ABSTRACT
The previous chapter highlighted the importance of developing and managing customer relationships and the growing concern with customer retention. One set of factors which might induce customer switching relates to poor service provision. Central to any approach to build and maintain good customer relationships is the management of service delivery to ensure quality and minimise the risks of service failure. The ability to deliver a high quality service that meets the needs and expectations of customers is key to building a competitive advantage in the fi nancial services sector. Because it is diffi cult for fi nancial services providers to gain a sustainable competitive edge just by offering new products or new product features, attention is increasingly being focused on quality, not least because the quality of the service that an organisation provides is diffi cult to copy. Furthermore, research suggests that high levels of quality will lead to higher levels of customer satisfaction, and higher levels of loyalty. The economics of customer retention suggests that retained customers will be important to fi nancial services providers for two reasons. First, retained customers are usually cheaper to serve because they already know something about the customer and their needs and the level of marketing expenditure required to keep a customer is much lower than the cost of acquiring new customers. Second, loyal customers can generate more revenue because they tend to be less price sensitive, because they are likely to buy additional products and services and because they will engage in positive word-of-mouth. While recognising that some aspects of this argument may be oversimplifi ed there are good grounds for believing that loyal customers generate higher profi ts. The delivery of a high quality service is essential to ensuring that customers maintain a productive relationship with a fi nancial services provider and in that sense, service quality can be expected to have a positive impact on organisational performance.
