Jim S Miller

Thoughts on the Client Experience and Banking

Bain & Company Study: Customer Loyalty In Retail Banking (part 1)

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In October, 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 found 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, but 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” while for detractors they were; “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 is 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:

  •  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 to elevate 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 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 the 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 post. Next time I will focus on the benefits of improving customer loyalty at banks.


Written by Jim S Miller

January 4, 2011 at 11:57 am

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