Editor's note: Paul Lubin is vice president and director, Customer Research Division, Barry Leeds & Associates, Inc., New York City. This article originally appeared in Banker's Monthly magazine.

In today's deregulated banking environment, the sheer level of competition accentuates the importance of building and maintaining customer loyalty. Most banks have learned through experience that marketing programs aimed at improving customer retention help increase market share and product line revenues.

Banks have also come to recognize the need to conduct regular measurements of customer satisfaction. But in designing and conducting the research they often fail to discern the close links between service and product issues, and customer retention and revenues.

Instead, they assume that maintaining high levels of customer satisfaction will, by itself, ensure consumer loyalty. Bank marketing executives might better utilize their research budgets to identify and then improve performance on the issues which count-- those which limit customer defections. Focusing resources on extending customer tenure especially among high balance relationships can have a powerful effect on revenues.

The table below demonstrates the effect of limiting customer attrition for a medium-sized commercial bank in a northeastern city with 70 branches that recently dedicated a portion of its research budget to customer retention.

Once a customer retention strategy had been endorsed, the bank used market research to identify the "controllable" issues which best differentiate current and highly satisfied customers from consumers who have closed accounts and switched to another bank. Retention modeling was used to help identify and prioritize the factors which lead to customer discomfort and decisions to switch.

By improving customer retention the bank not only increased current product income, it also guaran...