American consumers want banks to value their business more, better understand their financial goals, and provide them with more financial advice, according to a study of 3,000 US banking customers by IBM, which suggests seven practical steps for increasing both customer loyalty and advocacy.
Despite substantial investments in customer-related improvements, few banks seem able to deliver on these requirements, the survey found. Two thirds of customers said they don't feel valued by their bank and are unwilling to commit to deeper relationships with their bank.
The study, entitled Unlocking Customer Advocacy in Retail Banking, revealed that 74% of US banking customers find bank marketing offers irrelevant and only 36% think that bank employees actually listen to their needs and follow up with them.
According to IBM, it is perhaps not surprising that only half of the customers surveyed said they would consider their current bank for new products or services - calling into question many banks' current "organic growth" strategy.
Attention to personal needs
So, while banks have been focused on improving customer service through operational improvements, such as streamlining back-end processes, offering more ways for customers to bank and opening more branches, more limited attention appears to have been given to addressing customer attitudes related to their banking experience.
According to John Armstrong, banking partner and senior consultant at IBM, "Banks have been focused on streamlining their operations to make them as efficient as possible, however many of these back-office improvements have little impact on customer perceptions of bank quality. The unfortunate result is that many customers perceive their banks as not acting in their best interests."
Customer attitude metrics
As part of the study, IBM developed a new measure of customer loyalty to help banks quantify the impact of their actions on their customers. While most customer satisfaction measures rate the customer's opinion of past performance, the new Customer Focused Insight Quotient (CFiq) allows the bank to tie current opinion to future behaviour, effectively quantifying the customer's attitude.
This combined metric captures the customer's likelihood to recommend the bank to others, and modifies it by adding the customer's purchase and switching potential to more accurately predict future behaviour.
Low advocacy scores
Based on the CFiq values, the study found that only 24% of banking customers can be considered "advocates" (the highest tier of positive attitude) for their bank, suggesting that retail banks need to find new strategies to both attract and retain the customers they are now relying on for their organic growth strategies.
Smaller banks, such as credit unions and community banks, scored better than national and regional banks. For example, 36% of all credit union customers and 30% of community bank customers are classed as advocates (some 50% higher than customers of regional and national banks at 23% and 22% respectively).
An emotional solution?
While customers generally praised banks for progress made in executing on the rational measures of the relationship (e.g. providing multiple channels to bank, providing consistent knowledge, and correcting errors), the banks fell short on the emotive aspects of the relationship. The study found that banks deliver on rational aspects 52% of the time, but only deliver on the emotive aspects 26% of the time. It is the emotive drivers, such as valuing their business, understanding their goals, and providing meaningful advice that customers attribute importance to in gaining their advocacy.
Notably, while the study did not find demonstrable differences in the demographic profile of consumers who were advocates and antagonists (i.e. antagonists are just as likely as advocates to be high net worth customers), it did find significant differences in how each group perceived their bank. Those defined as advocates generally gave their bank credit for doing "everything right" while antagonists found fault in almost everything their bank did.
Practical steps for improvement
In order to understand and effectively manage customer attitude, IBM suggests that banks must identify customer advocacy segments, assess their attitudes toward key banking attributes, and then align resources and investments to enhance the value associated with high impact interactions. Specifically, a new approach is needed to the following:
- Metrics: move from customer and employee satisfaction to recommendation, purchase and switching as the measures of customer attitude.
- Focus: move from affecting only the rational drivers of customer behaviour to addressing both the rational and emotive drivers of behaviour.
- Brand: move the brand promise from purely marketing communications to a tangible attribute delivered as part of the customer experience.
- Lifecycle: move from a view of product push and pricing levers to recognizing customers' multistage buying lifecycle and the impact it has on their attitude and responsiveness in marketing, sales and service interactions.
- Channel: move form broad-based channel integration, where everything is integrated with everything else, to specialised channels aligned with the end-to-end experience and what matters most to the customer.
- Enablers: move from technology as the primary enabler of efficiency to people as the primary asset at the point of delivery.
- Information: move from historical data integration and analysis to targeting data and new research techniques around customer events to yield timely and relevant customer insight.
The study concluded that, with the right approach in place, a sustainable organic growth strategy is more likely to succeed, and retail banks that understand CFiq scores and the impact these measures can have on their customer base will be able to develop a better customer experience and increase both customer loyalty and advocacy.