No payoff from good customer service and customer friendly focus?


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Is Richard Bove on to something?

When an anomaly comes along and/or someone questions that which is taken for granted by a community we can either ignore it or we can dive into it, grapple with it, and see what we can learn. This piece by the New York Times about the poor service Richard X. Bove experienced at a Wells Fargo branch caught my attention. And in particular the following statement

“I’m struck by the fact that the service is so bad, and yet the company is so good,” said Mr. Bove, an analyst with Rochdale Securities. “Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought.

Lets be clear on this. Richard Bove has come across unhelpful bank tellers, unexplained monthly fees and fumbled mortgage application. On the other hand, as a securities analyst, he observes that the bank is doing well financially. And on that basis he questions the value of banks being good to their customers as opposed to pushing products and managing risk.

I say great, we should keep an open mind and question the taken for granted. Further, I say that there is no simple relationship between customer service/customer focus and financial performance. What mattered yesterday might not matter today or tomorrow. What did not matter might be critical in the future. In any competitive industry, one has to be mindful of competitors and consumer needs/behaviours.

Is it really possible to treat your customers badly and do well financially?

Why might it be possible for a bank to do well financially despite lacking the customer orientation and not delivering good customer service? The simple answer is that customers keep doing business with the bank – they keep accepting poor service from the tellers, accept/don’t notice unexplained monthly charges and put up with fumbled mortgage applications. So the question becomes: why do customers stick with their existing banks and not move to other banks?

It is fashionable to peddle the view that many customers will take their business elsewhere if their existing supplier treats them badly. I am not convinced that this is actually the case for the majority of customers. I say that customer surveys get access to what customers would like to do (switch after a poor experience) as opposed to accessing what customers actually do. Why the difference? We stick with what is convenient and we accept what works well enough. Furthermore, we get used to being lied to, being hit with unexplained charges, difficult to use/irritating IVRs, company staff that are clueless ….. And we learn to cope. For example, we use online banking as opposed to going to the branches.

My experience, UK experience, suggests that many if not most customers are firmly convinced that one bank is pretty much like any other bank. Furthermore, they are convinced that it is a difficult, time consuming, chore to move banks. Lastly, they are convinced that the process will go wrong and then they will have to expend more time trying to get hold of unhelpful banks and companies to fix what is gone wrong. Given this, it is no surprise (to me) that banks have some of the highest ‘customer loyalty’ levels around. I wonder if some of this also applies to the USA.

At this point you are most likely to be thinking that I am in agreement with Richard Bove: that treating customers right simply doesn’t matter and banks should focus on pushing products and managing risk. Not quite. To get a rounded perspective we have to deal with competition and time. Let’s start with competition.

Lets consider the impact of time and competition

Where each player in the industry works to the same theory of business and thus goes about business the same way customers really have no choice. However, when a new entrant comes along and does things differently then the opportunity for disruption occurs. Think Amazon. Hasn’t Amazon fundamentally changed the book buying and reading experience and in doing so attracted and retained hordes of book readers. Has it not thrown the incumbents to the wolves? Think Apple: how many sleepy/cosy industries has Apple disrupted?

So my key point is that as and when a new entrant shows up in the banking industry and offers a superior value proposition centred on honesty, convenience and customer service in the banking industry it will be interesting to see what happens. In the UK I am watching the progress of Metro Bank with interest. Also, it will also be interesting to see if Richard Branson and the Virgin Group do anything interesting given that they are looking to buy branches from the existing banks.

Time matters. The best way for me to make this real is to share the example of Tesco. For ten years or so Tesco did extremely well financially, it was the company to beat in food retailing in the UK. That is no longer the case as this piece shows. What happened? In the UK Tesco failed to invest in the customer experience. Specifically, Tesco failed to invest in the stores and in the people that served customers. Over time the customer experience became poorer and competitors caught up. Then the recession arrived, customers went to competitors, Tesco lost market share, issued a shock profit warning and the value of the company dropped by £5 billion.

Yet, to get that time matters we do not have to go beyond the financial services industry. Look the banks made a fortune over the last 30 years. More and more deregulation delivered more and more revenues and profits. Then the financial services industry as a whole went bust. Yes, bust. Time caught up with financial services industry – it just took 30 years for the consequences to catch up with behaviour. And we, through our governments, have socialised the losses. It is only because the citizens/taxpayers have taken the hit, a big hit, that the banks continue.

Summing up

Wells Fargo may be doing well today because it is reaping the fruits of yesterday and/or sacrificing the future. Yes, you can always boost short term revenues and profits by milking lazy, confused, gullible and helpless customers. Put differently, the only way we can know if Wells Fargo can get away with poor service by bank tellers, unexplained monthly charges and fumbled mortgage applications is to see how things play out in the next 10 years or so. If you are tempted to take your customers for granted then I urge you to reflect on: what Amazon did to the book publishing/selling industry; what Apple has done to numerous industries including music, mobile phones, computing; and how the mighty like Tesco, Nokia, RIM have fallen.

Note: This is my first and last post for August. I am taking time out and intend/expect to be back in September. For my part, I wish you well and thank you for taking the time to read what I write and share your views.

Republished with author's permission from original post.

Maz Iqbal
Experienced management consultant and customer strategist who has been grappling with 'customer-centric business' since early 1999.


  1. Maz –

    We have been conducting retail bank customer advocacy research in the U.S., Canada, and the U.K. since 2010. Our advocacy framework clearly shows that retail banks have many opportunities for organic growth by building their portfolio of Advocates in key segments. It is no secret that organic growth is more profitable than new client acquisition. In a recent IBM global business services report, the issue has been accurately addressed:

    "As mergers and acquisitions become less attractive, leading financial institutions look increasingly to their existing customer base for growth. Critical organic growth measures – cross-sell, attention and new customer acquisition – dominate nearly every retail bank's agenda” (IBM Global Business Services – Unlocking Customer Advocacy in Retail Banking, 2006).

    We completely agree. However, the economic crisis of 2008 and the shrinkage of demand for financial products and services has put added pressure on customer retention.

    In mid-2010, our company conducted the first groundbreaking National Retail Bank Customer Advocacy Study (National Advocacy Monitor) among 7,000 adult respondents. This research featured the application of a unique framework specifically designed to identify the most actionable, real-world attitudinal and behavioral drivers of customer decision-making. The core of this framework is determining of customer advocacy levels, the degree of kinship with, favorability toward, and trust of brands; but, principally, advocacy identifies the downstream customer communication and marketplace behavioral effects of word-of-mouth based on personal brand experience.

    Consulting firms such as McKinsey have determined that word-of-mouth drives 20% to 50% of customer decision-making, and as much as 90% in some industries; so our framework represents a valuable, contemporary technique for evaluating the impact of transactions as well as strategic brand strength based on peer-to-peer communication and brand perception.

    In our U.K. results, for example, there was dramatic difference in the demonstrated wallet share of wallet – over twice the level of investable assets – among the bank customers characterized as Advocates versus those identified as Alienated. In addition, whether we were examining relationship-based performance attributes, such as trust and confidence, or functionally-based attributes, such as breadth of accounts available for customers, Advocates were significantly more positive when compared to Alienated customers. This same result was seen among U.S. bank customers.

    In addition, for both the U.S. and U.K. bank customers, perceived problems were quite high among the Alienated group. Worse, a high percentage of the Alienated group with problems saw them as unresolved. As reported in many customer studies, unresolved problems are perhaps the single largest contributor of defection, so this is an important issue.

    Frequency of negative communication was extreme among U.K. bank retail customers tagged as Alienated. Alienated customers reported having close to ten negative conversations about their banks to others during the previous six months prior to the survey. Conversely, positive conversations were held by Advocates at a rate of almost eight times over the past six months. And, given that word-of-mouth is so highly leveraging of the behavior of others, both numbers are significant in their potential impact.

    In the U.S., where advocacy performance of the nation's top fifteen banks was evaluated, there was a dramatic spread between the best performing and worst performing of these organization in terms of both advocacy creation (see below) and the creation of alienated customers (10% for the best performing bank, 25% for the worst performing bank).

    Many studies conducted in the retail banking industry over the years have determined that there is a fair amount of inertia, i.e. willingness to remain with the present bank, among customers, almost irrespective of perceived performance. More recently, likely as a result to a perception of greater instability within the industry, there has been a marked increase in propensity to switch banks in both the U.S. and U.K. Given that half of retail bank customers in both of our banking studies were identified as either Ambivalent or Alienated, this is a major concern for bank marketers and executives.

    Our most important research conclusion in these studies was that advocacy monetizes at a stronger, and more consistent, rate than other key customer research measures in active use. For example, customers whom our research framework identified as Advocates can contribute to significantly higher share of wallet growth for a bank than the Alienated or Ambivalent customers. Alienated customers added products and services at competitive banks, similarly, at several times the rate of customers who were advocates of their primary bank.

    For financial institutions, and indeed virtually any organization, it means that the odds of selling a product to advocates versus losing these sales to competition is five times higher than the same odds of selling to alienated customers. This type of actionable polarity in findings between customers who were alienated and customers who were advocates sustained whether we were evaluating overall performance, trust and relationship, touchpoint (tellers, service representatives, etc.), functional elements such as ATMs, or key monetizing elements such as future purchase likelihood.

    Among other key findings from our National Advocacy Monitor:

    • In our study, the top two banks in terms of the percentage of their customer bases who were identified as Advocates through our framework were three times the percentage of Advocates of the bottom two banks (37% and 35% vs. 13% and 11%)

    • One quarter of the customers of the two lowest performing banks were classified as Alienated, i.e., they are negative toward these banks and are disaffected communicators

    • Emotional elements (trust and confidence) and satisfaction with key touchpoints (bank staff, account manager, service culture, branch, and live rep) are highly correlated with overall bank advocacy levels

    • Advocates (of their primary bank) are significantly more likely to have strong belief and emotional connections to their bank compared to Alienated customers. Polar results examples: 'Always treats me fairly', 84% vs. 2%, 'I feel like I belong', 70% vs. 1%

    • Advocates have a strong willingness to explore new products from primary bank – 50% will consider vs. 5% of Alienated customers

    • Advocates are virtually certain to have a continued relationship with their primary bank compared to Alienated customers who are virtually certain of not continuing.

    In addition, our analysis showed that transactional and overall experience were extremely important contributors to bank customer advocacy:

    • Frequency of interaction is a definite 'marker' of customer advocacy. Customers with 10+ interactions per month were almost twice as likely to be Advocates as those with 1 to 2 interactions, and four times compared to those with no interactions

    • Customers who had no problems or issues with their primary bank were four times as likely to be Advocates as those who had experienced a problem. Also, one-third of the Alienated customers who had identified a problem or complaint said that these issues had not been resolved; and this is a cause for service-related concern.

    • Having a business banking account with their primary bank was another 'marker' of advocacy, as well as an opportunity to build profit and deepen the relationship. Twice the percentage of customers with business accounts were Advocates, compared
    to customers with no business accounts

    Our advocacy results were also consistent with metrics typically applied in most bank strategic and transactional customer research, except that these findings were invariably much more polar and directional, thus yielding greater insight and actionability for organizations using these data.

    The linkage between bank customer experience and bank financial performance is covered in greater detail in my book, The Customer Advocate and The Customer Saboteur.


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