Customer Loyalty in Retail Banking (Part 1 of 2)

In October 2010, Bain & Company released a report titled “Customer Loyalty in Retail Banking: North America 2010”. Using an intriguing approach, Bain asked respondents “How likely are you to recommend your primary bank to a friend or relative?” and then asked a follow-up question “Tell us why you gave your primary bank that score.

When Bain analyzed the frequency of terms they discovered that “service” was the single word customers most often mentioned.  “Service” was not only mentioned most often by promoters, but also by detractors.  Not a surprise because good customer service is the key reason customers are loyal to a bank, and poor customer service is the main reason that they do not like their bank.  Some of the other most frequent words used by promoters were “customer”, “good”, “great”, and “friendly”.   For detractors, the most frequent words used included “good”, “customer”, “fees”, “just”, “like”, “rates” and “interest”.   

Clearly, the driver for promoters is service.  For detractors, the main driver is also service, but certainly rates and fees can play a role as why they are dissatisfied with their bank.  According to the study, “service delivery clearly has the greatest potential to set a bank apart for good or for ill.”  Key findings from the Customer Loyalty in Retail Banking study include the following:

 

  • Organic growth rooted in strong customer relationships, and the economic rewards they deliver, will be the best path forward for retail banks in the years ahead.

 

  • The power of service clearly provides the greatest potential to set a bank apart for good or for ill.   Of course, banks have worked on service-improvement initiatives for decades, with inconsistent results, at least in terms of clearly demonstrable economic returns.  Many banks suffer from what might be called “service-initiative fatigue”, a sense that there are too many things to improve to make a difference, or that delivering truly differentiated service is too expensive.  It is true that systematically striving to deliver exceptional service requires hard work, but it often ends up saving money because it roots out defects that drive up costs from complaints, service calls and re-work.  Moreover, delivering service that delights does not necessarily cost very much.  For example, our analysis of the verbatims showed that respondents, by a factor of two, described simple “friendliness” as the service feature that is most important for winning their loyalty.

 

  • Customers who are promoters (defined as those whose survey rating identified them as their bank’s most loyal advocates) stay longer with their banks than those who are not.  They also buy more products, refer more new customers and cost less to serve.

 

  • Leadership engagement is the single most important ingredient in elevating loyalty from a marketing exercise to a core mission.

 

  • The scores and the customer comments show that the best-scoring banks do a better job at delivering consistent, friendly service that wins promoters and eliminating the defects—notably high fees and poor rates—that breed detractors.

 

  • In an attempt to get statistically valid feedback on customer interactions, many banks subject their customers to a battery of detailed questions about the service they received.  The mountain of data they get back takes a long time to evaluate, can be hard to decipher, yet ends up revealing little about what really matters to customers.  Gleaning the most important and actionable insights from customers requires a disciplined, and far simpler, approach.  By soliciting customer input regularly through short surveys immediately following interactions, and then quickly sorting, analyzing and circulating results throughout the organization, a bank can use the feedback to identify—and act to improve—the experiences that have the greatest potential to delight or annoy.

 

The survey results show consistent friendly service is the key to winning customers.  This does not just happen without leadership engagement.  According to Bain “the most effective players put customer loyalty at the heart of their growth strategies.”  Without management engagement and commitment, it is impossible to instill a true service culture.

As Peter Drucker, the father of modern management, said, “what gets measured gets managed.”  Once a bank gets beyond 10 branches, it becomes nearly impossible to effectively monitor customer satisfaction with an effective measurement process.  Bain recommends short customer surveys immediately after a transaction, which affirms the strategy Prime Performance has used for 20+ years.  Without a process in place to measure success (and failure), it is hard to make a sustainable improvement in customer loyalty.

There are so many interesting findings in the Bain report; I am making this a two-part series.  Read Part 2 of the series which focuses on the benefits of improving customer loyalty at banks.

Send an email to Jim S Miller, the author of this post, at jim.miller@primeperformance.net