For every 1 million customers a bank has, a 5% percentage point increase in the number of customers shifting from 'moderately committed' to 'highly committed' can lead to an additional US$1 billion in deposits, according to the J.D. Power and Associates '2007 Retail Banking Satisfaction Study'.
And these gains are all the result of real customer loyalty. The incremental deposits suggested by the study are a result of both greater share of wallet from highly committed customers, as well as new customers who arrive thanks to existing customers' word-of-mouth recommendations.
Drivers of loyalty
Positive experiences are a key contributor to both advocacy and loyalty, and highly committed customers tend to make more recommendations, use more products and services, and are more likely to positively impact the bottom line for their bank, according to Jeff Taylor, senior director of the banking practice at J.D. Power and Associates.
Financial institutions have, it seems, been very successful in enhancing the banking experience in the past year, with the overall customer commitment level having increased from 28% in 2006 to 31% in 2007, and the average number of annual word-of-mouth recommendations per customer increasing from 7 to 9.
Overall satisfaction with the retail banking experience has increased considerably since 2006, up by 22 index points on a 1,000-point scale (reaching 763 in 2007). Specifically, customers reported greater satisfaction with fees, convenience and transaction methods (including in-person, ATM, online, automated and live telephone calls).
Drivers of choice
The study analysed customer satisfaction with the retail banking experience by examining six factors: transactions, account initiation/product offerings, account statements, convenience, fees and problem resolution.
Customers cited three main reasons for choosing a particular bank:
- Good reputation;
- Free services;
- Convenient locations.
Reputation, which is supported by recommendations and positive word-of-mouth, was the reason cited most often for choosing a bank. While many banks have focused on convenience and price, those that provide an outstanding customer experience can enhance their business at a lower cost and are more likely to achieve long-term advantages over competitors.
With nearly 85% of customers still doing some of their banking at a branch, regional leaders have done well in offering more convenient hours of operation and branch locations.
Taylor concluded: "While larger banks are certainly making strides in enhancing the retail banking experience, community banks and credit unions are still strong players, as they generally provide shorter in-person transaction times, fewer out-of-service ATMs, and shorter wait and transaction times when customers speak to a live telephone operator. However, community banks and credit unions tend to struggle with convenience, so increasing satisfaction within this area is surely one way for larger banks to remain competitive in the market."