In a fascinating white paper by the Institute of Client Service, research reveals this amazing statistic:
“For each 10% of market share growth, client satisfaction declines by 1.5%.”
Just ponder that point for a moment. On one hand, it may explain why those organizations with near-monopolies tend to have such atrocious client service. (Think Comcast or other cable TV companies… many utilities… the Post Office… as examples.)
And, why larger companies frequently deliver inferior service to smaller ones. (Think back a few years to US Airways, for example, versus Southwest.)
But… does it have to be this way?
Many financial advisors and their practices that I’ve observed over the years seem to work their way through this cycle:
Strategy, Service, or Idea: The genesis of many companies can be found in a product, service, or idea that an entrepreneur or executive believes in strongly, and is committed to bringing to the marketplace. This period usually involves a great deal of focus on making the best product, organizing the service delivery system, or refining the idea to a level that it can be efficiently produced and marketed. For financial advisors, this point can often be a particular investment preference, a desire to break away from a current team or firm and mold a better opportunity, or an idea how to serve clients more effectively.
Client Focus: After this first step is accomplished, the attention now turns toward this question: “How do we market what we have created?” By the very nature of the question, a client focus is required — obviously there is no practice or career in financial services that is sustainable without clients. Along the way, efforts are made to serve the client effectively, and often this extends into creating compelling experiences that clients desire to repeat.
Market Share Growth: The success of both the practice and the client focus stimulates demand — and repeat and referral business generated as a result of the client focus expands the growth of the enterprise. (We know that happy and satisfied clients repeat their business and tell their friends.) The practice also often begins to target areas of additional opportunity, meaning they are now bringing a more varied and complex client base into their practice.
Declining Client Satisfaction: The growth, however, often means that the practice now begins to unintentionally erode the very advantages that created their success. Clients end up feeling more “processed” and less “served.” The more diverse client base frequently means that it is more difficult to deliver a superior client experience. The natural outgrowth of this situation is a decline in client satisfaction — which, in turn, means dwindling repeat and referral business.
Market Share Plateau: Without the repeat and referral business, the AUM — and profitability — of the practice tends to stagnate. Despite significant efforts in acquisition, the failure to hold on to clients means that marketshare declines — as does profitability; because as we realize, the acquisition costs of clients are significantly higher than the investment required for retention.
Priority Reassessment: The challenge of stagnation creates an urgency to reassess the priorities of the practice. And, here is, perhaps, the most critical juncture. Some organizations miss the mark — as when Starbucks made music retailing a priority to improve declining client loyalty and same-store sales growth. Others, however, will say, “We have moved away from the kind of client intimacy and experience that created our success.” They will then develop an idea, create a service effort, or improve their offerings in a manner that returns them to client focus… which will frequently result in a renewed growth in marketshare.
Here’s the key — if you maintain a focus on clients… and build upon the Four Cornerstones of Distinction: Clarity, Creativity, Communication, and Client Experience Focus… this does not have to be a cycle experienced by your practice.
As another study reported, companies that prioritize the client experience have 60% higher profits than their competitors that do not. And, a 2% increase in client retention has the same impact upon your profitability as reducing costs 10%.
The problem is… once we start to grow, we take our eyes off the ball.
Because many of us have been better trained in investment instruments than how to engage clients and create distinction for our practice, when the point of reassessment arrives, we merely take the path of least resistance — which may contribute to clients becoming even increasingly dissatisfied.
Where is your practice on this cycle? And… what are you doing about it?