How consumer tiering gives impact the experience in digital banking

The application of consumer tiering has emerged as a key point strategy for enhancing customer experience, especially in the digital banking landscape. By segmenting customers into distinct tiers based on their value, behavior, and needs, banks can offer more personalized and efficient services, therefore boosting customer satisfaction and loyalty

The Application of Customer Tiering on Banking Landscape to Date

Consumer tiering involves categorizing customers into various levels or tiers, often ranging from basic to premium, based on factors such as

• account balance,
• transaction frequency,
• product usage, and
• overall profitability.

Where these factors can help the banks to tailor their products and services based on each customer tier more effectively.

One of the primary benefits of consumer tiering in digital banking is the ability to deliver highly personalized experiences. Premium customers might receive personalized financial advice, access to exclusive products, and priority customer support. In contrast, basic tier customers might receive more generalized services but can be offered upsell opportunities to higher tiers with additional benefits.

For instance, a high-tier customer might have a dedicated relationship manager accessible through a banking app, offering tailored investment advice based on their financial history and goals. On the other hand, mid-tier customers might benefit from automated financial planning tools that provide recommendations based on their spending patterns.

By identifying the most valuable customers, banks can allocate resources more strategically, ensuring that high-tier customers receive quick and effective support, while lower-tier customers are directed towards automated solutions and self-service options. Where the differentiation of customer service based on the tiers can enhance the customer experience but also optimizes operational costs .

One of the notable implementations is the digital bank might AI-driven chatbots for general inquiries from lower-tier customers, freeing up human customer service agents to handle complex queries from premium customers. This ensures that all customers receive timely assistance appropriate to their needs.

Indonesian Digital Banks that adopt customer tiering

Why Customer Tiering is so beneficials and the psychological aspects behind it

Effective consumer tiering might develop greater customer loyalty and retention. When customers feel valued and receive services that meet or exceed their expectations, they are more likely to remain with the bank. Especially for the high-tier customers will benefit from loyalty programs that offer rewards such as lower loan rates, fee waivers, and exclusive event invitations.

Moreover, the promise of advancing to a higher tier can motivate customers to engage more deeply with the bank’s services, such as maintaining higher account balances or utilizing additional banking products. In which the engagement addresses both the customer experiences and the customers’ lifetime value to the banks.

The success of the customer tiering is influenced by human psychological aspects. These aspects underlying loyalty in customer tiering involve several key elements: perceived value, personalized recognition, commitment, social identity, loss aversion, emotional attachment, and convenience and habit.

1. Perceived Value

Customers in higher tiers often receive tangible benefits such as exclusive offers, better service, and rewards, which enhance their perception of value. The perceived value, based on the cost-benefit analysis from the customer’s perspective, strengthens their loyalty as they feel they are getting more for their patronage.

• Social Exchange Theory: This theory posits that social behavior is the result of an exchange process aiming to maximize benefits and minimize costs. In the context of customer tiering, the benefits provided to higher-tier customers (e.g., better service, rewards) create a sense of perceived value that encourages loyalty.

2. Personalized Recognition

Customers appreciate being recognized and valued by the company. Tiering systems often involve personalized communication and tailored experiences for higher-tier customers, making them feel special and important. This recognition can lead to an emotional attachment to the brand.

• Equity Theory: This theory suggests that individuals seek fairness in their relationships. In customer tiering, the personalized attention and rewards received by higher-tier customers can make them feel fairly treated, encouraging a sense of loyalty.

3. Commitment

Commitment is a crucial psychological aspect of loyalty. As customers move up the tiers, they often invest more time, effort, and resources into the relationship with the bank. This increased investment can lead to a stronger commitment to staying loyal to the bank.

• Commitment-Trust Theory: According to this theory, commitment and trust are key determinants of relationship marketing. The benefits and privileges associated with higher tiers build trust and deepen the commitment of customers, enhancing loyalty .

4. Social Identity

Higher-tier customers may derive a sense of social identity and pride from their status. Being part of an exclusive group can enhance their self-esteem and reinforce their loyalty to the bank as a means of maintaining their social identity.

• Social Identity Theory: This theory states that individuals derive part of their identity and self-esteem from the social groups to which they belong. In the context of customer tiering, being in a higher tier can create a sense of belonging and pride, thus reinforcing loyalty

5. Loss Aversion

Loss aversion, a concept from behavioral economics, suggests that people prefer avoiding losses to acquiring equivalent gains. In the context of tiering, customers in higher tiers may fear losing their privileges and benefits if they switch banks or fail to maintain their tier status. This fear of loss can drive customers to remain loyal and actively engage with the bank to avoid downgrading.

6. Emotional Attachment

Building an emotional connection with customers can significantly impact loyalty. Through personalized interactions, attentive customer service, and recognition of individual needs and milestones, banks can develop strong emotional bonds with their customers. These emotional attachments can make customers more resilient to competitive offers and more loyal to their current bank.

7. Convenience and Habit

Higher-tier customers often receive streamlined and prioritized services, making their banking experience more convenient. Over time, this convenience can become a habit, making it less likely for customers to switch banks. The ease of accessing preferred services without additional effort reinforces loyalty.

Conclusion

Summarizing that the consumer tiering might significantly impact the digital banking experience by enabling personalized service delivery, enhancing service efficiency, and customer loyalty. By understanding and meeting the unique needs of each customer segment, banks can create a more satisfying and rewarding banking experience for all their customers. This strategic approach not only benefits customers but also drives business growth and profitability in the competitive digital banking landscape.

References

1. Social Exchange Theory: Blau, P. M. (1964). Exchange and Power in Social Life. New York: John Wiley & Sons.
2. Equity Theory: Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67(5), 422–436.
3. Commitment-Trust Theory: Morgan, R. M., & Hunt, S. D. (1994). The Commitment-Trust Theory of Relationship Marketing. Journal of Marketing, 58(3), 20–38.
4. Social Identity Theory: Tajfel, H., & Turner, J. C. (1979). An integrative theory of intergroup conflict. In W. G. Austin & S. Worchel (Eds.), The Social Psychology of Intergroup Relations. Monterey, CA: Brooks/Cole.
5. Gourville, J. T. (2003). The Effect of Implicit versus Explicit Comparisons on Temporal Pricing Claims. Marketing Science, 22(4), 503–518.
6. Schultz, D. E., & Block, M. P. (2011). Rethinking brand loyalty in an age of digital disruption. Marketing Management, 20(5), 28–33.
7. Verplanken, B., & Wood, W. (2006). Interventions to break and create consumer habits. Journal of Public Policy & Marketing, 25(1), 90–103.