The fallacy of profitability through loyalty in Banking: The growing importance of acquiring a new customer (original) (raw)
The banking practitioners have always been in a constant discussion on understanding the customer base that drives profitability. This effort is equally applied by commercial, retail and trust banking. With respect to retail banking the customer base is assessed using new customer acquisition strategies and the retention strategies for the existing customers. The banks have been striving to improve their profitability position by increasing their customer retention rates. An article cites that it is as easy as enhancing profits by a 100 per cent by retaining an additional 5 per cent of customers. The arguments in favour of retention have been challenged at various places and it has been stated that its advocacy to enhance profitability is conflicting in the present era of changing customer loyalty. This article brings about the relevance of new customer acquisition in contrast to customer retention. With a rising customer defection rates in banking, there is an ever growing need to come out of the seductive arguments given in favour of retention. This empirical investigation primarily defeats the arguments in favour of retention like year by year positive cash flows and has focused on analyzing the banking customer perception towards customer acquisition using 7 P’s of selected commercial banks. The empirical research brings out the important elements that are considered relevant by a new customer. Key Words: Banking, profitability, customer retention, customer acquisition, commercial banks
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