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Measuring Customer Loyalty In The 21st Century

Asking consumers what they think is so 20th century.

It’s 2015. The era of Big Data. Why ask about consumers’ intentions and attitudes when we have troglobytes worth of data about what they do. After all, actions speak louder than words, right?

It’s time for marketers to reassess their customer metrics, and bring their measurement techniques into the new century. One area, in particular, needs to be updated for the 21st century: Measuring customer loyalty.


How does your bank or credit union measure your customer/member loyalty?

According to the 2014 Financial Brand Marketing Survey, more than two-thirds of FIs use multiple measures including customer satisfaction scores, retention rates, and number of products per customer. Add into that the more than one-third of FIs who calculate their net promoter score.

So if I ask, “How loyal are your customers/members?” you would be hard-pressed to give me a single, reliable number. You might have a high percentage of customers who are satisfied, but does that mean that they’re not leaving, growing the number of accounts, and have the stated intention of referring you to their family and friends? No.


Have you ever stopped to ask your customers/members what constitutes “loyalty” from their perspective? You haven’t, have you? So much for  “voice of the customer.”

Zendesk asked, however. What they found is that nearly eight of 10 consumers said they demonstrate their loyalty by providing referrals, seven in 10 said they do so by buying more, and just over half said they demonstrate loyalty by not considering other providers.


The third action is interesting. “Not considering other providers” may appear to a good demonstration of loyalty. But, as a marketer, I might want my customers to consider other providers, as long as they still choose me. To me, that’s a more active demonstration of loyalty.

From a measurement perspective, however, it’s moot. We marketers would be hard pressed to try to measure this behavior (or lack thereof).

So that leaves us with two key loyalty behaviors: Providing referrals and buying more.


The 2015 Financial Marketing Survey asked bank and credit union marketers: In the past year:  1) What % of your customers/members referred you? and 2) What % of your customers/members grew the number of accounts they have with you?

Forty-seven percent of respondents said their FI didn’t know the answer to the first question, and 37% of respondents said their FI didn’t know the answer to the second question.

So much for accurately measuring customer/member loyalty in those FIs!


What I’d like to propose is a new metric.

You can call what you want, but I call it the Referral Performance Score. You can calculate it however you want, but here’s how I calculate it:

Referral Performance Score =
% of customers that provide a referral
% of customers that grow the number of accounts

You can calculate this score over any time period, but in the studies I’ve done, I’ve looked at 12-month blocks of time. Also known as a “year.”


Why do I think this is a better metric than what’s already out there? First and foremost, because it measures behavior, and not intention.

Intentions are nice, but they don’t pay the bills. “I intended to bring in a million dollars in sales this year, boss. Even though I only brought in $100k, I think I should get compensated for my intention.” See how far that gets you.

Yet more than a third of you seem to be OK with a metric that gauges your customers’/members’ intention to provide a referral, conveniently ignoring the reality that few of them actually do so.


There are other reasons why I believe the Referral Performance Score is a superior metric, and they draw on both the consumer and FI research that I’ve done.

In a number of consumer surveys that I’ve conducted, I’ve asked asked how about their referral behavior and their account growth behavior. In the most recent consumer survey I conducted, 39% of consumers said they referred their primary FI in the prior year, about one in five last provided a referral more than 12 months ago, and four in 10 had never referred their primary FI.

When it came to account growth, 80% did not change the scope of their account relationship with their primary FI, 6% actually reduced the number of accounts, and 14% grew the number of accounts. This gives the industry an RPS (referral performance score) of 546 (=39×14).


The more important reason why this is a useful and valid metric is how it relates to specific consumer behaviors and activities. Three, in particular: 1) Engagement; 2) FI Help, and 3) Change in financial health.

In a recent consumer survey, I set out to measure consumers’ level of engagement with their financial lives. I defined 15 different activities including things like creating/managing a budget, categorizing/forecasting expenses, tracking interest rates, evaluating the return on savings/investments, and seeking advice and guidance on making smart financial decisions.

Based on the frequency with which a consumer performed these activities, I calculated an engagement score, and based on that score categorized him/her as Highly Engaged, Moderately Engaged, or Unengaged. About one in five consumers are in the first bucket, half in the second, and three in 10 in the last group.

Which engagement segment do you think has the highest Referral Performance Score?

It’s the highly engaged. Roughly half of them referred their FI, and 18% grew the number of accounts. Among the moderately engagement, a nearly equal percent grew the number of accounts (16%), but just 35% referred their FI. The unengaged were far less likely to refer or expand the relationship, at 26% and 6% respectively.

                           % referred     % grew accounts   RPS*
Highly-engaged             51%            18%               918
Moderately-engaged         35%            16%               560
Unengaged                  26%            6%                156


Another set of questions in the survey asked consumers if they received or sought out any “help” from their bank or credit union. Not “monetary” help, but help in the form of advice or guidance, educational material, or using PFM tools.

Thirty-five percent of consumers got “help” from their primary FI in the year leading up to the survey, 65% did not.

Among those that got help, half referred their primary FI, and 20% grew the number of accounts. Among those didn’t get help, just one-third referred, and 11% grew the number of accounts.

                           % referred     % grew accounts   RPS*
Received help              49%            20%               987
Did not receive help       33%            11%               374



The survey also asked consumers to assess how their financial health had changed since the depths of the recession. Among consumers who said their financial health had improved, 49% referred their primary FI and 17% grew the number of accounts. Among those who said their financial health declined, 37% referred and 16% expanded the number of accounts. Among consumers whose financial health did not change, 34% referred and 12% grew the number of accounts.

                           % referred     % grew accounts   RPS*
Financial health improved  49%            17%               845
Financial health declined  37%            16%               574
No change in health        34%            12%               403



Let’s look at the FI research.

I mentioned before that there were a fair number of bank and credit union marketers who didn’t know what % of their customers/members referred or grew the number of accounts. But among those that did, they said that, overall, 30% of their customers/members referred, and 22% grew the number of accounts.

Why the discrepancy with the consumer-provided data? Differences in definition and measurement ability, for sure. Consumers may say they provided a referral, but can they be sure that the other party actually opened an account? And I don’t doubt that many banks and credit unions consider adopting mobile banking or eBills as “expanding the relationship.”

But there were some important findings in analyzing the marketer survey.


Survey respondents were asked about their FI’s loan and deposit growth in 2014 from 2013. Based on their responses, I categorized respondents into three groups: 1) High-growth FIs (averaging 20% increase in loan volume and 16% increase in number of deposit accounts in 2014 from the prior year); 2) Moderate-growth FIs (10% growth in loan volume, 7% increase in deposit accounts); and 3) Low-growth FIs (2% growth in loan volume and 3% decline in deposit accounts).

Both High-growth FIs and Moderate-growth FIs reported that one-quarter of their customers/members grew the number of accounts with them in 2014. But among High-growth FIs, 41% of their customers/members provided referrals, in contrast to 32% of the customers/members of Moderate-growth FIs.

Low-growth FIs saw just 18% of customers referring and 13% growing number of accounts.

                           % referred     % grew accounts   RPS*
High-growth FIs            41%            25%               1025
Moderate-growth FIs        32%            25%               800
Low-growth FIs             18%            13%               234


The survey also asked FI marketers to assess their marketing analytics capabilities (for another report I’ll be working on). Based on this self-assessment, I segmented respondents into three more groups: 1) Analytics Leaders; 2) Analytics Contenders; and 3) Analytics Laggards.

Analytics Leaders reported that 36% of their customers provided referrals, while Analytics Contenders said 33% of their customers had done so. But there was a significant difference in the percentage of the two groups’ customers who grew accounts. The Analytics Leaders saw 36% of customers growing the number of accounts, in contrast to one in five customers of the the Analytics Contenders.

And the Analytics Laggards? Twenty-seven percent of customers referred, 17% grew the number of accounts.

                           % referred     % grew accounts   RPS*
Analytics Leaders          36%            36%               1296
Analytics Contenders       33%            20%               660
Analytics Laggards         27%            17%               459


Bottom line: I could go on for another hour trying to convince you why the Referral Performance Score is a superior metric to what you’re using today, and especially if you’re using that nonsense called the net promoter score.

But whether or not you adopt my proposal, there are a couple of things I hope you take away from this post:

  1. Measuring intention is no substitute for measuring behavior, and
  2. The differences in FIs’ customer relationship performance may be explained by referral behavior, and not just account activity.

If you’re not tracking referral activity in addition to account activity, you’re simply not accurately measuring customer loyalty.


*Please note that my RPS calculation is based on the actual percentage of customers referring and growing accounts. I have chosen to show the percentages rounded to the nearest whole number which is why the RPS may appear to have been calculated incorrectly. They were not.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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The Financial Brand Forum 2017 | May 17-19 | Las Vegas


  1. That’s a much better tactic than asking customers if they are planning to recommend the bank to all their friends. I really wonder if the banks don’t know what they are doing with evaluating customer loyalty and satisfaction or if the current method of surveys and mystery shops are for different purposes altogether (like justifying ways to limit monthly, quarterly, or annual bonuses). I once failed an otherwise perfect shop because I didn’t use the customer ‘s name (I guess the customer is prone to forgetting). The questions and scoring have nothing to do with customer loyalty or satisfaction. If measuring those are the intent of shops and surveys, I can’t imagine them having any success at all.

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