Why Top-Management Decisions Should be Customer-Centric?

Introduction

The retail bank industry is experiencing increased challenges, this has forced several banks to restructure their modes of operation accordingly. Banks have been forced to pay attention to market trends and deliver only those services or products which are required by the customers. The products offered by different firms in the industry result from the decisions made by the top management. The emerging market trends have made it necessary for the top management to tailor these decisions towards meeting customer demands. The reports made about the market conditions in the Lebanese and UK markets clearly indicate that customer satisfaction should be prioritized over product orientation. One of the main challenges being experienced in the retail banking sector is increased taxation by the government. The issue of taxation is specifically causing a lot of turmoil in the Lebanese banking industry. A special report released by the Schellen (2014) highlights the several challenges retail banks are facing as they operate in the Lebanon market. Taxation has been highlighted as the main challenge. When banks are faced with such challenges, they are usually forced to reconsider their modus operandi. Up until the twentieth century, many retail banks followed a product oriented mode of operation (Schellen, 2014). This has however proven to be ineffective since consumer needs are constantly changing.

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Understanding customer's needs requires intensified market research. This is the reason why more and more banks in Lebanon and UK are utilizing applied statistics derived from social sciences (KALMAR, LUKACS, BARCZI, HAJOS, & ZEMAN, 2014). The banks are focused on understanding why the planned customer satisfaction is different from the actual satisfaction. Managers need the information from these surveys so that they can plan on effective ways of meeting their customer demands. A product -oriented approach is not sustainable in today's retail banking industry. However, it is still very important. Banks which are doing well in the market have been shown to utilize the two approaches. They first understand the market needs and then tailor the customer experience in the best way possible. Survival in the modern retail banking industry requires a careful mix of these two factors.

Retail banks have a growing need to create deeper customer relations. In order to achieve this, they are doing all they can to meet their customer's needs and increase the overall satisfaction levels (KALMAR, LUKACS, BARCZI, HAJOS, & ZEMAN, 2014, p. 230). The retail banking sector is a service industry. Therefore, the "consumption experience" is an extremely important factor. This is the reason more banks are keen on ensuring the services they provide exceed the customer's needs or expectations. The increased need for customer loyalty is influenced by the growing competition in the retail banking industry. For example, banks in the Lebanese market have reported that they have been experiencing slowed growth in their balance sheets due to the increased competition in the market (Schellen, 2014, p. 5). Product orientation does not help in driving up sales and increasing the customer base nor profitability of retail banks. The special report by the Executive magazine helps to highlight the issue. In the report, it is stated that a substantial number of Lebanese banks are conservative in nature and have for a long time stuck to the same methods of operation. This has had a negative impact on their rates of returns as growth in the sector has stalled. For instance, it was reported that their RoEs have "been satisfactory but not high." Such cases are usually attributed to lack of innovation. The in the RoEs has however forced the banks to reconsider their top management decisions and are now focused on finding ways which can attract and maintain customers.

Political turmoil in the Lebanese region has had a negative impact on the retail banking sector. The turmoil in Syria has minimized opportunities for growth and has forced banks to tailor their management decisions towards innovativeness and growth. Effective management decisions can have a drastic impact on customer satisfaction. In the report released by the Executive magazine, Creditbank, a bank operating in the Lebanese markets devised a growth strategy which prioritized customer demands through the implementation of various technologies. Using a customer-centric approach, the bank was able to increase its ratio for primary liquidity to assets by a significant margin. In 2011, the bank's ratios were at a paltry 20%. However, after implementing the new customer-centric decisions, the ratio for primary liquidity to assets grew to 30.12 (Schellen, 2014, p. 14). The bank started out as a very small bank and only operated on a small-scale basis. It was the decisions taken by its top management which enabled it to operate as a key industry player. The success of Creditbank is a clear call for more banks to abandon the conservative approach and explore newer ways of meeting customer demands.

Customer satisfaction and loyalty are extremely necessary for banks which need to increase their profit margins. Many top management decisions are aimed towards attaining and maintaining customer loyalty. There are various ways through which banks achieve this. The most efficient way however is through the use of behavioral economics where banks pry on their customer's psychology. Creditbank uses various loyalty programs to gain their customer's loyalty. The bank is also considering the use of small rewards such as ice creams to gain more loyalty from their customers. Their main aim is to get the customers to use their cards more and these methods have proven to be effective. Such decisions are justified since there is a scarcity of new customers. Attaining customer loyalty is half the battle. A few of the factors which influence the loyalty of customers include; the price, service and products (Pilorge and Saiz, 2010, p. 5).Banks in the Lebanese market are focused on winning their customer's loyalty because it allows them to provide the customers with more banking products in the future. Winning customer's loyalty should however not be used in isolation as there are various factors which influence the growth of a retail bank. Even though the importance of product orientation cannot be undermined, customer satisfaction still holds more importance. The banking industry is influenced by powerful forces. Customers' expectations are constantly changing. Technological capabilities are also changing. Technology has been shown to have an impact on the level of customer satisfaction. It is therefore very important for retail banks to invest in technology which guarantees the maximum amount of customer satisfaction. It has been predicted that banks which are still operating on a traditional basis and upholding conservative measures will not be able to survive the coming era in the banking industry (PWC, 2014, p. 1). There has been a surge in the number of new entrants in the banking industry. They offer better customer value and better products through different channels. This implies that existing banks which fail to pay close attention to their customer needs may lose some of their customers.

A product oriented approach of retail banking does not allow them to be shapers of the future. Being resistant to change is a sure way of losing out on the ever growing industry. A customer-centric approach on the other hand, is the surest way of attaining sustainability in the retail banking industry. The retail banking industry has been experiencing slow growth, the ROEs have also remained low and operational costs have gone up. Intensified regulation is also making the costs of operation to be high. For instance, the proposed two percent increase in taxation for banks in the Lebanese markets could further impact the industry negatively. All these conditions force banks to make decisions which can help to steer their firms ahead. PWC (2014) reports that the main challenge experienced by a majority of banks is the attraction of new customers. Many banks are hungry for growth and it is difficult to do that without attracting new customers. The banks are therefore in need of coming up with customer-centric strategies so that they can not only win new customers but also maintain the ones they have. Customer outcomes are proving to be very important in the modern retail banking industry. PWC reports that enhancing customer service is the most prioritized goal for banks globally.

The issue of attracting and maintaining customers is not only prevalent in the Lebanese region. Banks in Asia and other developing regions have also reported that they are struggling with the issue. Banks cannot take up a product oriented approach in the midst of all these factors. The new entrants intensify competition and existing banks have been forced to develop new products to meet some of their customers' needs. There is also the problem of limited resources for most banks in Europe and the US. These banks have been forced to make cost-effective yet revolutionary decisions in order to stay afloat. The PWC report outlines six priorities which can help banks cope with the changing needs of the market. The number one priority is the development of a customer-centric business model. The other significant priority listed is the enabling of innovation. The main disadvantage of following a product-oriented model is that the customers may not be interested in the product being offered (Schmundt, 2018). A product-oriented approach also works best for firms which have an established reputation. Therefore an effective management decision is one which focusses on coming up with products which are required by customers and has the ability to satisfy their needs. Projections made by the PWC indicate that customers will become more mobile in the coming years which will only intensify the competition between retail banks. Banks will therefore be forced to intensify their market research and only provide products which bring in acceptable returns.

Conclusion

The products offered by retail banks are a result of the decisions reached by the top management. The reports discussed indicate that top management decisions need to be geared towards customer satisfaction as opposed to product orientation. Managers who fail to conduct research and blindly focus on product orientation over customer satisfaction can cause the failure of their banks. All product development decisions reached by the top management need to be based on the customer needs. It is also imperative that the top management understands that customer preferences are always changing. This implies that that their decisions should be based off current information. Effective decision-making in regards to product development can lead to the success of a retail bank.

References

KALMAR, P., LUKACS, J., BARCZI, J., HAJOS, L., & ZEMAN, Z. (2014). Bank Services and Product Marketing Controlling: Applying Multivariate Method for Customer Satisfaction Variance Analysis. International Journal of Engineering.

Pilorge, P., & Saiz, B. (2010). Understanding Customer Behavior in retail Banking: The Impact of Credit Crisis across Europe.

ERNST & YOUNG.PWC. (2014). Retail Banking 2020 Evolution or Revolution? PWC Network.

Schellen, T. (2014). BANKING IN LEBANON (179). Executive Magazine.

Schmundt, W. (2018, May 30). Customer Loyalty in Retail Banking: Global Edition 2013. Retrieved from https://www.bain.com/insights/customer-loyalty-in-retail-banking-2013/