro!inance
(ractitioners
to inter*iew) code) and input data !or e*ery single customer a!ter e*ery single loan. 'F$s
that are struggling to impro*e e!!iciency may see this as an unnecessary e<pense. 0hen
e<it inter*iews are conducted with each customer) they resemle the customer
satis!action sur*eys discussed in Chapter ?.
This chapter !ocuses on in!ormation gathered !rom !ormer customers on an occasional
asis in response to an identi!ied retention prolem. The !ollowing in!ormation should e
gathered8
M #!ter how many loans did the customer drop outA #nswers will help the institution
!orecast when a customer will most li5ely drop out) and !ormulate incenti*es !or
customers to remain with the institution a!ter that period.
How did the customer use the loanA The customer&s usiness type) loan usage) or
another speci!ic !actor may ha*e a!!ected the decision !or a customer to lea*e the
institution.
0hy did the customer lea*eA This in!ormation will disaggregate dropouts according
to the cause o! desertion. $! most customers are lea*ing due to poor usiness or
personal reasons) there is little the institution can do to win them ac5) although this
in!ormation may suggest changes to
Compartamos8the screening techniFues.
1eco*ering Lost Customers
M
M
M 0hat are they doing nowA $t is
important to learn whether you ha*e
lost the customer to the competition)
either !ormal or in!ormal) and i! so)
what is it that the customer pre!ers
aout the ser*ices she is currently
recei*ing.
0hat would con*ince them to come
ac5A Since you&*e gone to all this
troule to !ind out what&s on their
minds) they may e persuaded that you
actually care aout them. They may
also ha*e tangile suggestions on how
to get them ac5) some o! which you
might e willing to implement.
M
#s a result o! Compartamos& 1222 e<it
inter*iews) the institution disco*ered that hal!
o! all deserters le!t due to dissatis!action with
products and ser*ices. The e<it inter*iews also
pointed to the products !eatures that were
causing the most prolems. 0ith this
in!ormation) management 5new not to change
anything regarding sa*ings ser*ices) ut
instead to adjust ser*ices related to loan terms)
wee5ly payments) group meetings) and interest.
Compartamos also learned that @0 percent o!
dropouts would e willing to re7enter the
program under the right conditions.
Figure 10 pro*ides the !ormat
Compartamos e<it inter*iew.
o! the
CC
Figure 108 Sample .<it $nter*iew) Compartamos
The Compartamos .<it $nter*iew
The ojecti*e o! this Fuestionnaire is to understand the !undamental reason o! your departure !rom the program. 0e
are interested in your comments to e ale to o!!er ser*ices that meet your needs.
(lease mar5 the appropriate response with an H<.I .ach Fuestion may ha*e a ma<imum o! three responses.
6ame
+roup 6ame
Township
%ate
1. 0hat type o! usiness do you runA
FCommercialFSer*iceF(roductionF Speci!y other8
2. How many times ha*e you orrowed !rom CompartamosA
F/neFTwoFThreeFFourFFi*e
4. How do you use the loansA
FBusinessFFamilyFConstructionF%et
0hat was the !undamental reason !or your departure !rom the programA
FLoan o!!icerF0ee5lyF%istanceFTimeFSa*ings
meetings
FLate paymentsF(ersonalF(oorFBad ser*iceFFew Sales
prolemsmanagement
C. 1egarding the last Fuestion8 0hat do you recommend we do to impro*e our ser*icesA
FSi< or more
F$nterest 1ate
FSpeci!y other8
>. $! you could change something aout the loan product) what modi!ications would you ma5eA
FTermF$nterest 1ateF#mountF'eetingsFSa*ingsF(rocedures
F6o. o! group memersF0ee5ly paymentsFSpeci!y other8
?. 1ight now) are you recei*ing a loanA
F=esF6o
@. $! yes) !rom whomA
FSpouse orFChildrenF1elati*eFFriendF'oneylenderFCooperati*e
Companion
F+o*ernmentFBan5FCredit "nionFSpeci!y other8
3. $! you are not recei*ing a loan now) where will you recei*e one in the !utureA
FSpouse orFChildrenF1elati*eFFriendF'oneylenderFCooperati*e
Companion
F+o*ernmentFBan5FCredit "nionFSpeci!y other8
2. 0ould you consider returning to Compartamos !or !uture loansA
F=esF6o
C>
To get to the root cause o! prolems) the inter*iewer needs to de*elop certain proing
techniFues. For e<ample) he might as5 !or the !ormer customer to descrie a situation in
which she had a ad ,or good- e<perience with your organiKation) and then creati*ely and
repeatedly as5 HwhyI to determine the real reason !or the negati*e ,or positi*e-
e<perience. # customer may say that the loan siKe was too small) ut a!ter additional
Fuestioning aout what loan siKe would ha*e een appropriate and what she would ha*e
used the loan !or) the inter*iewer determines that the customer wanted a housing loan) not
a usiness loan. So it wasn&t a loan siKe prolem) it was a loan purpose prolem.
=our institution must e care!ul not to attempt to win ac5 customers who ha*e
recogniKed that they cannot ene!it !rom your ser*ices. =ou may e*en want to s5ip e<it
inter*iews !or customers who ha*e ad dets and chronic repayment prolems) unless it
appears that poor screening practices led to a attery o! customers with these attriutes.
#lso) the inter*iew doesn&t ha*e to just !ocus on negati*e issuesL researchers can as5
what ser*ices were ene!icial and what they li5ed aout the organiKation. 1e!er to the
HSur*eysI section o! Chapter @ to learn more aout how to as5 the right 5inds o!
Fuestions and how to use results.
"sing .<it $n!ormation !or Customer 1eco*ery
The process o! learning why customers le!t has the secondary ojecti*e o! trying to
encourage them to return. $! e<it inter*iews identi!y a common set o! prolemsSsuch as
the large segment o! (1/%.'&s customers who were ha*ing prolems with their
groupsSthen the organiKation can launch an appropriate response and de*ise a mar5eting
strategy !or this group. This type o! responsi*e mar5eting is more e!!ecti*e i! it occurs
soon a!ter the data collection process. The o< on the ne<t page descries how an 'F$
might use e<it inter*iew results to de*elop a customer reco*ery initiati*e.
/! course) the institution cannot de*elop an appropriate response without conducting a
thorough cost7ene!it analysis o! the proposed plans. 'ar5et research and use o!
customer sur*eys ,discussed thoroughly in Chapter ?- can help determine the most
appropriate response) one that is ene!icial to oth the customers and the institution.
0hen customers see that their needs and concerns are eing met) they just may thin5
twice aout !inding other sources o! !inancial ser*ices.
C?
'icroBan5 .<it $nter*iew 1esults
$n response to a growing desertion prolem) 'icroBan5 !ormed a customer ser*ice committee. The
committee&s !irst step was to commission a lost customer analysis) which it undertoo5 with a
mar5eting pro!essor at the usiness school whose class was loo5ing !or an applied research project.
#!ter some starts and stops) the '$S department was ale to produce a list o! the customers who
repaid their loans during the past twel*e months and did not reFuest a repeat loan ,one o! the prolems
was ma5ing sure that the list e<cluded customers whose repeat loan application was denied as well as
those with a poor repayment record who would ha*e een denied had they applied-.
1 Loan
0hy did you stop orrowingA ,primary reason-
(rolems with the group
6o longer needed a loan
Loan siKes too small
Fees and interest too high
Business !ailed
1esting) plan to come ac5 in the ne<t 12 months
$ncon*enient ,i.e.) too !ar) too much time-
(oor health
/ther
#re you currently orrowing !or your usinessA
6ot currently orrowingVdon&t need a loan
6ot orrowingVwant a loan
Borrowing !rom in!ormal sources ,!riends) !amily)
moneylender-
Borrowing !rom !ormal competition ,an5) 6+/) etc-
,n]120-
22.>Q
2.>Q
2>.0Q
10.3Q
>.0Q
3.4Q
1>.3Q
4.4Q
?.@Q
,n]102-
2@.>Q
4>.3Q
2C.3Q
11.2Q
2 ^ 4 Loans _ 4 Loans
,n]10?-
1C.2Q
10.CQ
22.2Q
14.2Q
?.?Q
4.3Q
13.2Q
1.2Q
1.2Q
,n]2@-
20.?Q
4C.0Q
1@.>Q
2@.3Q
,n]2?C-
12.1Q
3.0Q
2>.3Q
1?.@Q
>.4Q
4.CQ
20.>Q
4.CQ
C.2Q
,n]24>-
21.@Q
40.2Q
1C.2Q
44.2Q
Based on the results o! the sur*ey) presented ao*e) the committee made two major recommendations.
First) 'icroBan5 should de*elop a !le<ile group product !or repeat orrowers in good standing. The
committee wasn&t ready to ma5e the leap into indi*idual lending) ut they saw an opportunity to meet
customers& needs y loosening the terms and conditions) including !ewer repayments) lower interest
rates !or those with e<cellent repayment histories) and larger loan siKes ased on a care!ul cash !low
analysis. 'icroBan5 initiated a pilot test in one ranch to analyKe the impact o! the proposal.
The second recommendation was to launch a customer reco*ery initiati*e. The initiati*e egan with a
personaliKed letter !rom the .<ecuti*e %irector to all 2022 customers who le!t 'icroBan5 in good
standing during the past two years. The letter stated that ecause o! the *aluale !eedac5 pro*ided
y many !ormer 'icroBan5 customers in recent inter*iews) the an5 was launching a new (remium
Loan (roduct) and as5ed them to consider orrowing !rom 'icroBan5 again. The second prong to the
reco*ery initiati*e was a *isit y the loan o!!icer to rein!orce the content o! the letter.
The results o! the reco*ery initiati*e were *ery success!ul) in !act too success!ul. 6early C0 percent o!
the lost customers were attracted ac5 to 'icroBan5 during the ne<t three months. This sudden surge
in demand caught some o! the ranches o!!7guard and understa!!ed) creating un!ortunate delays in
application processing. $t also caught the Finance %epartment o!!7guard y putting a sFueeKe on
liFuidity. $! they could ha*e done it di!!erently) the committee would ha*e conducted a more care!ul
analysis o! the potential impact) staggered the mailing on a ranch7y7ranch asis) and would ha*e
rotated e<tra sta!! through the ranches to deal with the demand.
C@
C3
(re*enting %e!ections
>
H# longtime client or customer is yours to 5eep or yours to lose. By the time an account
has gotten to the repeat client or customer stage) there is a history and oth parties ha*e in*ested
a lot. #!ter selling to this person o*er a period o! time) you 5now[ his or her needs) just as this
customer 5nows you) your sta!!) and your company. # considerale in*estment has een made y
oth parties.I
7 9ill +ri!!in) (resident) The 'ar5eting 1esource Center $nc.
C
hances are that i! good customers are dissatis!ied with the o!!erings o! your
institution) they will orrow elsewhere. 0hen an unhappy customer lea*es) it is
estimated that she will tell at least ten other people o! the ad e<perience.21 /!ten)
the institution doesn&t suspect that a prolem e<ists in the !irst place) ut the result is
negati*e ad*ertising) declining pro!its) and lost opportunities to ser*e customers. The
good news is that this scenario is a*oidale. By acti*ely soliciting complaints) 'F$s can
spot dissatis!ied customers) resol*e their complaints) !ind ways to meet their needs) and
ultimately retain highly7*aluale repeat customers who will spread the good news aout
your institution.
The est way to pre*ent de!ection is y listening to customer complaints and Fuic5ly
acting upon them) through the !ollowing steps8
M
M
M
M
Create channels !or dissatis!ied customers to complain
.ncourage all customers to use these channels
(ersonally attend to customers who are dissatis!ied
Euic5ly resol*e customer complaints to turn dissatis!ied
customers into long7term) happy customers who will e
loyal to the institution
Euic5ly resol*e
customer complaints
and personally
attend to the most
dissatis!ied
customers.
Following these steps will allow 'F$s to a*oid costly
de!ections while enhancing their long7term relationships with customers who are crucial
to lasting growth and pro!itaility. This chapter e<plores the nature and sources o!
complaints) and suggests ways to acti*ely solicit complaints and proacti*ely resol*e them
to lea*e a trail o! satis!ied) repeat customers in your wa5e.
21
Barlow and '`ller ,122?-.
C2
The #natomy o! Complaints
$n handling complaints) it is help!ul to ha*e !oresight into the range o! complaints you
may encounter.%i!!erent complaints reFuire di!!erent resolution processes.For
e<ample) i! a customer e<presses concerns aout the high interest rate) a loan o!!icer can
sympathiKe) ut proaly can&t !i< the prolem. Howe*er) i! there was a paperwor5 mi<7
up that caused a delay in a customer&s loan disursement) then ranch sta!! should
Fuic5ly resol*e the issue.
Figure 11 pro*ides a rough map o! what 5inds o! complaints to e<pect and a general idea
o! what to do with them. "sing this !ramewor5) 'F$s might consider de*eloping their
own tailored guidelines to clearly indicate to ranch sta!! what
complaint creates they can and cannot resol*e.
6ot all complaints ha*e immediately apparent answers. Some
can ,and should- e sol*ed immediately) while others reFuire
some in*estigation.The most important response to any
complaint is concern and appreciation. # complaint not only
pro*ides use!ul !eedac5) ut it also creates an opportunity !or you to e<ceed the
customer&s e<pectations. 0ith this in mind) you should ma5e it easy !or the dissatis!ied
customer to complain.
Figure 118 'apping Complaints
Type o!
Complaint
(ersonal
Complaint
Ser*ice
Complaint
.rror
Complaint
Local
$n!rastructure
Complaint
1egional
$n!rastructure
Complaint
(roduct
Complaint
#
an opportunity to
e<ceed a customer&s
e<pectations.
.<amples
U
U
0ho is
1esponsileA
Branch o!!ice
'ode o! 1esponse
$mmediate (ersonal prolems with group memers
%on&t li5e my loan o!!icer
Loan o!!icer is late to meetings
Cashiers are rude
Turn around time too slow !or repeat loans
Sa*ings alance posted incorrectly
'ista5enly charged !or ser*ice
Branch is not regularly cleaned
6ot enough chairs in the waiting room
The o!!ice closes too early
Branch locations are incon*enient
$nterest rate too high
First loan is too small
%on&t li5e !orced sa*ings
U
U
U
U
U
Branch o!!ice $mmediate
Branch o!!ice $mmediate
U
U
Branch o!!ice
U
U
BranchV
HeadFuarters
HeadFuarters
U
U
U
%epends on se*erity
and immediate
aility to sol*e
$! there are enough
complaints) research
possiilities
$! there are enough
complaints) research
possiilities
>0
The #d*ocates and the #ntagonists
There is no dout that customers will tal5 aout the ser*ices they recei*e !rom your 'F$L
it is up to you whether the con*ersations will concentrate on the good or on the ad. $!
you&re going to generate !ree word7o!7mouth ad*ertising) it would e est i! it were
positi*e. #d*ocates o! your 'F$ will tal5 enthusiastically aout the help!ul and !riendly
teller in window si<) they will recommend your microenterprise loan product to a !riend
in the usiness) and they will ra*e aout how easy it is to ma5e loan payments at the local
ranch.
#ntagonists) on the other hand) are customers who !eel wronged and want the whole
world to 5now aout their aw!ul e<periences. (eople lo*e to tell woe!ul stories) and i!
your 'F$ gi*es a customer a reason to do so) it is almost certain that he will ta5e the
opportunity to tell people) who will tell other people) and so on. How is an antagonist
ornA Sometimes) the antagonist is !irst a enign complainer) and when your responses
to his complaints are either inadeFuate or uncaring) he ecomes angry and tells the whole
world. Sometimes) the antagonist is a customer who silently endured poor ser*ice !or a
numer o! months or e*en years) and who !inally snapped.
The est way to turn all customers into ad*ocatesSand e*en to win some antagonists
ac5 to the other sideSis to !irst encourage customers to complain and then to treat their
complaints) and your responses to them) with utmost seriousness and sincerity.
$denti!ying %issatis!ied Customers
By identi!ying dissatis!ied customers e!ore they ha*e the opportunity to ecome
antagonists) you can turn the most unhappy persons into happy patrons. =ou can e*en
ring an antagonist ac5 into your good graces) i! you 5now how to !ind her. 'any signs
point to the customer who is so dissatis!ied that she is on the rin5 o! de!ectionL
sometimes !rontline sta!! just don&t 5now where to loo5 !or those signs. 'F$s that want
to ma5e it easier to identi!y the dissatis!ied customer adopt instruments that draw
attention to these customers) namely8
M
M
M
M
#n easy7to7use complaints and suggestions system
# customer ser*ice des5
# customer !eedac5 solicitation strategy
Customer ad*isory oards
.*en i! your institution has underta5en meticulous mar5et research and analysis)
customers will still !ind prolems with the ser*ices your institution o!!ers. $ne*italy)
there will e dissatis!ied customers who can suggests ways to twea5 your products so you
can meet customer e<pectations and impro*e ser*ice. #!ter care!ul analysis) many o!
these suggestions will pro*e use!ul) !easile) and constructi*e !or oth you and your
customers.
>1
Customers ecome highly satis!ied and ultimately loyal when the 'F$ meets and e<ceeds
their e<pectations. .*en disgruntled customers can ecome your iggest !ans i! you pay
attention to their needs and !ind creati*e solutions to their complaints. But e!ore you
can satis!y the dissatis!ied) you !irst ha*e to identi!y them.
To e!!ecti*ely see5 out customer complaints) 'F$s should adopt the philosophy that
complaints are good !or usiness. This philosophy includes the !ollowing tenets8
w
Complaints are welcome) and earers o! negati*e comments are than5ed !or the
help!ul in!ormation they pro*ide.
Complaints are use!ul ecause they !lag dissatis!ied customers and allow the
institution to ta5e pre*enti*e action e!ore the customer de!ects.
Complaints help impro*e products and ser*ices.
By encouraging complaints) the institution roadens its scope o! 5nowledge aout
its customers) which is help!ul to its own success.
w
w
w
Banco#%.'$ and (1$%. TanKania ma5e it easy !or their customers to gi*e !eedac5.
#t Banco#%.'$) customers are made to !eel at home !rom the *ery eginning. %uring
her !irst *isit to a ranch) the customer meets with the ranch manager) who immediately
o!!ers her a cup o! co!!ee) and later gi*es her the direct phone numer to the ranch and
encourages her to use it whene*er there is a prolem. # trained person always answers
the phone) greets the customer) and does his est to ta5e care o! her needs. #t (1$%.
TanKania) customers are 5nown to e outspo5en aout their needs. /ne senior o!!icial
attriutes this outspo5enness to the close relationships !orged etween customers and
loan o!!icers during the wee5ly one7hour group meeting that all customers must attend.
Loan o!!icers report customer complaints and suggestions to their ranch managers) who
discuss them at Fuarterly management meetings.
For most people) it is more natural to a*oid potential con!licts than to solicit !eedac5 and
encourage complaints. $! sta!! learn how to identi!y and approach dissatis!ied customers)
the process o! gathering !eedac5 will e more e!!ecti*e. 0hile they will certainly
recogniKe o*ious dissatis!action) such as demanding to see the manager) most
dissatis!ied customers don&t complain.But their ody language) li5e sighing and
!rowning) can gi*e them away. $n these circumstances) loan o!!icers need to approach a
potentially dissatis!ied customer to as5 i! e*erything is o5ay and i! there is anything he
can do to help. $! the customer is unwilling to tal5) the loan o!!icer can suggest other
communication channels) which are e<plored in greater depth aout later in this chapter.
Sometimes dissatis!action can e seen rather than heard. The complaint solicitation
strategy in*ol*es watching out !or dissatis!ied customers and encouraging them to use the
customer !eedac5 instruments. Signs o! dissatis!action include the sudden withdrawal
o! !unds !rom a sa*ings account) a long period without reFuesting a repeat loan) and ody
language that depicts !rustration and anger. These actions may come aout directly
e!ore a customer is aout to de!ect) and there!ore inter*ention is imperati*ea To
encourage loan o!!icers to e proacti*e in soliciting complaints) gi*e a yearly award to
the loan o!!icer who is most committed to soliciting and resol*ing customer complaints.
>2
The !ollowing tools o!!er some ways to !ormaliKe the processes descried ao*e) and
o!!er other ways to alert management to customer discontent. These tools not only shoot
up red !lags to warn sta!! o! potential de!ectors) ut they also o!!er an alternati*e to
customers who would otherwise !eel there was nowhere to turn !or help. Because each
tool has ad*antages and disad*antages) a comination o! approaches is recommended.
Tools to .ncourage Complaints
#lthough it sounds strange) it is in the institution&s est interests to generate complaints.
Complaints are gems o! in!ormation that can ultimately impro*e products and ser*ices.
To ta5e !ull ad*antage o! their potential) it may e help!ul to designate someone as the
customer relations manager to o*ersee the implementation o! complaint soliciting
tools. # customer ser*ice committee) consisting o! a
o! employees representing$t is in the institution&s team also ser*e a use!ul
purpose di!!erent departments)canin terms o! research)
est interests toanalysis) and complaints resolution. # customer ser*ice
committee is a cross7!unctional team comprised o! sta!!generate complaints.
memers o! *arious le*els ,!or e<ample) a manager !rom
'$S) a human resources manager) a product de*elopment
specialist) a ranch manager- who can ring *arious perspecti*es to the tas5 o! customer
satis!action. The team can meet monthly or as necessary to ensure that the customer
satis!action strategy is carried out.
The !ollowing tools are designed to generate customer complaints and !eedac5. Figure
12 highlights some important characteristics o! each tool.
Tool
Complaints and
Suggestions
System
Client #d*isory
Board
Complaint
Solicitation
Strategy
Customer
Ser*ice %es5
1elati*e Cost
Low
Figure 128 Tools to .ncourage Complaints
$n7House or
Third (artyA
$n7House
/*erall
.!!ecti*eness
'edium
FreFuency o!
"se
#lways
For what siKe
institutionA
#ll SiKes
Low
Low
$n7House
$n7House
'edium
'edium
#s 6eeded
#lways
Large
#ll SiKes
'edium to
High
$n7House 'edium to
High
#lways Large
Tool D18 Create a Complaint and Suggestion System
# complaint and suggestion system pro*ides a communication channel !or unhappy
customers.$t enales them to share their dissatis!action with the institution and
,hope!ully- to suggest ways to impro*e conditions. # complaint and suggestion system
typically consists o! comment cards) a receptacle !or the cards) and an attention7getting
display to encourage its use. Comment cards should ha*e ample room !or all complaints
>4
and suggestions. The display might say something li5e) H0e care aout your concerns)I
to let customers 5now that you *alue their opinions. Figure 14 pro*ides a sample
comment card.
Figure 148 Sample Customer Comment Card
C"ST/'.1 C/''.6T C#1%
Than5 you !or ta5ing the time to share your concerns with us.
Comments8
Suggestions8
6ame ,optional-8
=our concerns will e read and documented y our sta!!. 0e will re*iew the
prolem and ta5e appropriate action. $! you pro*ide your name) we will contact
you personally to ensure that your concerns are addressed.
b #d*antages.
# complaint and suggestion system is always a*ailale !or customer
use and to !ill out a card ta5es only a !ew moments. 0hen placed in a prominent
location in the ranch o!!ice) a complaints and suggestions o< not only ser*es as a
receptacle !or customer !eedac5) ut it also ser*es as a conspicuous reminder o! the
institution&s commitment to customer satis!action. The possiility to !ill out a card
anonymously may also encourage complaints) since some customers may not !eel
com!ortale e<pressing complaints in person or *ocally.
'any times when customers *isit a ranch) e*en i! they ha*e a
comment to add to the o<) they are operating within a short time !rame and cannot
!ill out a card. #lso) complaining is discouraged in many cultures. There!ore) results
will e s5ewed to re!lect the *iews o! the most dissatis!ied customers whose *ery
negati*e e<periences compelled them to complain. This method is not use!ul !or
illiterate customers.
b %isad*antages.
Tool D28 .stalish a Customer Ser*ice %es5
c Tips and Suggestions. #n additional method to persuade customer participation is to pic5 a
wee5ly suggestion) post it on a ulletin oard) and e<plain how it will e implemented. This
way) customers will gain con!idence that the 'F$ is responding to their needs and concerns.
The 'F$ can also post positi*e !eedac5 that it recei*es) which will !urther oost its
reputation !or Fuality customer ser*ice. #s a !urther incenti*e) gi*e monthly rewards to
customers with the est suggestions.
>C
#customerser*icerepresentati*e)
prominently positioned at a des5 in each
ranch) is a li*e *ersion o! the complaints
and suggestions o<.The customer
ser*ice representati*e is trained to listen to
customers and respond to their complaints.
#s with the complaints and suggestions
system) the customer ser*ice des5 includes
a sign that says) H0e care aout your
and an eye7catching display
aout the institution&s commitment to
customer satis!action. $t is est i! the
customerser*icerepresentati*ehas
su!!icient authority to Fuic5ly sol*e customer complaints. To ma5e the position most
cost7e!!ecti*e) the customer ser*ice representati*e can assume other responsiilities) such
as welcoming new customers and opening new accounts.
b #d*antages.
The customer ser*ice des5 pro*ides an easy7access channel !or
customers to *oice their concerns and resol*e their complaints. /!ten) when a
customer is unhappy) he !eels ,o!ten right!ully- that there is no one who can address
his concerns. 'any times) customers will simply lea*e rather than ta5ing the time to
!ind out whom to tal5 to. The option
1eFuests Tric5le "p at C.1"%.Bto tal5 to the representati*e is also
use!ul !or illiterate customers.
representati*e will undoutedly !ace
periods o! low *olume. This prolem)
howe*er) can easily e remedied y
gi*ing him *arious other roles)
including stepping in !or employees on
lunch rea5s or when there is high
*olume at the cashiers. # dedicated customer ser*ice representati*e can only e
justi!ied in large ranchesL in smaller o!!ices) the ranch manager can !ul!ill this
!unction.
Centenary Ban5 in "ganda 5eeps a
suggestions o< in e*ery ranch.
Complaints and suggestions o!ten include
small reFuests that are o*ious to customers
ut do not occur to management) such as
more !reFuent ranch cleaning or more
chairs in the waiting room.
b %isad*antages. The customer ser*ice
Tool D48 $mplement a Complaint Solicitation Strategy
Since credit o!!icers and other !rontline sta!! ha*e the most contact with customers) they
are in an ideal position to oser*e customer pre!erences) needs) and sources o!
dissatis!action.Customers will casually comment on operations while ma5ing loan
repayments or !illing out loan applications) and !rontline employees ha*e to 5eep an open
ear to customers& thoughts. 6ot only are employees in an ideal position to identi!y
dissatis!ied customers) they are also in an ideal position to suggest solutions that will
ma5e customers happier. To encourage this eha*ior and oost customer satis!action)
'F$s could reward loan o!!icers who ma5e the est suggestions.
>>
The customer in!ormation generated y your sta!! memers is most *aluale i! it is
documented) collated and analyKed. Caja Los #ndes in Boli*ia uses a card similar to the
one illustrated in Figure 1C to record complaints
o*erheard y !ield sta!!. #t Caja Los #ndes) the reports
Customers will o!ten
go to the mar5eting department !or analysis. #s withdesert instead o!
ta5ing other methods o! gathering customer data) to e use!ul
the in!ormation is entered into a dataase. .*en ta5ing
the time to !ind out
into account the time it ta5es to ma5e dataase entries)
whom to complain to. this method o! mar5et research is relati*ely ine<pensi*e.
b #d*antages.
The complaint solicitation strategy reFuires little in!rastructureL as long
as !rontline sta!! pay attention to customer comments and document !eedac5) this
system should allow the customer ser*ice committee) the customer relations manager)
or the rele*ant responsile party to 5eep tas on trends in customer sentiment.
The complaints solicitation strategy relies primarily on *oci!erous
customers who want their needs heard. The results will li5ely e iased in a couple
o! ways. First) ecause the !eedac5 depends on the relationship !orged etween loan
o!!icer and customer) what gets said) when) and to whom will depend on how the
le*el o! com!ort customers ha*e with their loan o!!icers. The second ias results
!rom !iltration through the loan o!!icer&s point o! *iew when she is reporting customer
comments. $! complaints are aout the loan o!!icer) she is unli5ely to draw attention
to them.
b %isad*antages.
Figure 1C8 Sample Complaint Solicitation 1eport Card
Complaint Solicitation 1eport Card
.mployee&s name8 9ohn Barrett
%ate8 9une 1>
Comment or oser*ation o! customer8 /ser*ed one o! my customers getting
into a loud
argument with one o! the
cashiers
0hat steps did you ta5eA 0hen the transaction was complete) $ went to the customer
and as5ed her
i! e*erything was all right. She told me that the cashier could not pro*ide her
with any small change) which
she needed !or her mar5et stall. $ told her to tal5 to the customer ser*ice
representati*e andVor !ill out a
customer comment card) and that someone would de!initely get ac5 to her
aout the situation.
How did the customer respondA She too5 my ad*ice. $n !act) she went to the
representati*e and
!illed out a comment card. She really !elt li5e she was recei*ing poor ser*ice.
0hat suggestions do you ha*e to permanently resol*e the situationA $&*e heard this
complaint e!ore. Since it isn&t di!!icult to pro*ide small ills) and since the
reFuest is legitimate) $ thin5 we
should ma5e the e!!ort to accommodate our customers in this case.
>?
Tool DC8 $nstitute a Customer #d*isory Board
Customers are an e!!ecti*e and reliale source o! ad*ice !or !inding ways to pre*ent
de!ections. # customer ad*isory oard can !ormaliKe this !unction. The ad*isory oard
consists o! a small group o! customer
representati*es who meet periodically
to discuss the current state o! a!!airs in
the institution !rom the customers&
point o! *iew. # customer ad*isory
oard assumes a pre*enti*e role !or
customer dissatis!action) pinpointing
small prolems e!ore they ecome
sources o! major disappointment. The
ad*isory oard can pro*ide ideas !or
product or ser*ice inno*ations) alert
the 'F$ to the greatest sources o! customer dissatis!action) and otherwise act as a *oice
!or customers. "nli5e !ocus groups) a customer ad*isory oard consists o! a !i<ed or
rotating group o! customers. Since not e*eryone !eels com!ortale complaining directly
to sta!! memers) customers need to 5now that they can share their concerns with their
local representati*es on the customer ad*isory oard.
%uring the meeting) ad*isory oard memers introduce topics) such as) H# lot o! people
are saying that 'icroBan5 is too strict with collateral reFuirements !or usiness loans.I
/ther memers o! the oard can comment) and then the ne<t suggestion is discussed.
#d*isory oard memers should acti*ely solicit !eedac5 !rom other customers y
tal5ing to !i*e to ten o! them e!ore
each meeting.
b #d*antages.
The ad*isory
oard meetings pro*ide the 'F$
with in!ormation straight !rom
the customers& mouths. This is a
low7cost system that allows
customers to share in7depth
in!ormation and also empowers
customers to help shape the
!uture o! the 'F$.Their
in*ol*ement increases ownership
and enhances loyalty.
Since the
ad*isory oard consists o! only a
!ew customers) their comments
will not necessarily re!lect the
wants and needs o! all. The
oard should recogniKe that)
although all suggestions and
The Limit o! Senior 'anagement Fact7Finding
'issions
'any .<ecuti*e %irectors and other senior managers
ta5e great pride in 5eeping in touch with the !eelings o!
their customers y ma5ing regular trips to ranches.
%uring these trips) they may see a couple o! usinesses
in operation) tal5 to a !ew customers in the o!!ice) and
perhaps e*en participate in a !ocus group7li5e session.
0hile these outings are *ery important !or sta!!)
customers) and management ali5e) managers need to e
*ery care!ul aout how they interpret the comments
that they hear. /pinionated and outspo5en customers
tend to ma5e strong impressions on senior
management) yet their comments are not always
representati*e o! customer sentiment. 'anagement
needs to e care!ul not to rely hea*ily or e<clusi*ely on
their personal mar5et research techniFues. Their
conclusions should e triangulated with the !indings
!rom additional sources o! customer !eedac5.
From the Horse&s 'outhA
b %isad*antages.
>@
recommendations will e considered) each must pass a test o! rigorous mar5et
analysis e!ore implementation.
Complaint 1esolution
0ith these tools) your institution identi!ies dissatis!ied customers y persuading them to
complain to you) which does two good things. First) it gi*es customers a *oice) and y
doing so empowers them to shape their !inancial institution. Second) y gi*ing your
customers this *oice) these tools allow you to sol*e prolems e!ore they cause
customers to desert.
Customers want to !eel that their needs are a priority to the institution. 0hen the 'F$
responds to complaints in the appropriate manner) it restores the customer&s !aith in the
institution) therey creating loyal customers.
1esponding to complaints and suggestions should e written into one person&s jo
description ,e.g. the customer ser*ice representati*e- so that they are uni!ormly addressed
in a timely manner. Howe*er) all sta!! memers should e trained to respond to
complaints in an appropriate manner) since dealing with customers is e*eryody&s jo
,onus incenti*es may help to institutionaliKe this practice-. The !ollowing response
elements apply to most complaints) whether they are written ,a letter o! complaint) a
complaintsVsuggestions card- or *eraliKed22 8
1. +ratitude. Sta!! must approach complaints in a manner that ma5es customers !eel
that their input is appreciated and use!ul. Than5ing the customer !or ta5ing the time
to pro*ide *aluale in!ormation is one way to ma5e the customer !eel appreciated. $t
will also help placate a hot temper when the customer is angry ecause o! a mista5e
on the part o! the institution.
(oliteness.The sta!! memer should e 5ind to the customer) listen attenti*ely to
her grie*ance) and pro*ide encouragement) such as H$ understand why you !eel this
way.I The tone o! a written response should ha*e the same degree o! politeness and
concern. Li5e the e<ample in Figure 1>) written responses that are speci!ic to the
prolem wor5 the est8 $nstead o! H$ am
sorry that we were so neglect!ul)I the letter
.<ceeding the customer&sshould say) H$ am sorry we o*erloo5ed your
last loan payment and wrongly charged you
e<pectations is the est way
interest.I 0ritten letters always address the
to encourage !orgi*eness !orcustomer y name.
2.
errors or mistreatment.
#dmitting the error. The sta!! memer
should ne*er argue with the customer. $!
the customer has ta5en the time to come directly to the 'F$ employee) then the
complaint should always e treated as legitimate. .*en i! the sta!! memer !eels the
complaint is e<aggerated) it is not worth insulting the customer.
4.
22
#dapted !rom Barlow and '`ller ,122?-.
>3
C. # sincere apology. # sincere apology carries a lot o! weight in the eyes o! most
customers. Sometimes) it is all that the sta!! memer can immediately o!!er) e.g. in
cases where interest was not posted promptly to the alance o! a sa*ings account) or
when a loan o!!icer was rude to the customer. #n apology with a promise to address
the prolem will satis!y many unhappy customers until the situation is remedied.
# prompt response and resolution. The sta!! memer should promise the customer
that the prolem will e resol*ed as Fuic5ly as possile. Complaints with easy
solutions) such as posting a corrected loan alance or reprimanding a sta!! person)
should e resol*ed immediatelyL more di!!icult prolems) such as disputes with
!ellow group memers) may ta5e longer to resol*e. $! the complaint is in written
!orm) response letters should e written within three days a!ter the letter was
recei*ed) and the customer should e gi*en a time!rame within which the complaint
will e resol*ed ,see Figure 1>-.
Figure 1>8 Sample 1esponse to Letter o! Complaint
9uly 10th
%ear 'rs. 9ones)
Than5 you !or your letter dated 9uly 2th. $ appreciate the time you too5
to in!orm us o! the di!!iculties you ha*e !aced with retrie*ing !unds
!rom your account) and $ apologiKe !or the incon*eniences you ha*e
e<perienced.
/ther customers ha*e recently complained o! inailities to ta5e out money
!rom their accounts at *arious times due to incorrect postings o! account
alances. The prolem results !rom a !ault in our computer system that
is eing repaired y technicians right now. 0e !orecast that the system
will e !i<ed y 9uly 12th.
%ue to the error) 'icroBan5 will re!und you the ser*ice charges on your
current account !or this month as well as ne<t month.#gain) $ would
li5e to e<press my sincere apologies and $ hope that you will continue to
pro*ide us with your *aluale patronage.
Sincerely)
9anet S immons
Customer 1elations 'anager
'icroBan5
>.
?. $n!orming other sta!! memers. For the complaint to e truly resol*ed) sta!!
memers must pre*ent the prolem !rom happening again. $n!orm all associated
employees that the prolem could recur so they can wor5 to pre*ent it !rom
happening) or so that they may ta5e remedial steps should it occur again. #s an
added assurance that the prolem will e pre*ented in the !uture) use the complaint
>2
in sta!! training e<ercises. # close relationship etween the customer ser*ice
committee and the human resource department will !acilitate this use o! complaints.
@. +i*ing ac5. 1eciprocity is one cornerstone o! human interaction. # customer who
has een disappointed y the institution is less li5ely to discontinue patronage i! the
institution compensates the error. For e<ample) i! the customer was accidentally
charged late !ees) the customer should not only recei*e a sincere apology and e
reimursed the late !ees) ut he should recei*e a pac5age o! promotional materials
,i.e. t shirt) calendar) 5ey chain-. .<ceeding the customer&s e<pectations is o!ten the7
est way to encourage !orgi*eness !or errors or mistreatment.
$n!orming other customers. Ta5e credit !or sol*ing your customers& prolemsa
This will solicit more complaints and suggestions) and gi*e the 'F$ e<tra points !or
caring aout its customers. Some ideas are the !ollowing8
(ost a complaint or suggestion o! the wee5 on a ulletin oard and tell your
customers how you responded to it
#dd a customer ser*ice column to your newsletter
Send occasional mailings to all customers saying) $n response to your reFuests) we
are going to underta5e the !ollowing initiati*es[
The .ight7step 'ethod !or Complaint 1esolution
1.
2.
4.
C.
>.
?.
@.
3.
+ratitude to the customer !or ta5ing the time to alert sta!! to the prolem
(oliteness
#dmitting the mista5e ,i! applicale-
# sincere apology
# prompt response and resolution
$n!orming other sta!! memers o! the prolem to a*oid !uture occurrences
(ossily gi*ing the client a coupon or gi!t to encourage !uture usiness
$n!orming other customers o! the creati*e ways you ha*e sol*ed *arious complaints
3.
M
M
M
How to $nterpret and "se Customer Complaints
/nce you ha*e gleaned all this in!ormation !rom your customers) what ne<tA The worst
thing that can happen is that the in!ormation languishes in a ac57o!!ice !ile) ne*er to e
used. To a*oid this scenario) estalish a dataase to house the !indings and a chain7o!7
command to ta5e action on complaints and suggestions. Figure 1? helps you manage
complaints ased on the nature o! the prolem.
?0
Figure 1?8 Tools to +ather Customer Feedac5
Tool
Complaint and
Suggestion System
Customer Ser*ice
%es5
#d*antages
.asy to useL cards can e
!illed out anonymously
#llows !or personal
attentionL good !or illiterate
customers
1eFuires little
in!rastructureL proacti*ely
in*ol*es loan o!!icers in
!eedac5 process
(resents prolems !rom the
customers& point o! *iew
%isad*antages
6ot proacti*eL not good !or
illiterate customers
'ay !ace low *olumeL
customer ser*ice
representati*e must ha*e
other responsiilities
1esults may e !iltered or
iased y loan o!!icers
0hat this Tool does Best
1eminds customers o!
commitment to customer
satis!action
+i*es immediate attention
to complaints
Complaint
Solicitation
Strategy
Customer #d*isory
Board
+leans in!ormation !rom
clients who would not ha*e
complained
$n*ol*es customers in
process o! pre*enting
de!ections
1esults may not e
representati*e
Figure 1@ depicts the process o! using customer complaints and suggestions to your
ad*antage.
.stalish a Customer Feedac5 %ataase
The customer !eedac5 dataase aggregates data gathered y all !our in!ormation7
gathering methods. 0ithout a !ormal taulation o! customer !eedac5) it will e di!!icult
to !ilter and respond most Fuic5ly to the more serious complaints ,e.g. !raud or
mistreatment-) as opposed to more common prolems with easier remedies. /ne sta!!
memer should manage input o! data. The dataase includes the !ollowing categories8
M
M
M
M
Type o! !eedac5 ,complaintVsuggestion-
%escription o! complaint
%ate o! complaint
%escription o! customer ,length o! relationship with 'F$) siKe o! usiness) type o!
usiness) etc-
1ecommended action
Follow7up procedures
M
M
#ll complaints with similar descriptions should e grouped together. Chapter @ pro*ides
additional suggestions aout starting a dataase.
?1
Figure 1@8 $nterpretation and "se o! Customer Feedac5 1esults
#nalysis y Human 1esources
!or Customer Ser*ice
Training
HeadFuartersV1egional
#nalysis y Customer Ser*ice
Committee
/ngoing
customer
ser*ice
training
Changes to (olicies and
(rocedures
%ataase o! complaints and suggestions
Feedac5 to customers
+eneral #nnouncements
Customer Ser*ice Letters
Suggestion7o!7the70ee5 Bulletin Board
$mmediate
%ocument response y
complaints ,and ranch sta!!
resolutions i!
possile-
C"ST/'.1
Feedac5
.stalish a Chain7o!7Command to Ta5e #ction on Complaints
So !ar) complaints ha*e tra*eled !rom the customer to the sta!! memer to the dataase.
6ow it&s time to put those complaints to use. To identi!y and act upon the most salient
prolems) it may e use!ul to ha*e a customer ser*ice committee e<amine the dataase
monthly and suggest appropriate action to management. #s mentioned earlier) not all
complaints are dealt with in the same manner. For e<ample) i! ten customers suggest one
month that the ranch should e swept more o!ten) it is easy to implement this
suggestion. Howe*er) i! one third o! all complaints are associated with the group
guarantee scheme) it will e more di!!icult to implement changes. $n !act) doing so would
reFuire thorough research and perhaps a complete o*erhaul o! lending acti*itiesL this is
where the customer ser*ice committee comes into play. %uring monthly or semi7
monthly meetings) the committee can address these types o! complaints and decide
?2
whether the complaints reFuire !urther research and perhaps adjustments to the
institution&s acti*ities. 'anagement) in turn) can assign
the projects to the committee) which will determine the
0ith the complaintne<t course o! action.
$mpro*e Customer Ser*ice Training
Customer complaints and suggestions can !uel an
e!!ecti*e customer ser*ice training module) especially i!
employee training is a regular acti*ity at your
institution. # care!ul analysis o! the dataase re*eals
trends that your 'F$ can seiKe upon to sensitiKe sta!!
toward customer li5es) disli5es) and needs. $! your
institution does not already conduct sta!! trainings) a
trial run may pro*e that regular trainings 5eep your employees in tune with your
institution&s mission) culture) and customer needs. #dditionally) it may e help!ul to
distriute sta!! memos that highlight areas where customer satis!action could e
impro*ed.
in
hand) the institution
can wor5 toward
satis!ying customers
and pre*enting them
!rom de!ecting.
?4
?C
'easuring Customer Satis!action
?
6
M
M
M
H'ost 'F$s operate under the assumption that they ha*e a clear understanding o! their
customer pro!iles and needs. =et when pressed) they !ind that this understanding is o!ten
anecdotal) inaccurate) or osolete.I
7 'onica Brand and 9ulie +erschic5 ,2000-
e<t in line to pre*enting de!ections is satis!ying customers you 5eep. $t is
important to note that customer satis!action is a means to an endL the ultimate
ojecti*e is an impro*ement in customer loyalty.
The process o! measuring customer satis!action usually in*ol*es ongoing mechanisms to
monitor customers& attitudes toward your institution) its products and ser*ices. #lthough
it may seem complicated to measure something as sujecti*e and seemingly elusi*e as
satis!action) it is possile. This chapter contains a set o! tools to comprehensi*ely
measure customer satis!action and details how to incorporate the tools into daily
operations. This chapter will8
$ntroduce !i*e tools to measure customer satis!action and solicit !eedac5
.<amine the ad*antages and disad*antages o! implementing these tools
(ro*ide guidance in interpreting the results o! customer satis!action studies
(art o! measuring customer satis!action entails !inding out what customers li5e and what
they wish they could change aout the institution) what they !ind con*enient and
incon*enient) and why they might drop out. /nce satis!action is measured) it can e
managed. 'easuring and managing customer satis!action in*ol*es the !ollowing !our
steps8
1. 'easure customer retention on an ongoing asis !or a general understanding o!
customer satis!action.
2. Continuously measure customer satis!action and determine customer pre!erences.
4. /nce customer pre!erences are re*ealed) determine whether changes are needed.
C. $mplement changes i! necessary and encourage customers to remain or to return.
Tools to 'easure Customer Satis!action
This chapter details !i*e ways to gather customer !eedac5 that will help your institution
reduce desertion and 5eep customers happy. Euestions on loan applications and
customer satis!action sur*eys pro*ide an ongoing) acti*e illustration o! customer
satis!actionL targeted customer sur*eys supply *aluale in!ormation on customer
?>
pre!erencesL !ocus groups help rainstorm ideas and !ind solutions when there is a dip in
customer satis!actionL and mystery shopping e*aluates the Fuality o! the customer ser*ice.
This chapter e<plains how to use these tools) as well as the pros and cons o! each. To
pre*ent an o*erload o! in!ormation) the more technical aspects o! the tools are sa*ed !or
Chapter @. Figure 13 pro*ides an o*er*iew o! the tools in this chapter.
Tool
Focus +roups
Satis!action
Sur*eys
Targeted
Customer
Sur*eys
'ystery
Shopping
Euestions on
Loan
#pplications
1elati*e Cost
'edium
High
High
'edium to
High
Low to
'edium
Figure 138 Tools to 'easure Customer Satis!action
$n7House or
Third (artyA
.ither
Third (arty
Third (arty
Third (arty
$n7House
/*erall
.!!ecti*eness
'edium to
High
'edium
High
'edium
'edium to
High
FreFuency o! For what siKe
"seinstitutionA
#s 6eeded#ll
#s 6eeded
#s 6eeded
#s 6eeded
#lways
'edium to
Large
'edium to
Large
Large
#ll SiKes
0hen the 'F$ 5nows
what customers wish to
gain and what their
pre!erences are) it can
!igure out how to est
ser*e its customers.
Tool D18 Euestions on Loan #pplications
To systematically monitor the sentiment among your e<isting customer ase) it is
possile to include Fuestions on loan applications to trac5 a customer&s relationship with
an 'F$ o*er time. These Fuestions e*aluate the customer&s initial e<pectations o! the
'F$ and then) i! they return !or a repeat loan) whether these e<pectations are met and
what their new e<pectations are. Euestions on the !irst application might as5 aout
e<pectations and past e<periences) and Fuestions on suseFuent applications might as5
aout the customer&s progress and later concerns. This di!!erentiation is important
ecause people&s needs and e<pectations e*ol*e o*er time. Euestions tend to e rie!)
reFuire just a !ew minutes o! the customer&s time) and
ha*e the !ollowing goals8
M
M
To disco*er why customers selected your 'F$
To determine what customers want to gain !rom their
relationship with you
To estalish their le*el o! satis!action with your
products and ser*ices
M
From responses) the institution might discern a pattern o!
how customers hear aout the organiKation and !ocus
ad*ertising e!!orts ased on the results. 0hen the 'F$ 5nows what customers wish to
gain and what their pre!erences are) it can !igure out how to est ser*e its customers.
Because all customers answer these Fuestions) the results are reliale.
??
$! a new customer has recently le!t another institution) Fuestions on loan applications can
also act as a shrewd way to conduct someone else&s e<it inter*iew8 you can !ind out why
the customer le!t the pre*ious 'F$ and other in!ormation aout the competition.
b #d*antages. This method o! measuring customer satis!action has the ene!it o!
gi*ing customers a !eeling o! collaoration with the institution !rom the eginning o!
the relationship. #nd ecause it is not time7consuming) this method can e used
consistently to catalog customer pre!erences. $n a competiti*e en*ironment) the 'F$
can get a sense o! why people choose one institution o*er another) rather than
learning the hard way) when the customer deserts) or worse) de!ects.0ith
in!ormation aout customer e<pectations) the institution gets the chance to meet and
e<ceed those e<pectations.
%isad*antages. The loan application process may ias the results. Since customers
are reFuesting loans) they may not want to jeopardiKe their relationships with loan
o!!icers y gi*ing a negati*e account o! e<periences) or y stating needs that may
gi*e the loan o!!icer the impression that the customer is high maintenance or will e a
di!!icult customer. #lso) many 'F$s wish to attain greater e!!iciency y streamlining
the application process) and adding loan application Fuestions may hinder that e!!ort.
How to $nterpret and "se 1esults and Findings. 0hereas one customer&s
e<pectations are o! minor signi!icance) trends in customer e<pectations can e trac5ed
and highlighted when they are aggregated in a dataase. "n!ul!illed e<pectations
should e considered in e!!orts to increase customer satis!action. The e<pectations o!
customers who later drop out can also e analyKed to achie*e the same e!!ect8
highlighting those unmet e<pectations that may ha*e caused the customer to lea*e.
The gap etween what is e<pected to happen and what actually happens is o!ten the
source o! customer desertion.
b
b
c Tips and Suggestions. How tailored the Fuestions are to each customer *aries according
to the institution&s siKe and capailities. The second and third !ollow7up applications may
ha*e tailored Fuestions while later applications may not) or e*ery third loan application
may ha*e customiKed Fuestions. #lternati*ely) tailored Fuestions may e too time7
consuming !or the institution to underta5e at all) and loan application Fuestions may
simply as5 general Fuestions.
$! the 'F$ conducts an e<it inter*iew at the close o! each loan) it need not as5 additional
Fuestions on the loan application. Customers do not want to e othered with e<cessi*e
Fuestion7and7answer sessions.
?@
Figure 128 Sample Loan #pplication Euestions
(lease mar5 the appropriate o<es and answer the !ollowing Fuestions.
'icroBan5 Loan #pplication Euestions
1. How did you hear aout 'icroBan5A ,Chec5 one.-
r 1adio ad*ertisementr6ewspaperrFriendr/ther8dddddddddd
$! you heard aout 'icroBan5 through a !riend) please tell us hisVher name so that we may send a than57
you gi!t.dddddddddddddddddddddddddddd
2. 0hat was the numer one reason that you chose our !inancial ser*icesA ,Chec5 one.-
r Sa*ings Ser*icesr # speci!ic loan product8dddddddddd r (ositi*e recommendation !rom !riend
r 'icroBan5&s reputation !or ddFle<iility ddFast Ser*ice ddCustomer Satis!action dd/ther8ddddddd
4. Ha*e we met your e<pectations !or Fuality ser*iceA ,For repeat loans only.-
r :ery 'uch Sor =esr Somewhatr 6o
r #solutely 6ot
C. 0hat are your !inancial goalsA ,Chec5 one.-
r $ncreased Sa*ingsr Business +rowthr Send Children to Schoolr 'anage 1is5
r .ase o! Household Consumptionr $n*estmentr /ther8 dddddddddd
>. Brie!ly descrie the main ostacle to those goals8
?. $! you recently used the ser*ices o! another !inancial institution) why did you lea*e that institutionA
Tool D28 Customer Satis!action Sur*eys
1egular monitoring o! customer satis!action is an important component o! an early
warning system that can raise red !lags !or managers and directors that prolems are
pending. The system is only e!!ecti*e i! the !ollowing conditions
are met8 1- sur*eys are conducted at regular inter*als with a(eople who are
random sample o! customersL and 2- a similar sur*ey instrument
satis!ied may not is used each time.
actually e loyal
and *ice *ersa.
#s shown in Figure 20) satis!action sur*eys typically as5
customers to rate di!!erent aspects o! the organiKation&s products
and ser*ices on a scale o! 1 to >) with > eing *ery satis!ied and
1 eing *ery dissatis!ied. %etermining how important each o!
the *ariales is to the customer then strengthens this in!ormation. The column HHow
$mportant to =ouAI helps the 'F$ to understand customer priorities.
b #d*antages. Besides eing a *aluale warning indicator) satis!action sur*eys are an
important complement to loyalty monitoring. (eople who are satis!ied may not
actually e loyal and *ice *ersa. Customer satis!action sur*eys can identi!y poc5ets
?3
o! !alse loyalty8 customers who aren&t satis!ied) ut remain loyal ecause they don&t
ha*e any other choice or ecause they&*e decided that the disincenti*es !or de!ection
are too high. For e<ample) i! they went to the competition) maye they would ha*e to
start at the entry7le*el loan siKeL so e*en though they are unhappy with your ser*ice)
they elie*e that they can&t a!!ord to lea*e. But when a etter deal emerges) these
customers will e the !irst to de!ect.
Figure 208 Sample Customer Satis!action Sur*ey
How Satis!iedA
1. :ery unsatis!ied
2. Somewhat unsatis!ied
4. 6eutral
C. Satis!ied
>. :ery satis!ied
How $mportant to =ouA
1. :ery unimportant
2. "nimportant
4. 6eutral
C. $mportant
>. :ery important
C
C
C
C
C
C
C
C
C
C
C
C
>
>
>
>
>
>
>
>
>
>
>
>
(roduct %esign
1. Loan siKe124C>124
2. Loan term124C>124
4. $nterest rate124C>124
C. #dministration !ee124C>124
>. 1epayment !reFuency124C>124
Customer Ser*ice
?. Euic5 loan application process124C>124
@. Friendliness o! loan o!!icer124C>124
3. Loan o!!icer understands my needs124C>124
2. /ther ranch sta!! were courteous124C>124
/!!ice .n*ironment
10. Hours o! operation124C>124
11. Facilities are clean124C>124
12. Con*enient location124C>124
+eneral
14. 'y o*erall le*el o! satis!action with 'icroBan5 is8
r Strongly dissatis!iedr %issatis!ied r 6eutralr Satis!ied r :ery satis!ied
1C. $ plan to use 'icroBan5&s ser*ices again in the !uture8
r Strongly disagreer %isagreer 6eutralr #greer Strongly agree
1>. $ will recommend 'icroBan5&s ser*ices to others8
r Strongly disagreer %isagreer 6eutralr #greer Strongly agree
1?. 'y satis!action would impro*e i! 'icroBan5 made the !ollowing changes8
b %isad*antages.This type o! sur*ey with ran5ed responses can only pro*ide
super!icial in!ormation aout how customers generally !eel aout the 'F$. $t can e
e<pensi*e to conduct satis!action sur*eys since they ha*e to e done regularly !or the
results to e use!ul.This tool is most appropriate !or larger organiKations)
particularly those that operate in a competiti*e en*ironment. $t cannot e e!!ecti*ely
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implemented y ranch sta!! who might ha*e an incenti*e to ias the results) so it
either needs to e implemented y a third party or head o!!ice sta!!.
b $nterpreting the 1esults. There are two primary ways o! interpreting the results.
The !irst is to monitor satis!action trends o*er time to ensure that customers&
enthusiasm isn&t waning. The second is to compare satis!action results etween
ranches and create a priKe !or the o!!ice with the most satis!ied customers.
:ariations. The costs o! conducting satis!action sur*eys can e sustantially reduced
i! they are implemented y telephone or y mail) ut the response rate is li5ely to
su!!er as well. 'F$s could include these types o! satis!action monitoring Fuestions
into an end7o!7loan or e<it inter*iew conducted with all customers when they ma5e
their !inal repayment.
To consolidate costs) Caja Los #ndes uses internal audit customer *isits to as5 aout
the Fuality o! attention that Caja Los #ndes pro*ides) and as5s !or any suggestions
the customer might ha*e. The sta!! memer then as5s a !ew Fuestions aout the
customer&s re*enue and e<penses) and !inally as5s !or additional oser*ations and
comments. #ll comments are recorded on the internal audit report sheet.
b
Tool D48 Targeted Customer Sur*eys
$n contrast to satis!action sur*eys) targeted sur*eys are conducted on an occasional asis
to e<plore opportunities or prolems in greater depth. For e<ample) an 'F$ might decide
it needs to conduct a targeted sur*ey i! satis!action or retention numers start to slide so it
can learn what lies eneath the urgeoning discontent. # targeted sur*ey is also an
important tool in designing new products and determining the potential mar5et among
your e<isting customer ase.
Findings !rom C.1"%.B&s Customer Sur*ey
#!ter the most recent customer sur*ey at C.1"%.B) the results led to the !ollowing changes
at the an58
w
w
w
Since many women are unale to meet the collateral reFuirements o! recei*ing a loan)
and since they also recei*e a greater positi*e impact !rom recei*ing a loan) Centenary
will e<plore modi!ications !or e*aluating women&s eligiility !or loans.
'anagement will ensure that policies and procedures ,e.g. concerning minimum
reFuirements !or loan eligiility- are applied identically at the head o!!ice and ranches.
Branches o!ten interpret policies more strictly than intended.
Because !urther computeriKation would Fuic5en the loan process and pro*ide the head
o!!ice with more e<tensi*e and current records) Centenary will e<plore options to
de*elop a computer networ5ing system !or all ranches.
b :ariations. Sta!! can conduct targeted sur*eys so that they seem more in!ormal ,and
less intimidating- y turning them into a rie! con*ersation included in regularly7
scheduled !ollow7up *isits ,as conducted y #B#-) a !ew Fuestions piggy7ac5ed on
internal audit *isits ,as 'ianco does-) or a short dialogue that ranch sta!! ha*e with
customers ma5ing their wee5ly or monthly *isits to the ranch.
@0
0hile this in!ormation can e collected in!ormally) it is necessary to as5 the Fuestions
in the same way each time. $t is also important to adhere to an appropriate sampling
policy. $!) !or e<ample) you just inter*iew customers as they come to the o!!ice to
ma5e payments) then orrowers with wee5ly ,as opposed to monthly- repayments
will proaly e o*er7represented and customers with repayment prolems will e
under7represented. For more aout sampling) see Chapter @.
b .<amples. Centenary 1ural %e*elopment Ban5 hired a consultant to administer a
customer sur*ey in 'arch 1222. The sur*ey was done ranch y ranch) and results
were shared with employees. #lthough results were largely positi*e) the an5
adopted the attitude that ser*ices could e impro*ed nonetheless. $n the Hcomments
and suggestionsI section o! the sur*ey) customers pointed out shortcomings o!
ranches in one particular region) such as some sta!! did not spea5 the local
languages) and some sta!! memers were not !riendly to customers. $n response to
these !indings) C.1"%.B made sta!! changes to mitigate the prolems.
Sur*ey #dministration8 Lessons Learned From C.1"%.B
Based on e<periences with conducting customer sur*eys) C.1"%.B o!!ers the !ollowing
suggestions8
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The team that carries out the sur*ey should ha*e the !ollowing s5ills8 !ield e<perience)
!inancial institution e<pertise) !ield and statistical methodology e<pertise) computer
s5ills) and local 5nowledge ,including languages-.
(lanning) scheduling) and oo5ing transport may e necessary to administer sur*eys in
remote areas.
The sur*ey should e clear and not too long) ut comprehensi*e.
#ccurate translation o! the sur*ey into local languages is essential.
$t is necessary to ha*e enough reproductions o! the sur*ey on hand at all times.
$t is help!ul to choose alternates !or indi*iduals who end up eing una*ailale to
complete the sur*ey.
.<tensi*e training is reFuired to ensure that sur*ey administrators understand the
meaning o! all Fuestions and how to record answers.
# !ield pre7test o! the Fuestionnaire usually re*eals prolematic FuestionsL o!ten the
sur*ey must e re*ised. The pre7test ensures that the sur*ey as5s the right Fuestions in
a clear manner.
%ata entry should egin as soon as possile. $! the people who conduct inter*iews also
input data) they are ale to chec5 data !or accuracy during the process. /n a*erage) it
too5 Centenary team memers 1> minutes to input data !rom a 40 minute sur*ey.
%ata analysis should e conducted systematically. $t is use!ul to !irst e<plore
Hdescripti*esI ,a*erages) !reFuency counts- !or all *ariales) and then to disaggregate
the numers ,i.e. according to gender) location) occupation) etc-.
Because the an5 administered its sur*ey in regions where *arious languages were
spo5en) administrators too5 care to ensure that the sur*eys were translated correctly.
First) one person translated the sur*ey !rom .nglish ,the sur*ey&s original language- to
the local language. Then) another person translated it ac5 into .nglish. 0here the
translators !ound discrepancies etween the ac57translated document and the original)
there were o*ious !laws in the translation.
@1
c Tips and Suggestions. Sur*ey Fuestions should e read y se*eral employees to determine
that the Fuestions are straight!orward and pertinent to the study&s ojecti*es. Then) the
sur*eys should e pre7tested with a small sample o! customers.
#n interesting Fuestion should open the sur*ey) and more personal Fuestions should e sa*ed
!or the end. This approach ma5es the sur*ey seem !riendlier to the customer) and is less li5ely
to discourage him or her !rom answering all Fuestions.
#s a courtesy) especially !or sur*eys that ta5e more than ten to 1> minutes to complete) 'F$s
can o!!er compensation or small to5ens o! appreciation) li5e a pen or a calendar) ut should
eware o! negati*e repercussions o! what some customers might consider a rie.
%uring inter*iews) administrators should encourage the customer to spea5 !reely) and assure
the customer she will not e judged ased on how she replies.
Sur*eys can also e used prior to o!!ering new products to test customer interest in
e<panded ser*ices. ;71ep in ;enya administered a sur*ey in 1223 to determine
whether customers would e interested in opening up a sa*ings account with ;71ep
Ban5. The sur*ey also as5ed aout how much and how o!ten customers would
deposit. 0ith this in!ormation) ;71ep was ale to !oresee the type o! acti*ity that
would ta5e place in !uture accounts) in!luencing oth product design and usiness
planning. #rmed with this in!ormation) they were ale to create a sa*ings program
that was tailored to customer pre!erences.
b #d*antages. Targeted sur*eys can go into greater depth than satis!action sur*eys.
$nstead o! just as5ing i! the customer would recommend you to others) you can !ind
out why they would recommend you to others and why they would not recommend
you.
$t is o!ten ad*antageous to carry out targeted sur*eys as inter*iews rather than the
more !ormal written *ersion. 0hereas written sur*eys can e intimidating) a !riendly
chat with a loan o!!icer or other sta!! memer may e less so) and can still garner the
same in!ormation. $nter*iews are also appropriate !or illiterate customers. This type
o! sur*ey can strengthen relationships etween sta!! memers and customers. For
newer customers who may not yet ha*e a !ull understanding o! institutional
procedures) these con*ersations can e a time !or them to
see5 help !rom the sta!!) which alerts the institution to
# third party adds a
prolems customers may e e<periencing and gi*eslayer o! ojecti*ity
customers a sense that the institution is loo5ing out !or
their interests.
to the analysis.
#nother *ariation is to ha*e a third party carry out the
inter*iewing process. The ad*antage o! implementation y a third party is that it
could add a layer o! ojecti*ity to the analysis. Customers are sometimes hesitant to
*oice their true !eelings to loan o!!icers or !amiliar sta!!.
b %isad*antages. To otain statistically signi!icant results) the institution must spend
considerale time) energy) and money) o!ten using outside consultants to help
administer the sur*ey and analyKe the results.
@2
b $nterpreting the 1esults. #nswers to closed7ended Fuestions must e entered into a
dataaseL these will e the easiest to interpret. #nswers to open7ended Fuestions must
also e entered into a dataase) ut organiKing and interpreting these results may
pro*e to e more di!!icult. Sta!! should group and tally similar answers to ma5e
interpretations easier. For more detailed in!ormation on analysis o! results) see
Chapter @.
Tool DC8 Focus +roups
# !ocus group is an in!ormation gathering techniFue that allows customers to in!luence
the !uture o! the institution y sharing their opinions and o!!ering solutions to satis!action
issues. The moderator who !acilitates the session should ha*e some degree o! training
and preparation !or this role as well as an outgoing personality. $! the moderator is part
o! the 'F$&s sta!!) she is typically not personally in*ested in the suject at hand. For
e<ample) the ranch manager usually should not moderate a !ocus group that discusses
ranch7le*el customer ser*ice.
Focus groups are usually small) o!ten si< to 12 participants) and last aout an hour.
(articipants should proportionately re!lect di!!erent segments o! the 'F$&s customer
ase. #t the same time) the participants& needs should e related to the topic) i.e. only
customers who ha*e ,or who are interested in ha*ing- current accounts should e
included in a !ocus group that addresses that topic. 'ore speci!ic suggestions aout
running !ocus groups are pro*ided in the !ollowing chapter.
b .<ample. .*ery si< months) F$6C# ;yrgyKstan holds a !ocus group meeting where
customers are as5ed to do some prolem7sol*ing !or the institution. Loan o!!icers
choose 20 to 40 participants !rom di!!erent regions) economic groups) and with
*arious le*els o! micro!inance e<perience. Four such meetings are held in di!!erent
regions o! the country. F$6C# reports that when customers are in*ited to attend) they
consider it an honor and need no other incenti*e to participate.
Compartamos also holds regular !ocus group meetings. $n addition to in*ol*ing
current customers) Compartamos in*ites past customers and non7customers to discuss
general prolems) needs) and e<pectations o! microentrepreneurs.
b #d*antages. Focus groups are especially suitale !or 'F$s ecause they are
ine<pensi*e to administer) pro*ide a participatory alternati*e !or uneducated
customers who may not !eel com!ortale responding to a sur*ey) and allow customers
c Tips and Suggestions. Bandesarrollo telephones !ocus group participants !i*e times during
the two7wee5 period leading up to the e*ent to remind them to attend. #s a courtesy)
Bandesarrollo pays !or their transportation.
The #$'S HLearning !rom CustomersI !ocus group tool suggests that the moderator open the
session y ma5ing introductions around the group. Then) he or she should e<plain that the
purpose o! the session is to see5 the ad*ice o! participants) who will ser*e as ad*isers to the
organiKation and share their 5nowledge ased on personal e<perience. The customers act as
an ad*isory oard that designs a program to satis!y the demands o! as many customers as
possile) and the moderator as5s Fuestions to !ine7tune that program.
@4
to !eel included in the decision7ma5ing processes o! the institution. These sessions
pro*ide opportunities !or customers to discuss and deate issues and !eed o!! each
others& ideas) which can produce a greater depth o! analysis than indi*idual
inter*iews can.
b %isad*antages. Because o! their small siKe) the 'F$ must run se*eral !ocus group
sessions to ensure that the results are reasonaly representati*e. Focus groups reFuire
signi!icant planning) and results are di!!icult to predict. Con!irmed participants may
not show up) or those who do show up may e reticent. Special e!!orts must e made
to ensure the attendance o! participants and lead the group through a !ruit!ul
discussion.
$nterpreting the 1esults. $t is help!ul to ha*e an assistant who ta5es copious notes
during the discussion andVor otherwise records them ,audio or *isual-. :ideo cameras
can also e used to record t e e*ent) ut participants may consider them otrusi*e.h
The taping or oser*ance will result in a written transcript o! the session and a written
report) and a team will analyKe the transcript and determine ne<t steps. 'ore detailed
in!ormation aout analyKing !ocus group results is pro*ided in Chapter @.
b
Tool D>8 'ystery Shopping
# Hmystery shopperI is an indi*idual contracted y the institution to pose as a customer
in order to e*aluate the Fuality o! the organiKation&s customer ser*ice. The shopper) who
is essentially management&s spy) completes a standard report on ser*ices she recei*ed in
each ranch. To enhance the *alue o! the in!ormation she recei*es) she might pose a
complaint to e*aluate the response she recei*es or as5 !or non7standard terms and
conditions on products.'anagement uses the report to identi!y strengths and
wea5nesses o! the institution&s customer ser*ice and to ma5e adjustments as necessary.
Figure 21 pro*ides a sample report !orm.
To test the *iaility o! such a program in your institution) run a pilot test with three to
!i*e HshoppersI and e<amine the results. The HshoppersI should e gi*en a list o!
ser*ices to reFuest and Fuestions to as5) as well as a written !orm to descrie the
e<perience. 0hen he is !inished with the tas5) the HshopperI can say that he&ll thin5
aout it) and that he&ll come ac5. $! the pilot test runs smoothly and produces use!ul
results) the study can e replicated.
b :ariations. #nother way to go aout Hmystery shoppingI is to ha*e a manager !rom
another ranch play the role o! the shopper) either in person or y telephone) which is
the approach used y Banco del %esarrollo. Still another *ariation is to ha*e the
mystery shopper *isit a competitor and compare the two institutions. 0ith this
in!ormation) the 'F$ can ma5e the necessary impro*ements to pro*ide the est
possile micro!inance ser*ices.
#d*antages. 'ystery shopping details an indi*idual&s e<perience with the institution
and can pinpoint !laws in employee wor5 haits that negati*ely a!!ect the customer.
Speci!ic operations can e e<amined8 the mystery shopper 5nows what to loo5 !or
and 5nows whether or not protocol was !ollowed. #nd) i! sta!! memers 5now aout
b
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the possiility o! eing e*aluated y a mystery shopper) they will always e on their
toes.
Figure 218 Sample 'ystery Shopping Form
(lease complete this !orm immediately !ollowing the ranch *isit.
1. How long did you ha*e to wait !or ser*iceA
2. $! you waited in line !or more than ten minutes) or i! there was any other incon*enience in the
ranch) did the sta!! person apologiKe in a sincere wayA
4. 0as the sta!! memer otherwise politeA
C. %id the sta!! memer !ollow proceduresA
>. %id the sta!! memer suggest appropriate loan products !or your speci!ic needsA
?. 0ere e<planations clear and accurateA
@. %id the sta!! memer o!!er use!ul ser*icesA
3. %id the sta!! memer as5 !or appropriate in!ormation !or the loan applicationA
2. 0ere you charged any !eesA $! so) !or whatA
10. (lease comment on the appearance o! ranch and personnel.
b %isad*antages. Hiring a pro!essional may e costly to the institution. (ro!essional
mystery shoppers are hard to come y in many countries) and when they are
a*ailale) they may ha*e a di!!erent perspecti*e on micro!inance than actual
customers) which may s5ew the results. #lso) the pro!essional is o!ten limited to
e*aluating the loan application process or the process o! opening a sa*ings account.
He cannot e*aluate !ollow7up procedures) loan repayment) or how the ranch deals
with complaints) since the Hmystery shoppingI process necessarily would end e!ore
the loan would e disursed. $t is also more di!!icult to use this tool in a group
lending methodology) and may not wor5 *ery well in smaller communities) where
e*eryone 5nows e*eryone else.
c Tips and Suggestions. Be!ore conducting the in*estigation) the mystery shopper should e
trained to 5now what to loo5 !or) i.e. courteousness o! sta!!) 5nowledge o! sta!!) and
adherence to speci!ic procedures.
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b $nterpreting the 1esults. The shopper should report to management !ollowing each
ranch *isit. $n the case o! negati*e reports) management should go directly to the
source and determine i! the prolem is endemic or short7term) and encourage ranch
wor5ers to impro*e operations or else su!!er conseFuences.
Summary o! Tools
#lthough measuring and impro*ing customer satis!action is time7consuming and costly
in the short run) it is an important component o! a customer loyalty strategy. /nly y
measuring satis!action is it possile to manage it.
Figure 22 pro*ides a summary o! customer satis!action measurement tools that we ha*e
discussed in this chapter. 0hen choosing which tools to use) you should ta5e into
account the siKe and culture o! your institution) the nature o! the clientele) and your
in!rastructure and udget considerations. For e<ample) an institution that relies hea*ily
on the loan o!!icers& relationships with customers can gain sustantial in!ormation !rom
Fuestions on loan applications) whereas a large commercial 'F$ may ha*e to rely on
sur*eys to gather similar in!ormation. The 'F$ should rely on a mi< o! measurement
tools that is appropriate !or its speci!ic needs.
Figure 228 Tools to 'easure Customer Satis!action
Tool
Euestions on Loan
#pplications
Satis!action
Sur*eys
Targeted Sur*eys
#d*antages
.asy to administer) targets
most i! not all customers
Systematically monitors
customer sentiment
(ro*ides an opportunity to
proe prolem areas in
detailL can e conducted
!ormally and in!ormally
$ncreases !eeling o!
empowerment in customersL
allows !or detailed
discussion o! customers&
opinions
.*aluates speci!ic areas o!
customer ser*ice
%isad*antages
'ay e iasedL customers
may percei*e as a hassle
'ust e conducted
regularlyL only collects
super!icial in!ormation
1eFuires a signi!ic ant
in*estment in planning)
preparation and analysisL
may reFuire e<ternal
support
6ot statistically signi!icant
0hat This Tool %oes Best
+athers data on customer
e<pectations
(ro*ides an early warning
sign o! potential prolems
+leans speci!ic in!ormation
!rom a scienti!ic sample o!
customers to impro*e
productsVser*ices or !or
de*eloping new products
#llows customers to
contriute ideas to impro*e
institution
Focus +roups
'ystery Shopping
Can e hit or missL only
re*eals prolems speci!ic to
certain ranches or sta!!
memers
Highlights strengths and
wea5nesses o! customer
ser*ices
'anagement should always ha*e some idea o! the le*el o! customer satis!action in the
institution. /ngoing tools) such as satis!action sur*eys) pro*ide a general picture o!
@?
customer satis!action. They identi!y who&s happy) who&s not) and why. .<amining how
well the institution ser*es its customers is o! utmost rele*ance to customer satis!actionS
and there!ore customer loyaltySand should thus e a serious underta5ing. /nce you
ha*e a good idea o! the le*els o! customer satis!action and customer ser*ice in your
institution) it&s time to conduct a targeted sur*ey or as5 customers to attend !ocus group
sessions to !igure out what to do ne<t.
#mong the memers o! the 'icroFinance 6etwor5) institutions ha*e either conducted
e<tensi*e customer satis!action research or none at all. This !inding suggests that once an
institution does some customer satis!action research) it usually ecomes committed to the
idea and creates an entire regimen.
@@
@3
'easurement Tool Technical 6otes
@ 'easurement Tool Technical 6otes
a rie! how7to guide
The design o! the Fuantitati*e tools in the customer loyalty management system reFuires
a !oundation o! technical 5nowledge. This chapter is a resource o! technical guidance !or
the construction and implementation o! the customer loyalty management system. $t will
pro*ide ad*ice aout8
M
M
M
M
M
%esigning sur*eys
Conducting !ocus group sessions
Sampling a representati*e group o! customers to conduct studies
%isco*ering procedural errors and understanding their conseFuences
#nalyKing results
This chapter pro*ides practical) easy7to7use instructions !or the more technical aspects o!
creating a loyalty system. =ou will notice that many o! the tools that we ha*e discussed
in earlier chapters don&t appear hereL those tools are relati*ely easy to design and
implement. Here we tac5le some o! the tougher issues.
Sur*eys
Sur*ey composition and administration is a tas5 that reFuires considerale planning)
!oresight) attention to detail) and patience. $t is a technically demanding pursuit) and i!
the institution is to conduct the sur*ey internally) there is a great *ariety o! details with
which to ecome !amiliar e!ore attempting the !eat. There is the timeline and the
udget) which must e proposed and appro*ed e!ore the sur*ey ta5es place in order to
estalish cost !easiility and a*ailaility o! sta!! time and resourcesL there&s the sur*ey
team) which must e gathered and trainedL and then the team must w the sur*ey) !ieldrite
test the sur*ey) and administer it. /n top o! that) the sur*ey team must analyKe results.
This section will acFuaint potential sur*ey administrators with the !iner points o!
conducting a sur*ey) and will also suggest !urther reading !or more ideas.
Sur*ey %esign
Sur*ey design reFuires se*eral eFually7important elements) including de!inite ojecti*es)
proper Fuestion order) appropriate types o! Fuestions) and 5nowledge o! customer
characteristics and reFuirements.
@2
To de*elop an e!!ecti*e sur*ey) the sur*ey
speci!y the in!ormation that it hopes to glean
sur*ey ha*e an e<plicit !ocus !rom the
outset to a*oid as5ing unnecessary
Fuestions and wasting oth the time o!
the customers and o! the sur*ey
administrators.Some e<amples o! w
sur*ey ojecti*es are as !ollows8
M
team must !irst estalish ojecti*es and
!rom customers. $t is important that the
$s 'y $nstitution (repared
to #dminister a Sur*eyA
%o $ ha*e enough a*ailale !unds to
conduct a sur*eyA ,Create a udget.-
$! so) do $ ha*e Fuali!ied sta!! memers
who are a*ailale to administer the sur*eyA
,Build a team) train the team.-
$! necessary) is it possile to outsource the
projectA ,%etermine reFuired !unds !or
salaries) per diem) transportation) etc.-
%o $ ha*e a !unctioning dataase that can
handle the projectA
%o $ ha*e the capacity to analyKe the
sur*ey and propose changesA
$s my institution willing to change
procedures and products to accommodate
customer pre!erencesA
To !ind out i! customers are satis!ied
with the attitude and ser*ice o! sta!!
To determine whether loan terms)
amounts) and turn7around times are
suitale !or customers
To learn whether a new sa*ings or
loan product is eing recei*ed well
y customers
Toestalishwhetherranch
locations and hours are con*enient
w
M w
w
M
w
M w
Sur*eys can touch on a !ew issues) ut
the ul5 o! the Fuestions should address only two to three topics. /jecti*es usually
result !rom trends oser*ed in other customer satis!action measurements) such as the
complaint dataase or loan application Fuestions.Since each sur*ey reFuires a
signi!icant !inancial in*estment) administrators should not e eager to accomplish too
many ojecti*esL it is etter *alue !or the money to conduct an in7depth study into a !ew
areas than a super!icial study into many areas. #lthough it is tempting to !ollow the logic
that since it is so e<pensi*e) you had etter learn e*erything you can) the results otained
!rom such a sur*ey will lac5 the depth necessary to understand and impro*e customer
loyalty.
#!ter the ojecti*es ha*e een estalished) the in!ormation the sur*ey hopes to retrie*e
must e speci!ied. There are !our steps to creating a sur*ey8 ,1- 5nowing customer
characteristics ,who customers are-) ,2- ma5ing assumptions aout customer
reFuirements ,what customers need-) ,4- writing the sur*ey in an ojecti*e)
straight!orward manner) and ,C- !ield testing the sur*ey and ma5ing changes ased on
results.
The most important concern aout a sur*ey is that it as5s the right Fuestions) which
reFuires 5nowledge o! customer characteristics. Based on customer characteristics) each
'F$ must ma5e certain assumptions aout customer reFuirements to help as5 the right
Fuestions aout ser*ices.
The !ollowing is an e<ample o! an 'F$&s customer characteristics8
30
'ost customers[
1. "se their loans to produce items !or sale at local mar5ets.
2. Spend their mornings selling at local mar5ets.
4. #re women with se*eral young children.
C. Li*e !i*e to ten miles away !rom their nearest ranch.
>. /wn icycles.
From this set o! characteristics) the 'F$ can ma5e assumptions aout its customers&
reFuirements) such as the !ollowing8
1. Customers can get to ranches relati*ely easily) ut ecause o! mar5et hours and
child care needs) they do not ha*e much time to spend there. There!ore) they need
e<pedient ser*ice.
2. 'ost customers will not use ser*ices during the morning and reFuire other
daytime hours.
4. %epending on their usiness) customers may need !le<ile loan terms and
amounts.
Customers) either through in!ormal meetings or !ocus groups) should agree upon these
assumptions. 0hen customer reFuirements ha*e een hypothesiKed) the jo o! the sur*ey
is to test the hypotheses) determine whether customer reFuirements are eing met) and
understand le*els o! customer satis!action as they
relate to the chosen topics.
Sur*ey Budget Considerations
Creating a Success!ul and .!!ecti*e Sur*ey
There are se*eral types o! sur*eys) each championed
y di!!erent research e<perts. /ne characteristic all
sur*eys ha*e in common is that they should e
succinct and to the pointL a sur*ey that reFuires 20 to
40 minutes o! the customer&s time is su!!iciently long.
/ther suggestions !or a success!ul sur*ey are as
!ollows8
c
c
c
c
c
c
Training the sur*ey team
%esigning the sur*ey
Field testing the sur*ey
Sur*ey translation
Copying the sur*ey
Transportation to and !rom
customer homes
c %ataase entry
c Sur*ey analysis
/rder o! Fuestions. The sur*ey should open with an
interesting Fuestion that will draw the customer in.
(ersonal Fuestions) such as ones that pertain to
monthly income or usiness e<penses) may ma5e the customer uncom!ortale and should
e sa*ed !or last. Some sur*ey e<perts recommend that the most important Fuestion e
as5ed near the eginning or middle o! the sur*ey. /therwise) i! the most important
Fuestion is as5ed near the end) then customers will naturally thin5 ac5 on answers to
31
speci!ic) closed7end24 Fuestions !rom the eginning o! the sur*ey and choose an answer
ased on those issues ,assuming the Hmost importantI Fuestion is open7ended2C -.2>
Types o! Fuestions. ;nowing what types o! Fuestions to as5 is the second component o!
creating a success!ul sur*ey. There are many ways that Fuestion types and the manner in
which Fuestions are as5ed can ias participants& responses to the sur*ey. The !ollowing
ad*ice can minimiKe ias.
M %on&t as5 leading Fuestions. # leading Fuestion has the answer imedded within)
such as H%o you usually wait in line !or a long time at the ranchAI The Fuestion
itsel! suggests that lines are long) and directs the customer to answer that they are.
This Fuestion is more appropriately phrased as) H/n a*erage) how long do you
usually wait in line at the ranchAI Leading Fuestions will not result in true answers.
$! the sur*ey is conducted as an inter*iew) e sure that sta!! don&t as5 Fuestions with
*oice intonations that lead customers to certain answers.#lso) e<plain to
inter*iewers why it is important to as5 the Fuestion e<actly as it appears on the !orm.
#*oid Hdoule7arreledI Fuestions. # doule7arreled Fuestion as5s two Fuestions at
once. For e<ample) H%o you !a*or increasing loan siKes y raising the minimum
sa*ings reFuirementAI $! the respondent says no) it is unclear whether she doesn&t
want to increase loan siKes at all) or doesn&t want to increase loan siKes i! it is lin5ed
to raising the minimum sa*ings reFuirement.
$nclude open7ended Fuestions. /pen7ended Fuestions allow the customers to ring up
issues related to the topic that the sur*ey administrators could not ha*e !oreseen or
did not thin5 o!. They pro*ide room !or a more well7rounded ody o! responses !rom
the customers. /pen7ended Fuestions should e as5ed e!ore closed7ended Fuestions
to a*oid limiting responses.
:ary Fuestion type. #*oid a series o! HyesVnoI Fuestions where HyesI generally
signi!ies positi*e !eelings and HnoI generally signi!ies negati*e !eelings. /!ten) an
acFuiescent person who is generally satis!ied will reply HyesI all the way down the
line without seriously considering any o! the Fuestions.
M
M
M
Figure 24 represents a sample sur*ey ased on customer reFuirements outlined earlier.
This sur*ey addresses satis!action with the customer&s current loan product and ser*ice at
the ranch.
Figure 2C pro*ides a di!!erent approach) which ta5es into account oth customer
e<pectations related to a ser*ice and the *alue o! that ser*ice in the mind o! the customer.
This type o! sur*ey gi*es institutions an understanding aout what aspects o! ser*ice are
most *aluale to customers) and whether or not the institution is meeting customer needs.
0hen customers !eel that their e<pectations are not met on items o! high importance) the
institution should !ocus on impro*ing those items.
24
2C
# closed7end Fuestion is one with a !i<ed set o! answers) such as a multiple 7choice Fuestion.
#n open7ended Fuestion is one where the respondent can write in his own response.
2>
0eiserg) et al ,1232-.
32
Figure 248 Sample Sur*ey 1
$n an e!!ort to learn how to ser*e you etter) we as5 that you !ill out this short sur*ey. (lease
circle the letter that corresponds most closely to your personal opinion.
#ge8
+ender8 'aleddd Femaleddd
Type o! Business8
1. 0hat is the est part aout eing a memer o! this institutionA
2. 0hat would you li5e to see change aout the institutionA
4. How many years ago did you joinA
C. 0hat was your last loan siKeA
>. For what purpose did you use the last loanA
?. Loan amounts
a. Highly Satis!ied
@. Loan terms
a. Highly Satis!ied
. Satis!ied
. Satis!ied
c. 6eutral
c. 6eutral
d. %issatis!ied
d. %issatis!ied
e. Highly %issatis!ied
e. Highly %issatis!ied
3. #mount o! time you wait in line e!ore recei*ing ser*ice at the ranch
a. Highly Satis!ied . Satis!ied c. 6eutrald. %issatis!ied e. Highly %issatis!ied
2. Branch hours
a. Highly Satis!ied
. Satis!ied c. 6eutral d. %issatis!ied e. Highly %issatis!ied
Figure 2C8 Sample Sur*ey 2
(lease circle the numer that est corresponds to your opinion.
.<pectations
6ot met .<ceeded
Ser*ices
Low
$mportance
High
1
1
1
1
1
1
2
2
2
2
2
2
4
4
4
4
4
4
C
C
C
C
C
C
Loan terms
$nterest rate
Branch hours
Branch location
#ttitude and a*ailaility o! sta!!
Time spent per wee5 conducting an5 usiness
1
1
1
1
1
1
2
2
2
2
2
2
4
4
4
4
4
4
C
C
C
C
C
C
#dapted !rom Bars5y
34
The sur*ey in Figure 2> also ta5es two parameters into account8 use o! a ser*ice and
satis!action with the 'F$&s pro*ision o! that ser*ice. $! your customers use a gi*en
ser*ice at another an5 and are highly satis!ied) then your institution should !ind ways to
increase the Fuality o! your own ser*ice.
Figure 2>8 Satis!action and "se o! Ser*ices
Than5 you !or ta5ing the time to !ill out this sur*ey.
(lease rate these ser*ices according to the categories that !ollow.
$! you use the ser*ice oth at 'icroBan5 and another an5) you may chec5 two o<es in the !irst column.
Type o!
Ser*ice
%on&t "se
"se o! Ser*ice
"se at
another
institution
F
F
F
F
F
F
F
F
Satis!action with Ser*ice
"se at
'icroBan5
F
F
F
F
F
F
F
F
:ery
Satis!ied
F
F
F
F
F
F
F
F
Somewhat
Satis!ied
F
F
F
F
F
F
F
F
6eutral Somewhat:ery
%issatis!ied %issatis!ied
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
(assoo5
Sa*ings
Term
#ccounts
0ire
Trans!er
Business
Loans
Housing
Loans
(arallel
Credit
(awn Loans
Consumer
Loans
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
Field Testing
.*en the most care!ully7constructed sur*eys are *ulnerale to eing misunderstood y
customers or ha*ing other shortcomings. For this reason) sur*ey Fuestions ,as well as
Fuestions on loan applications and the sujects o! mystery shopping assignments- should
e !ield tested ,i.e. pre7tested-.
To !ield test sur*eys) a representati*e sample o! appro<imately 2>
the sur*ey. #dministrators time them to estimate how long the
complete. 0hen customers ha*e !inished) they report to sur*ey
which Fuestions they considered con!using) unclear) or otherwise
3C
customers complete
sur*ey will ta5e to
administrators aout
prolematic. /ne
common prolem is when a respondent gi*es irrele*ant in!ormation) e.g. you as5ed aout
a recently7altered loan product) and instead o! tal5ing aout the ene!its o! the HnewI
product) the respondent tal5s aout the HoldI product. $n this case) the Fuestion should e
clari!ied. #dministrators ta5e note o! all prolems and !ine7tune the sur*ey. Field testing
Fuestions on loan applications can e treated much the same) though the timing element
is o! less importance.
Sur*ey #dministration
The administration team is as important to the success o! the sur*ey as the customers who
will complete it. The team must 5now the sur*ey well and e intimately !amiliar with the
Fuestions) which will ta5e some time and training. Field testing the sur*ey will e
help!ul to this trainingL it will gi*e administrators an indication o! what 5inds o! Fuestions
customers might as5 and prepare them to gi*e answers.
/nce the sample o! participants is chosen) institutions should !ind out the chosen
customers& a*ailaility and willingness to !ill out the sur*ey. The institution may choose
to ha*e all customers *isit ranch o!!ices at the same time to complete the sur*ey) it may
choose to *isit customers& homes to administer the sur*ey) or it may choose to mail the
sur*ey to customers. /ne prolem with mailing sur*eys is that mail gets lost ,oth en
route and once arri*ed- and that customers may e reluctant or too usy to rememer to
!ill them out. The reluctance could necessitate *isits or phone calls !rom sur*ey
administrators) so it might sa*e the institution time and money to e present while the
customer !ills out the sur*ey to egin with.
The est way to administer the sur*ey is !or the sta!! to read the Fuestions to customers
so that when a customer does not respond !ully) the administrator can proe him !or more
details. 1eading the Fuestions ,i.e. conducting the sur*ey li5e an inter*iew- also helps to
ensure that customers understand the Fuestions and that illiterate customers can !ully
participate. The reading should e done in the most neutral manner possile to a*oid
leading customers to more !a*orale answers.
(lanning a Focus +roup
0ith re!reshments) a com!ortale setting) and an enthusiastic moderator) !ocus groups
can elicit a wealth o! important customer in!ormation. This tool id ideal !or testing an
idea !or a product) to understand sources o! customer dissatis!action) or to generate
customer suggestions !or changes in operations. Some institutions hold se*eral !ocus
groups on the same topics until it is e<hausted and customers generate no new ideas on
the suject.
$n micro!inance) some in!ormation otained !rom a !ocus group meeting may e e*en
more accurate than in!ormation otained !rom a sur*ey) ecause participants in the group
li5ely 5now each other and will chec5 each other&s honesty o! response. $! participants
3>
do respond inaccurately) it is proale that
other participants will call out and correct
them.2?
How to Choose the Topic
The topic ta5es into consideration
customer characteristics and reFuirements)
as discussed in Sur*eys. /!ten) loan
o!!icers or other !rontline sta!! ha*e an
idea o! the issues that are important to
customers and can suggest an appropriate
topic or con!irm the suitaility o! a
proposal. Customers can also help choose
the topic. Compartamos determines the
!ocus group topic y in*iting se*eral
customers to a preliminary HguidelineI meeting.
guides the customers into choosing important topics.
6ecessary /jects
!or a Success!ul Focus +roup
c # Fuiet room to hold the session
c Large paper or a lac5oard to
document suggestions) writing
instruments
c # recording de*ice ,audio or *ideo-
c #n administrati*e team8 moderator)
oser*er) and analyst
c 1e!reshments
c (articipant name cards
c Focus group coordinator to choose
participants and ensure their arri*al
# !acilitator runs the meeting and
#nother way to ha*e customers choose the topic is y presenting a *ery road Fuestion to
them and letting them narrow down the scope o! the Fuestion. For e<ample) the topic can
e H!actors that in!luence customer satis!action at 'F$s)I and then the group can
rainstorm a list o! all possile topics under that theme. .*entually) the group should
narrow the topics down to a list o! 4 or C ,either y crossing some out or y ran5ing them
all-) and those topics will e the ones e<plored during the !ocus group session. Figure 2?
illustrates this e<ample.
Figure 2?8 Choosing a Focus +roup Topic
Factors That $n!luence Customer Satis!action8
Fle<iility $mage Branch hours
#ttenti*eness Target mar5et Forced sa*ings
Turn7around time 'emer ene!its Customer *isits
(roducts and terms8
7 Sa*ings products
7 Loan products
7 $nsurance products
How to Choose (articipants and .nsure Their #rri*al
$nstitutions select !ocus group participants in a range o! ways. 'ost do not choose them
completely at random) ut allow loan o!!icers and other !ront7line sta!! to choose
2?
;umar ,123@-.
3?
customers o! *arious ac5grounds.F$6C# ;yrgyKstan&s credit o!!icers choose
customers !rom di!!erent regions) di!!erent parts o! the loan cycle) and o! di!!erent
e<periences. .ach time there is another !ocus group meeting) the composition o! the
group changes.
/ther institutions choose participants ased on random sampling according to mar5et
segments ,i.e. a proportionate numer o! customers !rom each segment-. $n this case) it is
use!ul to in!ormally inter*iew the prospecti*e participant prior to the !ocus group
meetingL i! the customer is intro*erted) it is unli5ely that he will contriute meaning!ully
to the group discussion. %uring this process) there is no need to tell customers that they
are eing screened !or a !ocus group meetingL the con*ersation can e approached as an
in!ormal inFuiry aout customer satis!action. /ne way to screen potential participants is
y as5ing them a couple o! Fuestions aout their loan useL i! the customer responds with
*ery short answers) it is unli5ely
Focus +roup participant considerations
that the customer will add to an
in7depth and li*ely discussion.
The cost o! this process is c %o participants re!lect *arious mar5et segmentsA
,+ender) usiness type) le*el o! education) le*el o!
outweighed y the assurance that
income) etc.-
the !ocus group will e !ruit!ul c #re all the participants com!ortale spea5ing in
and producti*e.
!ront o! groupsA
/nce participants are chosen) the
c .<pecting a 20 percent attrition rate) ha*e more
institution must con!irm their
participants een in*ited than e<pected to attendA
interest in participation. 'ar5et c %o all participants spea5 the same language) or
researchers commonly elie*ewill there ha*e to e a translatorA
that there will e at least a 20
percent attrition rate o! con!irmed participantsL i! ten people say they will attend) it is
li5ely that only eight will. Banco del %esarrollo reports more e<treme results8 to ha*e si<
people show up to a !ocus group meeting) the con!irmation o! 40 is necessary. $n
contrast) F$6C# ;yrgyKstan says that any customer who is as5ed to participate !eels
honored and will do so willingly. The institution must ta5e into account the character o!
its orrowers and cultural norms e!ore deciding the est way to get the desired numer
o! customers.
Setting "p the %iscussion
Be!ore the group starts) there should e a welcome session where participants can meet
and tal5 in!ormally. %uring this pre7discussion phase) the moderator ,and assistants-
mentally di*ides the group according to who is domineering and who is shy. Then they
seat the customers accordingly8 domineering customers ne<t to the moderator ,in case
they need a gentle nudge to e Fuiet-) and shy customers across !rom the moderator ,in
case the moderator needs to estalish eye contact to ring them out-.2@
c %o participants ha*e transportation to the e*entA
2@
;rueger ,1233-.
3@
M Seating arrangements. (articipants sit com!ortaly around a tale or in a circle. #
round tale is ideal ecause it allows participants to see each others& name cards. The
institution pro*ides e*erages and light re!reshments to 5eep energy high) and an
easel with writing paper or a lac5oard should e a*ailale so the moderator can jot
down notes. The moderator should also ha*e a pri*ate notepad where he or she ta5es
meeting notes and writes impressions and oser*ations. Howe*er) the moderator
should not de*ote too much time to note7ta5ingL it is est i! the moderator&s assistant
ta5es thorough notes so that the moderator may completely !ocus on the discussion.
+roup memers should e aware that this is not a Fuestion and answer session
etween the moderator and
group memers. The purpose
Focus +roup Timeline ,Sample-
o! the group setting is to
generate a discussion that
?840 'oderator and assistant arri*e. 6ame placards
rings out new ideas !rom
are created and the audio recording de*ice is set up.
other participants.
@800 (articipants arri*eL moderator and assistant
in!ormally assess personalities o! participants while
engaging in polite con*ersation.#ssistant
appropriately positions name placards around the
tale according to personality types.
@81> 'oderator and assistant gather the group !or
discussion. Begin with warm7up Fuestions and then
mo*e to a general discussion o! the topics at hand.
3800 #s the hal!7way point arri*es) moderator and
assistant ma5e sure that they ha*e co*ered aout hal!
o! the Fuestions.
38C> The session egins to wind down. 'oderator
than5s participants !or their in*ol*ement.
1ecording the session. $t is
e<tremely help!ul to ha*e an
audio tape o! the session. #n
audio tape can record the
sessione<actly)whereas
written notes are sure to miss
some details. The !ocus group
team can re!er to the tape in
times o! uncertainty aout the
connotations o! comments.
For e<ample) when 9ohn says)
HThe product was help!ul)I
does he mean HThe product
was help!ul)I ,it used to e help!ul-) HThe product was help!ul)I ,the product was
help!ul ut the terms and conditions were unsuitale-) or HThe product was help!ul)I
,the product was *ery help!ul-A The tape recorder can re*eal these nuances. $! the
moderator chooses to use a tape recorder) he or she should candidly alert the group to
its presence) and then locate it in an inconspicuous place. $! the group memers
cannot see the recorder) they may !orget it is there) in which case they are less li5ely
to !ind it intimidating and more li5ely to spea5 !reely.23$! you use an audio tape) the
moderator should call on participants y name so that the transcrier 5nows who is
saying what.
M
M +etting started.Some warm7up Fuestions ,e.g. HHow did you hear aout
'icroBan5AI- may e help!ul to get customers spea5ing unreser*edly.$nitial
Fuestions such as H0hat type o! usiness do you operateAI and HHow many loans
ha*e you hadAI also help to understand the conte<t !rom w
responses arise. $ntroductions are reFuisite i! the participants are to !eel com!ortale
23
;umar ,123@-.
33
around each other) ut the introductions and warm7up Fuestions should not ta5e more
than ten to !i!teen minutes.
$t is help!ul to start with general ideas and then mo*e to the true sustance o! the
discussion. For e<ample) i! the discussion is aout the use o! a new loan product) !irst
tal5 aout why a micro!inance customer might need *arious types o! loan products)
then Kero in on the loan product to e discussed today) and !inally tal5 aout use o!
that product.
$t is essential that the discussion !ocus on current e*ents and opinions) not
recollections or memories o! times past or how conditions ha*e changed. Such topics
are o!ten !odder !or unreliale discussionL memories are untrustworthy sources o!
in!ormation. $! the Fuestion must address past occurrences) limit it to a month) e.g.
HHow many times ha*e you encountered the prolem in the pre*ious monthAI
The discussion should last aout an hour) ut i! it seems to remain energetic and
producti*e) it is not necessary to end it a!ter that time period. #t the end o! the
discussion) the group should agree on asic conclusions !rom the session and recommend
solutions !or the topics discussed. Howe*er) i! no consensus can e reached) there is no
need to !orce uni!orm conclusions.
The degree o! !ormality to the discussion can e *ariale. $n the case o! a more
structured discussion) the #$'S tools suggest a !lip chart with !i*e columns8 1- (rogram
!eature) 2- Li5e aout !eature) 4- %isli5e aout !eature) C- 1ecommended changes) and >-
0hyA
Figure 2@8 $llustration o! the #$'S Structured Focus +roup
1. (rogram !eature8 2. Li5e aout
!eature8
.ncourages discipline) ensures
enough money to repay loan on
time) allows access to ne<t larger
loan
4. %isli5e aout
!eature8
Can&t accrue interest on sa*ings)
lessens total HrealI loan amount)
decreases personal liFuidity)
unale
to withdraw !unds
Forced sa*ings
C. 1ecommended
changes8
Create an incenti*es program
where customers can choose to
orrow with or without sa*ings
>. 0hyA
Customers who orrow with
sa*ings
recei*e related ene!itsL customers
who orrow without sa*ing must
meet stricter criteria to orrow
32
Figure 2@ illustrates this procedure. $n some instances) such a !ormal process can help
guide the session. #llowing the con*ersation to e less structured ,though still adhering
to a group o! pre7determined Fuestions- also has its ad*antages) e.g. encouraging a wider
range o! responses.
The 'oderator
#lthough the moderator does not necessarily ha*e to e trained) he or she certainly must
e prepared. #mong e<pectations o! a moderator are non7judgmental responses when
listening to suggestions and the aility to encourage all participants to !reely *oice their
opinions. To achie*e these Fualities) the moderator should ha*e an outgoing personality
and not e personally in*ested in the topic to e discussed. $t is unwise to put a loan
o!!icer or another !amiliar employee to the tas5 o! moderation) ecause customers may
then ias their answers to what they thin5 the moderator wants them to say) or may not
want to insult the moderator y *oicing their true opinions. $! the moderator is to come
!rom in7house) it may e*en e sensile to conceal !rom customers that the moderator is a
memer o! sta!!. To !urther ensure that the moderator is neutral in his or her reactions to
customer opinions) it is use!ul to ha*e the note7ta5er oser*e the monitor&s interactions
with group memers.22
The moderator must adopt certain characteristics to e success!ul8
1. He or she must 5now how to proe. (roing group memers gently and non7
otrusi*ely will help the group get the most out o! the session. #s5ing why)
as5ing !or more detail) and as5ing !or !urther e<amples and other alternati*es
helps elicit !urther in!ormation.
2. He or she must encourage reluctant group memers. Euiet or shy people must e
rought out to participate in the discussion. # s5ill!ul moderator will gently
encourage these people to add their thoughts and ideas. /ne way to do so is to
ma5e eye contact with Fuiet participants or to as5 them direct Fuestions. # simple
H0hat do you thin5AI o!ten does the tric5.
4. He or she cannot e iased. # iased moderator will taint the reports o! the
group) and may e*en change the course o! the discussion itsel!. /ne common
type o! ias is Hconsistency ias)I which occurs when she gets an idea in her head
!rom one group and see5s to ha*e other groups con!irm that idea. The success!ul
moderator a*oids this at all costs) and does not disregard opinions !rom one group
that con!lict with opinions !rom another group. Li5ewise) she does not ignore or
re!use to proe opinions that are not similar to her own opinions.
#dditionally) the sta!! memer who writes the report should not !ilter out
in!ormation that contrasts with his elie!s. The researcher should e open to
whate*er conclusions the !ocus group reaches. :arious researchers should arri*e
at the same conclusion ased on the data.
22
S..( 6etwor5 ,2000-.
20
Sampling
Sampling is a use!ul tool !or oth sur*eys and !ocus groups. "nless the customer study
intends to !ocus only on customers !rom a certain group ,e.g. one gender) trade group) or
income le*el-) random sampling is a way to study a group o! people that is
compositionally similar to the population to e sur*eyed) ut much smaller and more
manageale.Hardly any customer study will underta5e the amitious tas5 o!
determining the pre!erences o! each and e*ery customer. $nstead) sampling can e used
to choose participants !or sur*eys) !ocus groups) e<it inter*iews) and any other research
!or which the your institution chooses to study only part o! the customer population.
.<perience shows that the results will e almost identical ,plus or minus a !ew percentage
points- to a project that studies each and e*ery customer.40
(roaility theory dictates that randomly inter*iewing one out o! e*ery !i*e customers ,or
one o! e*ery eight or ten- is li5ely to result in eFual proportions o! *arious customer
segments. # small representati*e group is more manageale and cost7e!!ecti*e to study
than the entire customer ase) and sampling ma5es it unnecessary to inter*iew so many
indi*iduals.1egardless o! the population siKe) a sample o! aout 20 indi*iduals will
gi*e you reliale results i! the group is !airly homogenous) though as !ew as C0 can also
e used !or less precise results. $! the group is comprised o! many di!!erent su7groups
,e.g. di!!erent genders) *arious trade groups-) ma5e sure that there are at least 20 to 40
indi*iduals who represent each group i! you wish to otain reliale results !or each group.
Howe*er) 20 indi*iduals per su7group will gi*e you the most reliale results.
How to Sample
Be!ore the ad*ent o! computers) traditional sampling o!ten relied on randomly pulling
names out o! a container. /ther ways to sample include pic5ing e*ery nth name o!! an
alphaetical list o! customers or letting a computer program generate a random list.
Sampling is a simple process that will ma5e the customer study more e!!icient. 'any
computer dataase programs ha*e this capacity.
Some micro!inance institutions may want to study non7customers as well as current
customers to get a etter idea o! what ser*ices appeal to the population at large as well as
how needs *ary !rom current micro!inance customers to the general populace. For this
methodology to e success!ul) you will need to otain ,or generate- a list o! the entire
population o! the target area ,city) town) municipality- and inter*iew a random sample o!
all residents. Caja Los #ndes o! Boli*ia recently used this method to inter*iew non7
customers regarding housing loans.
#nother way to sample a population !or a target area is y stopping at e*ery nth house to
administer the sur*ey. $! you use this process) howe*er) 5eep in mind that more a!!luent
people usually li*e in the houses on the corner o! the loc5. $! each loc5 has a
consistent numer o! houses) ma5ing e*ery nth house a corner house) you may end up
HsamplingI only the wealthy people in the neighorhood.
40
6agarajan ,2000-
21
.rrors and Their ConseFuences
#lthough sampling is simple) the method must not e aused. The 5ey here is
randomness) i.e. the sample must e randomly generated !rom the entire customer
population. The !ollowing three e<amples are some potential prolems that accompany
the sampling process.
1. 6on7representati*e sample. The 'F$ sta!! person who is in charge o! disseminating
sur*eys !or a particular ranch learns that one third o! that ranch&s customers are
small shop owners) one si<th are wea*ers) one si<th are *egetale traders) and the
remaining one third are street *endors. He decides to inter*iew twenty7!our neary
customers proportional to the o*erall customer types at the ranch8 eight small shop
owners) C wea*ers) C *egetale traders) and 3 street *endors. This method) though
seemingly harmless) will not yield signi!icant results8
w
The inter*iewer) y inter*iewing neary customers o! his choice) will li5ely
inter*iew those who seem !riendly and approachale to himL perhaps they will e
his !riends. There is no guarantee that these customers will e o! *arious
economic or social strata.
Some Fuestions may e undermined y the !act that these customers li*e closest
to the ranch) such as whether or not the ranch location is con*enient. The
sur*ey may determine that all customers !ind the ranch location con*enient
when in actuality) most customers li*e *ery !ar !rom the ranch and !ind the
location completely incon*enient. /r) i! all these neary customers li*e in an
uran area) they will e less li5ely to e interested in agricultural loan products.
The list could go on and on.
$! the sur*ey administrator is concerned aout inter*iewing all segments
proportionally) he or she can strati!y the sample y selecting certain percentages
o! customers ased on the proportionality o! the group or section. Strati!ication
in*ol*es segmenting customers into prescried groups ,e.g. trade group) gender)
income le*el) etc- and selecting a random sample o! customers ased on each
group&s share o! the entire customer ase.
w
w
2. Sampling error. $ne*italy) sampling only part o! the population will reduce the
o*erall accuracy o! the studyL this reduction in accuracy is called the sampling error.
The statistical e<planation o! the sampling error is eyond the scope o! this
pulication) ut it is su!!icient to note that a sample siKe o! 20 indi*iduals will pro*ide
a sample ase that has a reasonaly small margin o! error. Strati!ication reduces the
sampling error.
w
Simple random sampling will li5ely produce a list o! customers that is
representati*e o! the entire customer ase) ut strati!ication is an e<tra assurance
that certain groups will e proportionately represented.
#nother measure to increase the accuracy o! the !indings is to increase the sample
siKe i! a small group is under7represented. For e<ample) i! a sur*ey o! 100 people
w
22
includes 4> wea*ers) 42 potters) 2> seamstresses) and 3 cash7crop !armers)
increase the sample siKe y >0 percent so that the cash7crop !armers are etter
represented.
4. 6on7compliance. $! a portion o! customers in the sample re!use to respond to the
sur*ey) or i! participants are suddenly una*ailale) the sur*ey administration team
must ha*e a ac57up plan. Since the legitimacy o! the sur*ey is in*alidated i!
administrators hand out the sur*ey to other customers who are easily reachale ut
who were not part o! the sample) administrators must ha*e a sample reser*e to tap
into in the case o! large7scale non7compliance.
.rrors can completely corrupt your e!!orts to measure customer satis!action and customer
loyalty) so it is imperati*e to watch out !or them. Ta5e steps to pre*ent or respond to all
possile errors) and you&ll e on your way to an accurate reading o! customer
pre!erences.
#nalysis
/nce we ha*e stac5s o! customer in!ormation) it&s time to ma5e sense o! it all. #nalysis
is the point at which all the e!!ort turns into Fuotale !acts and !igures aout your
institution. Customer research can
0hat&s 0hat8
produceeitherFualitati*eor
Euantitati*e and Eualitati*e Studies
Fuantitati*e results.Eualitati*e
resultsdescriecustomer
ToolType
perceptions) suggestions) and other
sujecti*e matters.Euantitati*e.<it $nter*iewsEuantitati*eVEualitati*e
results descrie the Fuestions o! how
Complaints andEualitati*e
many) to what e<tent) and other
Suggestions System
ojecti*e matters..ach type o!
Customer #d*isoryEualitati*e
results demands a distinct mode o!
Board
analysis.
%ata Collection and (rocessing
To manage and utiliKe results) 'F$s
must care!ully trac5 and interpret
rele*ant data. Be!ore the institution
pursuesanycustomerloyalty
initiati*es) it must ensure that the
!ramewor5 is in place to input results
!rom customer studies. .ach type o!
study should !eed into a dataase o!
customer responses) which is
coded) organiKed) and monitored y
appropriate sta!! memers.
Complaint
Solicitation Strategy
Customer Ser*ice
%es5
Focus +roups
Sur*eys
'ystery Shopping
Euestions on Loan
#pplications
Eualitati*e
Eualitati*e
Eualitati*e
Euantitati*eVEualitati*e
Eualitati*e
Euantitati*eVEualitati*e
0ithout a system !or data process and analysis) the e!!icacy o! a customer in!ormationny
is compromised. Creating a dataase may seem daunting) ut it can in*ol*e *arious
24
le*els o! e!!ort !or 'F$s o! di!!erent siKes. Larger 'F$s should consider creating a
special unit !or mar5eting) research and de*elopment) or customer relations that
processes data collected at the ranches. 0here data collection occurs on an ongoing
asis) i! possile it should e integrated into the in!ormation system.
$n smaller organiKations) there is a tendency to assume that the more intimate scale
allows the 'F$ to e more in tune with its customers) and there!ore !ormal data collection
processes are not necessary.0hile that may e true) we strongly recommend
occasionally testing that assumption. $! the organiKation doesn&t ha*e the in7house
capacity to do so) then outsourcing the data collection and analysis may e the pre!erred
option.
Eualitati*e Studies
Eualitati*e studies rely mostly on open7ended Fuestions that cannot e Fuanti!ied due to
distinctions in answers. %ata that results !rom Fualitati*e studies can gi*e a good idea o!
customer pre!erences) ut they can ne*er pro*ide hard numers.
#nalysis o! Fuestions on loan applications) complaints solicitation strategy) and
complaints and suggestions system. 0hereas charts and numers allow !or analysis o!
Fuantitati*e studies) the est way to aggregate and analyKe Fualitati*e data is y
oser*ation and report7writing) and !or Fualitati*e data that is written) periodically
re*iewing all responses and categoriKing them. For e<ample) i! at the end o! the month
the institution has recei*ed @> customer comment cards) the comments are tallied y
type. Figure 23 illustrates a sample report.
#t the end o! each month) the new comment cards are talliedL a rie! analysis that
discusses the details o! the results accompanies the !orm. $! the category H/therI ,as
illustrated in Figure 23- e<ceeds ten percent o! the total responses) it is li5ely that new
categories can e added to complement e<isting ones. #s months pass y) customer
pre!erences should ecome apparent ased on trends re*ealed y the analyses and !orms.
$t is imperati*e that trac5ing the measurement system is part o! one person&s jo
description to ensure use!ulness o! these tools.
2C
Figure 238 Sample Chart to %escrie 1esponses to Complaints and Suggestions
System ,or Euestions on Loan #pplications) Complaints Solicitation Strategy-
Complaints and Suggestions System 1eport8 9anuary
Type o! ComplaintVSuggestionFreFuency
1. Sta!!
eSta!! impro*e attitude?
eSta!! e more a*ailale>
e$ncrease numer o! sta!!>
e/ther2
2. #dd ser*ices
e#dd housing loans2
e#dd non7compulsory sa*ings accounts that accrue interest2
e#dd an insurance products !or usiness loss in natural disasters 1C
e/ther4
4. Changes and additions to e<isting ser*ices
e$ncrease turn7around time !or loans@
e%ecrease the minimum alance !or sa*ings accounts2
e$ncrease ma<imum loan siKe>
e/ther1
(ercentage
3.0Q
?.?Q
?.?Q
2.?Q
12.0Q
12.0Q
13.?Q
C.0Q
2.4Q
12Q
?.?Q
1.4Q
#nalysis o! !ocus group sessions. 1ecording the session is essential to the use!ulness o!
the !ocus group. $! an audio de*ice is used) the !acilitators should e care!ul to ensure
that the *oices are actually recorded.Then) an employee in*ol*ed with the
administration o! the group ma5es a transcript o! the session and writes a report that
includes the highlights !rom the discussion and the conclusions. The transcript also re!ers
to notes ta5en y the session&s moderator and his or her assistants) i! any. The report
includes names and pro!iles o! participants) their responses and their suggestionsL similar
responses are grouped accordingly.
Figure 22 illustrates part o! a sample !ocus group report to management. The report
should address all major themes o! the discussion. $t may also e help!ul to 5eep a tally
o! comments similar to the HComplaints and Suggestions SystemI report.
2>
Figure 228 Sample Focus +roup 1eport to 'anagement ,e<cerpt-
1eport to 'anagement. Focus group D4. 9anuary 12) ?800 p.m.
#lthough the moderator directed the discussion so that it would
eFually address all !i*e topics ,!le<iility) loan products) memer
ene!its) turn around time) and !orced sa*ings- participants were
most interested in tal5ing aout memer ene!its. The trend was that
participants used memer ene!its as an umrella suject that co*ered
the other !our topics and ga*e that suject the most consideration.
Some sample comments !ollow8
Susan8$ thin5 that memer ene!its encompass e*erything.
.*ery ser*ice that 'icroBan5 pro*ides to me is a memer
ene!it) including each type o! loan) how !ast $ get my loans)
and all the prereFuisites that go along with ta5ing out that
loan.#lso) i! the sta!! treats me well) that is a memer
ene!it.
,#lice and (eter agree y nodding their heads.-
9ohn8 There are a lot o! other micro!inance institutions out
there that o!!er their customers the same ser*ices that
'icroBan5 o!!ers. $! 'icroBan5 doesn&t o!!er their ser*ices in
a etter way than the others do) it will lose its customers.
Fast turn7around time is de!initely a memer ene!it) and so is
!le<iility with products. Being in the agricultural usiness)
$ de!initely rely on Fuic5ness and !le<iility. $ heard o! a
an5 that has cash disursal machines that customers use
twenty7!our hours a day. That would add to !le<iility.
(articipants suggested that the 'icroBan5 adopt Hmemer ene!itsI as
a central theme in its operations. By !ocusing on memer ene!its)
many participants said) 'icroBan5 will attract and retain customers
who *alue ser*ices as well as products. Superior Hmemer ene!itsI
will e an incenti*e to 5eep ta5ing loans !rom 'icroBan5.
The report is sent to management and loan o!!icers in order to ha*e ma<imum
in!ormation sharing o! customer points7o!7*iew. This 5nowledge is ene!icial to any
sta!! memer who interacts with customers. #!ter the report has een considered and
analyKed) management should then ma5e hypotheses ased on the session and determine
ne<t steps8 $s a targeted sur*ey necessary to !orm more conclusi*e resultsA $s there
enough e*idence o! prolems) and su!!icient suggestions !or solutions) to ma5e
institutional changesA /r will the e*idence !rom this !ocus group simply e 5ept on !ile
until !uture !ocus groups corroorate the !indingsA These Fuestions must e answered as
management decides what to do with the results o! the session. $! management does
decide to ma5e changes ased on the results o! se*eral sessions) the same rules that apply
to sur*eys apply to !ocus groups8 phase in new programs with pilot tests in order to
ensure that new policies are ene!icial not only to the customers ut also to the
institution.
2?
Euantitati*e Studies
$n many ways) analysis o! Fualitati*e measurements is mostly aout oser*ing trends.
#nalysis o! Fuantitati*e measurements) on the other hand) is a more precise operation
that reFuires some mathematical s5ill and statistical 5nowledge.This section will
pro*ide a rie! introduction to some common data analysis tools that can apply to sur*eys
and e<it inter*iews. Eualitati*e elements o! these tools) such as open7ended Fuestions)
should e treated as such ,categoriKed) tallied) etc.-.
The importance o! 5eeping a dataase and practicing accurate data entry should not e
underestimated. ;eeping a dataase allows the institution to loo5 at a*erages and
!reFuencies o! answers) as well as to cross taulate in!ormation such as gender) income
le*el) occupation) use o! loan) age o! customer) etc. To learn more aout the uses o!
dataases in 'F$s) please see C+#(&s '$S Handoo5.41 To learn more aout cross7
taulation o! customer data generated !rom a sur*ey) see Learning !rom Customers8
#ssessment Tools !or 'icro!inance (ractitioners) an output o! #ssessing the $mpact o!
'icroenterprise Ser*ices ,#$'S-.42
The !ollowing modes o! analysis pro*ide a sur!ace re*iew o! results. /nce numers are
calculated) an analyst !urther scrutiniKes and e*aluates the responses to understand the
causes !or customer dissatis!action and to create solutions to the prolems. /ne way to
analyKe these numers is y plotting them on a chart or graph to illustrate how they
change o*er time.
M FreFuencies and percentages. FreFuencies simply count the numer o! responses to
an answer) i.e. how many customers elie*e that loan siKes are too small) or how
many customers elie*e that loan terms are too short. (ercentages are the ratio o!
!reFuency to the total sample.
Central tendencies. Central tendencies descrie the most common responses to
Fuestions. There are three types o! central tendencies8
1. The mean ,or a*erage-. $n a sur*ey where the customer is as5ed to rate a ser*ice
on a scale !rom one to ten) the mean tells what the o*erall rating was o! all
customers who were sur*eyed.
2. The mode. The mode descries the most !reFuent response. $n a sur*ey o! 100
people) i! C> customers descrie themsel*es as Hgenerally satis!ied)I 10 customers
descrie themsel*es as Hhighly satis!ied)I 2> customers descrie themsel*es as
Hdissatis!ied)I and 20 customers descrie themsel*es as Hhighly dissatis!ied)I the
mode is Hgenerally satis!ied.I .*en though the majority o! customers did not
respond that they are Hgenerally satis!ied)I that category recei*ed the most
responses) ma5ing it the modal response) as demonstrated elow.
M
41
42
C+#( ,1223-.
S..( 6etwor5 ,2000-.
2@
Highly Satis!ied
C>
+enerally Satis!ied
10
+enerally dissatis!ied
2>
Highly %issatis!ied
20
Total
100
4. The median. The median is the middle position. Technically) there should e the
same numer o! answers elow and ao*e the median response) ut o!ten the
median response is emedded within a large group. $n the ao*e e<ample o!
satis!action) !or e<ample) the median response is Hgenerally satis!ied)I ecause in
the spectrum) the >0th person out o! 100 people responded as such.
M Cross7taulations. Cross7taulations !urther disaggregate in!ormation learned !rom
the sur*eys. Cross7taulating is the systematic process that allows an institution to
lin5 two *ariales contained in the sur*ey) as demonstrated in Figure 40. Cross7
taulating gender with the numer o! customers who would li5e insurance products
helps determine i! that demand is di!!erent !or men and women. Cross7taulating
income or occupation with the numer o! customers that would li5e insurance
products helps the institution learn which types o! customers may desire shorter loan
terms. Cross7taulations can help the institution direct new policies to the speci!ic
customers who demonstrate need !or them. Since the categories o*erlap) notice that
the proportion o! >?@ that each category represents adds up to more than 100 percent.
/pen7ended Fuestions./pen7ended Fuestions should also e included in the
dataase) and should not e ignored due to di!!iculty in reporting. They should e
treated as Fualitati*e responses.
Figure 408 (roduct (re!erence Cross7Taulated with +ender) /ccupation)
(o*erty Le*el
M
Total sample siKe8 1)>00
Total numer
o! sample who
wants a current
account
>?@ ,100Q-
,4@.3Q o! total-
6umer o!
women who
want a current
account
40? ,>4.2Q-
,20.CQ o! total-
6umer o! men
who want a
current account
2?1 ,C?Q-
,1@.CQ o! total-
6umer o!
!armers who
want a current
account
4@2 ,??.3Q-
,2>.1Q o! total-
6umer o!
a5ers who
want a current
account
133 ,44.2Q-
,12.>Q o! total-
6umer o!
poorest > Q
who want a
current account
2>> ,CC.2Q-
,1@Q o! total-
.rrors and Their ConseFuences
Calculation errors and other misjudgments can undermine the use!ulness o! any study. $!
the results are not interpreted correctly) your institution may rely on !alse assumptions to
ma5e procedural or product changes.
$nterpreting percentages. $! a large majority o! customers report they are satis!ied with
ser*ices) it does not necessarily mean that demand !or new or impro*ed ser*ices should
e o*erloo5ed) as the case o! (1/%.' demonstrates. #ccording to a sur*ey o!
(1/%.' customers in two ranches) Carana*i and 'inero) 2C percent o! Carana*i
23
grocery *endors were satis!ied with loan amounts and 32 percent were satis!ied with loan
termsL in 'inero) ?4 percent o! grocers were satis!ied with their loan amount and 21
percent were satis!ied with the loan term. #lthough it seems that the generally high
le*els o! satis!action should signal to (1/%.' that all is well) a closer loo5 says
otherwise. The customers who were dissatis!ied with loan terms and amounts include a
large percentage o! grocery wholesalers) who needed larger loans. $t is not enough to
ta5e satis!action le*els at !ace *alue.44 This situation demonstrates the importance o!
cross7taulating and delineating responses y sector.
The Hindependent *arialeI error. #nother dangerous error relates to the Hindependent
*ariale.I Figure 41 is the asis !or descriing the error.
Figure 418 $llustration o! the H$ndependent :arialeI .rror
#ttitude
Happy with loan term
0ould li5e to increase loan term
Total
:egetale Traders
1)0C> ,>2.1Q-
@>C,C1.2Q-
1)@22 ,100Q-
Seamstresses
??@ ,3C.2Q-
12> ,1?.3Q-
@22 ,100Q-
Totals
1@12 ,??.1Q-
3@2 ,44.2Q-
2>21 ,100Q-
#dapted !rom 0eiserg) ;rosni5) and Bowen ,1232-
#ppro<imately 33 percent o! those who would li5e to increase loan terms are *egetale
traders ,@>C *egetale traders di*ided y 3@2 total customers inter*iewed who wish to
increase their loan term-. That statement is somewhat correct ut also misleading. The
denominator must e the total numer o! *egetale traders) not the total numer o! those
who would li5e to increase loan terms) since the sample siKe o! *egetale traders and
seamstresses is not eFual ,1@22 *. @22-.
The statement should instead read that C2 percent o! *egetale traders would li5e to
increase loan terms ,@>CV1@22-) and 1? percent o! seamstresses would li5e to increase
loan terms ,12> di*ided y @22-. 'isinterpreting these results and ma5ing changes ased
on !alse analysis can lead to un!ortunate results. #lways calculate within the independent
*ariale) in this case y trade group. The 2? point di!!erence etween the pre!erences o!
*egetale traders *ersus seamstresses ,C2 minus 1?- shows a strong association etween
trade group and loan term pre!erence.
"se o! 1esults
$t is unwise to ma5e rash decisions ased on resultsL instead) ma5e calculated) gradual
changes that are ene!icial to oth your institution and your customers. For instance) in
response to the dynamic nature o! oth customer demand and institutional growth) #S#
rela<ed some o! its strict policies in the late 1220s. But some un!oreseen conseFuences
!ollowed8 when #S# rela<ed its policies aout sa*ings withdrawal) many customers
Fuic5ly remo*ed their sa*ings. # run on deposits occurred) which had a temporary ut
44
Lee ,2000-.
22
serious impact on #S#&s loan operations. .*en though #S# e<ercised caution y only
rela<ing these policies in hal! o! its ranches) prolems still resulted. #S# recogniKes
now that it should ha*e implemented changes slowly and incrementally) in one ranch at
a time) ecause in that way management would ha*e een more li5ely to !oresee potential
prolems.4C
To phase in results) the sur*ey administration team should !irst ma5e hypotheses aout
the results) i.e. H$! customers in !ood usinesses do not recei*e large enough loan siKes)
then good customers in that segment may ene!it !rom parallel loans.I Then) the
hypothesis should e tested y allowing parallel loans to customers who wor5 in the !ood
usiness in one to three ranches. $! the product is success!ul throughout an entire loan
term) then it can e e<panded to other ranches. Success should e measured care!ully8
sta!! should e trained to analyKe customers& cash !low and repayment capacity to
con!irm that they can a!!ord to orrow
"sing 1esults
greater sums o! cash..*entually)
parallel loans may e permitted to
c 'a5e hypotheses according to results.
customers in other usinesses as well i!
c Test hypotheses y introducing changes asthey demonstrate the need.
pilot tests or in phases.
Compartamos pro*ides an e<ample o!
phased7in changes.#ccording to a
sur*ey o! 4?> customers) orrowers had
the capacity to repay loans etween N?00 and N1>00. The sur*ey also !ound that
customers wanted a longer period !or the loan term and a smaller reFuirement !or
compulsory sa*ings. Compartamos then applied this !le<ile system to one ranch as a
pilot project in 'arch 12228
c 0hen new methodologies pro*e use!ul)
slowly e<pand.
w
w
Customers choose etween 1? or 2C wee5 loan terms.
Compartamos o!!ers loans up to N1)100 ,not the ma<imum amount customers say
they can pay-.
The !irst loan amount is etween N?0 and N1>0 ,pre*iously no more than N>0-.
The reFuired sa*ings amount is reduced !rom as much as 1@ percent to only 10
percent.
w
w
From 'arch to Septemer 1222) the port!olio o! the HtestI ranch increased y more than
C0 percent) the numer o! customers increased y more than 1> percent) the port!olio at
ris5 greater than 40 days shrun5 y C0 percent) and the customer7to7loan o!!icer ratio
increased y more than 40 percentL there were no 5nown ad*erse e!!ects. #lthough the
period !rom 'arch to Septemer arely comprises 2C wee5s ,the length o! the longest
loan term-) it was seen as a good start. %uring the year !ollowing the success o! the
original pilot test) Compartamos applied the changes to only three more ranches to
continue oser*ing results. Because the success continued) all ranches are now adopting
the new system.
4C
Halpern ,2000-.
100
6e<t Steps
3 6e<t Steps
Customer loyalty is 5ey to an institution&s long7term sur*i*al. #n institution uilt on
customer7centered principles gains customer loyalty y consistently respecting the
demands o! its customers. Losing customers can e costly. (romoting customer loyalty
will enhance retention and impro*e cost e!!iciency y persuading your customers not to
stray to other !inancial ser*ice pro*iders. =our customers will ene!it) too) y ha*ing
their needs met.
$mpro*ing customer satis!action does not rely only on technical e<pertise or e<act
scienti!ic research. #cti*ely listening to and caring !or customers also goes a long way in
gaining their trust and loyalty. #stute research and impro*ed ser*ices mean nothing i!
the customer is not treated well. #n 'F$&s sta!! that is sensiti*e to customer constraints)
ta5es their concerns seriously) and than5s them !or their patronage will go a long way in
retaining *aluale customers and 5eeping them happy.
Ta5ing #ction
This guide has taught you that a high le*el o! customer loyalty positi*ely a!!ects your
institution&s ottom line) and it has taught you how to achie*e loyalty among the ran5s o!
your customers. 6ow that you ha*e the tools and the 5now7how in hand) it&s time to ta5e
action on customer satis!action y as5ing your customers what they need and how you
can meet those needs. /nce you 5now the answers) you can turn not7so7satis!ied
customers into satis!ied customers) and turn already7satis!ied customers into loyal ones.
Through product design that corresponds with customer reFuirements) through attenti*e
customer ser*ice and loyalty incenti*es) you can uild relationships with customers who
will soon !eel your ser*ices you o!!er them are indispensale ecause you o!!er demand7
dri*en products that !it your customers& uniFue needs and li!estyles.
Start y considering the degree to which your institution is !ocused on customers.
M
M
M
M
M
%o your loan o!!icers de*elop strong relationships with customersA
%oes your institution ta5e steps to understand customer pre!erencesA
Ha*e your products and ser*ices een altered at least once in the past year to
accommodate customer demandA
#re ranches com!ortale and is ser*ice !ast ,e.g. places to sit) short lines) !riendly
ser*ice) etc.-A
#re sta!! memers happy with their jos and do they enjoy wor5ing with customersA
101
6e<t Steps
M
%o customers purchase ser*ices again and again) and do they rely on a *ariety o! your
productsA
=our answers to these Fuestions will tell you a it aout your institution&s relationship
with your customers) and help you to de*elop a distinct plan to culti*ate loyalty. 6ow)
!ind out e*erything possile aout your customersScurrent ones and !ormer ones) tooS
and determine how to est ta5e care o! their !inancial ser*ices needs. (erhaps additional
technology) li5e automatic teller machines ,#T's- or credit cards) would gi*e them the
added !le<iility they need. /r maye they just want to spend less time at group
meetings. 0hate*er it is) you can !ind out through !ocus groups) sur*eys) e<it inter*iews)
and use o! the other tools detailed in this guide. /nce you ha*e the in!ormation) you can
tailor your supply to your customers& demands. Finally) allow your institution to e
!le<ile and dynamicL y permitting a it o! elasticity in your operations) you can meet
your customers& needs today) and change and grow with them !ar into the !uture.
# Two!old /ligation
The two sides o! the dual mission o! micro!inanceSan economic ene!it !or the customer
and a !inancial ene!it !or the institutionScon*erge neatly into the customer loyalty
!ramewor5. /nce you !ully understand your customers& needs) you can e<pand your
product line to ser*e them etter. # care!ul and meditated e<pansion will increase your
impact on e<isting customers and deepen your outreach to include a wider range o!
indi*iduals who need micro!inance ser*ices. $ncreased customer loyalty is good !or the
micro!inance industry.
But !or customer loyalty to really ta5e root) 'F$s !irst need to train loan o!!icers and
other sta!! to e etter mar5eters and ser*ice pro*iders. The institutions themsel*es need
to learn to creati*ely de*elop and promote products and ser*ices that are commensurate
with need. For such de*elopments to proceed) institutions must !irst uild institutional
mar5et research and analysis capacity. $n the end) mar5et analysis will tell us !ar more
than impact analysis can) ecause mar5et analysis descries the demands o! customers.
$! we satis!y those demands) we !ul!ill the !irst reFuirement o! micro!inance8 to pro*ide
opportunities to those who the traditional !inancial system cannot reach.
102
#ppendices
#ppendices
#ppendi< #8 /*er*iew o! Customer %ata7+athering
Tools
Type o! Tool
Failure #nalysis
.<it $nter*iews
(re*enting
%e!ections
Complaints and
Suggestions
System
Client #d*isory
Board
Complaint
Solicitation
Strategy
Customer
Ser*ice %es5
'easuring
Satis!action
Focus +roups
Satis!action
Sur*eys
Targeted
Customer
Sur*eys
'ystery
Shopping
Euestions on
Loan
#pplications
'edium to
High
.ither High #lways #ll SiKes
1elati*e Cost $n7House or
Third (artyA
/*erall
.!!ecti*eness
FreFuency o!
"se
For what siKe
institutionA
Low $n7House 'edium #lways #ll SiKes
Low
Low
'edium to
High
$n7House
$n7House
$n7House
'edium
'edium
'edium to
High
#s 6eeded
#lways
#lways
Large
#ll SiKes
Large
'edium
High
High
.ither
Third (arty
Third (arty
'edium to
High
'edium
High
#s 6eeded
#s 6eeded
#s 6eeded
#ll
'edium to
Large
'edium to
Large
Large
#ll SiKes
'edium to
High
Low to
'edium
Third (arty
$n7House
'edium
'edium to
High
#s 6eeded
#lways
104
#ppendices
#ppendi< B8 #dditional .conomic Bene!its o! Long7
Term Customers
$n the !irst chapter) we discussed some important economic ene!its o! customer loyalty.
The !ollowing !igures !urther clari!y the importance o! customer retention.
Figure 42 demonstrates another crucial issue8 loyal customers with low loan alances are
more *aluale to the institution than larger orrowers who e<it the program. This tale
separates an 'F$&s e<isting customer ase into !i*e categories. 6ew customers) in
column #) are estimated to remain customers !or an a*erage o! two and a hal! years and)
ecause o! the high acFuisition and screening costs) generate a negati*e pro!it margin.
The remaining !our columns contain repeat customers who ha*e a mi<ture o! loyalty
,high or low- and loan siKes.
Figure 428 $mportance o! Customer Loyalty
1. ;ey customer
segments
,#- 1st time
orrower
,B- 1epeat
orrower
with low
a!!inity and
small loan
siKe
N200
1
200
1Q
N2
,C- 1epeat
orrower
with high
a!!inity and
low loan
siKe
NC00
3
4200
>Q
N1?0
,%- 1epeat
orrower
with low
a!!inity and
large loan
siKe
N@00
2
1C00
1Q
N1C
,.- 1epeat
orrower
with high
a!!inity and
large loan
siKe
N1000
C
C000
>Q
N200
2. #*erage loan amount
outstanding per year
4. 6umer o! years
li5ely to remain a
customer
C. 'ultiply 2 < 4
>. #*erage pro!it margin
?. 'ultiply C < > ] *alue
o! the customer
N400
2.>
@>0
72Q
7N1>
$n this e<ample) it is assumed that loyal customers with low loan alances ,C- will remain
with the institution longer than high a!!inity customers with large loans ,.- since the 'F$
may not e ale to meet the needs o! the latter segment o*er time. $n addition) the pro!it
margins !or long7term customers are higher ecause the initial acFuisition costs are
amortiKed o*er time. $! the institution !inds greater success in promoting loyalty among
customers with small loan alances) it may e<perience a counter7intuiti*e situation o!
pro!itaility increasing while its a*erage loan alance decreases. 0hen this pattern
continues o*er the years) the e!!ects multiply.
Figure 44 shows how the cost sa*ings and additional re*enues o! long7time customers
comine to produce an increasing *olume o! pro!its o*er the customer&s relationship with
the 'F$. The relati*e *alue o! each !actor will depend on institution7speci!ic details)
such as its cost structure and interest rateL the end result is that loyal customers generate
increasing pro!its. 1esearch in other industries has determined that companies can
10C
#ppendices
impro*e pro!its anywhere !rom 2> to 3> percent y reducing customer de!ections y >
percent.4>
Figure 448 0hy Customers #re 'ore (ro!itale /*er Time
1educed Loan Losses
(ro!its (ro!it !rom 1e!errals
1educed /perating Costs
Higher Loan Balance
Base (ro!it
1 2 4 C > ? @ 3 2 10
=ear
#dapted !rom 1eichheld and Sasser ,1220-
4>
1eicheld and Sasser ,1220-.
10>
#ppendices
#ppendi< C8 1etention 1atios
Chapter C detailed two !ormulas !or customer retention. :arious scholars in the !ield)
howe*er) ha*e put !orth many other !ormulas) some o! which were outlined y 1ichard
1osenerg at the 1222 'icroFinance 6etwor5 #nnual Con!erence.4?Figure 4C
summariKes these !ormulas.
Figure 4C8 1etention 1atios
Formula
Charles 0ater!ieldVC+#(
Formula8
11 ] FL V L(
.<planation
11 ] retention rate
FL ] numer o! !ollow7up loans made during the period
L( ] numer o! loans paid o!! during the period
This !ormula produces a retention rate per loan cycle) so it must e annualiKed to loo5 at
it on a yearly asis. For instance) an 30 percent retention rate on three7month loans
means that only ,0.30-C ] C1 percent o! the customers who are acti*e at the eginning
o! the year are still acti*e at the end o! the year. The !ormula does not include e!!ect o!
de!ault) ecause the denominator is loans paid o!!.
11 ] retention rate
L ] numer o! loans made during the period
6C ] numer o! !irst time customers entering during the period
#Cegin ] numer o! acti*e customers at the eginning o! the period
#Cend ] numer o! acti*e customers at the end o! the period
This !ormula restates the ao*e !ormula in a way that is more comple< ut uses
in!ormation that may e easier !or some 'F$s to produce.
11 ] retention rate
FL ] numer o! !ollow7up loans made during the period
L( ] loans paid o!! during the period
0/ ] loans written o!! during the period ,or otherwise classi!ied as unli5ely to e
repaid-
This !ormula re!lects the e!!ects o! de!ault y producing a retention rate !or per!orming
orrowers. $t is imper!ect in some other respects. $t would e use!ul only i! the 'F$ has
a sound write7o!! policy and applies it consistently.
%1 ] desertion rate
#Cend ] numer o! acti*e customers entering during the period
This !ormula will not wor5 !or a start7up program) where #Cegin is Kero. To otain a
retention rate) sutract the desertion rate !rom one.
#Cend ] numer o! acti*e customers entering during the period
%1 ] desertion rate
This !ormula is similar to the #CC$/6 !ormula) ut it can e used !or start7up
operations.
:ariation o!
0ater!ieldVC+#(8
11 ] L X 6C.
#Cegin \ L 7 #Cend
%e!ault Formula8
11 ] FL
L( \ 0/
.
#CC$/6 Formula8
%1 ] #Cegin \ 6C X #Cend
#Cegin
'ar5 Schreiner Formula8
%1 ] #Cegin \ 6C X #Cend
#Cegin \ 6C
11 ] #Cend.
#Cegin \ 6C
4?
Halpern ,2000-.
10?
Biliography
Biliography
Barlow) 9anelle)
Feedac5 as a
Sansome Street)
,C1>- 4?272>12.
and Claus '`ller. 122?. # Complaint is a +i!t8 "sing Customer
Strategic Tool. San Francisco8 Berrett7;oehler (ulishers) $nc. C>0
Suite 1200) San Francisco) C# 2C11174420. Tel8 ,C1>- 233702?0) Fa<
$SB6 6o. 173310>273173.
Bars5y) 9onathan. 1222. Finding the (ro!it in Customer Satis!action8 Translating Best
(ractices into Bottom7Line 1esults. Chicago8 Contemporary Boo5s. $SB6 073022723C47
2.
Bec5er) Sam. H/ld Customers #re +old Customers.I Septemer 1223. Lending and
1is5 'anagement 6ews) pulished y the #ssociation o! Lending and Credit 1is5
(ro!essionals. :olume 40) 6o. 2.
Brand) 'onica) and 9ulie +erschic5. 2000. 'a<imiKing .!!iciency in 'icro!inance8 The
(ath to .nhanced /utreach and Sustainaility. #CC$/6 $nternational) 120 Beacon
Street Somer*ille) '# 021C4. www.accion.org.
Campion) #nita. 2000. $mpro*ing $nternal Control. 'icroFinance 6etwor5) @44 1>th
Street) 60) Suite @00) 0ashington) %C 2000>. www.m!networ5.org.
Campion) #nita) and :ictoria 0hite.1222.$nstitutional 'etamorphosis8
Trans!ormation o! 'icro!inance 6+/s into 1egulated Financial $nstitutions.
'icroFinance 6etwor5) @44 1>th Street) 60) Suite @00) 0ashington) %C 2000>.
www.m!networ5.org.
Churchill) Craig F. 1222. Customer7Focused Lending8 The #rt o! $ndi*idual Lending.
Calmeadow $nternational) @44 1>th Street) 60) Suite @00) 0ashington) %C 2000>.
www.calmeadow.com. $SB6 6o. 072214C070>72.
Churchill) Craig F. ,.d.-. 122@. .stalishing a 'icro!inance $ndustry8 +o*ernance) Best
(ractices) and #ccess to Capital 'ar5ets. The 'icroFinance 6etwor5) @44 1>th Street
60) Suite @00) 0ashington) %C 2000>. www.m!networ5.org.
Churchill) Craig F. 122@. 'anaging +rowth8 The /rganiKational #rchitecture o!
'icro!inance $nstitutions. "S#$%&s 'icroenterprise Best (ractices. www.mip.org.
Consultati*e +roup to #ssist the (oorest ,C+#(-. 9une 1222. /ccasional (aper 6o. 48
'easuring 'icrocredit %elinFuency8 1atios Can Be Harm!ul to =our Health.
www.cgap.org.
+aile) +ary) 'arjan %uursma) and Laurenti .turu.1222.HCentenary 1ural
%e*elopment Ban5 Ltd. 'icro7enterprise $mpact #ssessment) Final 1eport.I Centenary
1ural %e*elopment Ban5 and Hi*os.
10@
Biliography
+itomer) 9e!!rey. 1223. Customer Satis!action is 0orthless) Customer Loyalty is
(riceless. #ustin) Te<as8 Bard (ress. www.ardpress.com. (hone >12.422.34@4) Fa<
>12.422.?0>1. $SB6 6o. 1733>1?@7407G.
+heen) 0illiam ..) %iego 9aramillo and 6athalie (aKmino. 1222. H'easuring "nit
The 'icroBan5ing Bulletin) 9uly 1222) $ssue 6o. 4. Calmeadow
$nternational) @44 1>th Street) 60) Suite @00) 0ashington) %C 2000>. /rdering
in!ormation a*ailale at www.calmeadow.com or www.pactpu.com.
+ri!!in) 9ill. 122>. Customer Loyalty8 How to +et $t) How to ;eep $t. San Francisco8
9ossey7Bass (ress. www.josseyass.com.
6agarajan) +heetha) (h%. (ersonal inter*iew. /ctoer) 2000.
Halpern) Sahra ,.d.-. 2000. 'icro!inance in the 6ew 'illennium8 .!!iciency) Customer
Satis!action) and CommercialiKation. The 'icroFinance 6etwor5) @44 1>th Street 60)
Suite @00) 0ashington) %C 2000>. www.m!networ5.org.
Har*ey) Tom. 122?. The Ban5ing 1e*olution8 (ositioning =our Ban5 in the 6ew
Financial Ser*ices 'ar5etplace. Chicago8 $rwin (ro!essional (ulishing. $SB6 6o. 17
>>@437@2471
Hayes) Bo .. 1223. 'easuring Customer Satis!action8 Sur*ey %esign) "se) and
Statistical #nalysis 'ethods. 'ilwau5ee8 Euality (ress. $SB6 073@4274?27G
Hes5ett) 9ames L) Thomas /. 9ones) +ary 0. Lo*eman) 0. .arl Sasser) 9r. and Leonard
#. Schlesinger. 122C. H(utting the Ser*ice7(ro!it Chain to 0or5.I Har*ard Business
1e*iew) 'arch7#pril 122C.
Hulme) %a*id. 'ay) 1222. HCustomer .<its ,%ropouts- From .ast #!rican 'icro7
Finance $nstitutions.I 1eport prepared !or 'icroSa*e 7 #!rica.
9ones) Thomas /.) and 0. .arl Sasser) 9r. 122>. H0hy Satis!ied Customers %e!ect.I
Har*ard Business 1e*iew) 6o*emer7%ecemer 122>.
;essler) Sheila. 1223. 'easuring and 'anaging Customer Satis!action8 +oing !or the
+old. 'ilwau5ee8 Euality (ress. $SB6 073@43274?C7?
;otler) (hilip. 122C. 'ar5eting 'anagement8 #nalysis) (lanning) $mplementation) and
Control. ,3th .d.- 6ew 9ersey8 Simon ^ Schuster. $SB6 07147@223>171
;rueger) 1ichard #. 1223. Focus +roups8 # (ractical +uide !or #pplied 1esearch.
6ewury (ar5) C#8 Sage (ress. Sage (ulications) $nc.) 2111 0est Hillcrest %ri*e)
6ewury (ar5) C# 21420. $SB6 0730427413@7>
;umar) ;rishna. 123@. Conducting +roup $nter*iews in %e*eloping Countries. "nited
States #gency !or $nternational %e*elopment) 0ashington) %.C. 20>24.
103
Biliography
Lee) 6anci. 2000. HCustomer7ased 'ar5et 1esearch8 The Case o! (1/%.'.I
Calmeadow $nternational) @44 1>th Street) 60) Suite @00) 0ashington) %C 2000>.
www.calmeadow.com.
1eicheld) Frederic5 F. and 0. .arl Sasser 9r. 1220. HBero %e!ections8 Euality Comes to
Har*ard Business 1e*iew) Septemer7/ctoer 1220.
1eicheld) Frederic5 F. 1224. HLoyalty7Based 'anagement.I Har*ard Business 1e*iew)
'arch7#pril 1224.
1eicheld) Frederic5 F. 122?. HLearning !rom Customer %e!ections.I Har*ard Business
1e*iew) 'arch7#pril 122?.
1eicheld) Frederic5 F. 122?. HThe Euest !or Loyalty.I Chemtech 122?) :olume 2? 6o.
12) pp 1C713. http8VVpus.acs.orgVhotartclVchemtechV2?VdecVFuest.html.
1osenerg) 1ichard. ,2000- H'easuring and 'inimiKing Customer %esertion.I $n
'icro!inance in the 6ew 'illennium) edited y Sahra Halpern. 'icroFinance 6etwor5)
@44 1>th Street) 60) Suite @00) 0ashington) %C 2000>. www.m!networ5.org.
The S..( 6etwor5. Learning !rom Customers8 #ssessment Tools !or 'icro!inance
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Building Customer Loyalty

Craig F. Churchill and Sahra S. Halpern

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