Investing in Advocacy

Ten years ago customer satisfaction was king.  Today, the focus has changed to building ‘advocates’ and the goal is to provide a WOW! customer experience in an effort to increase repeat business and word-of-mouth promotion.

One industry that has done an impressive job of stepping up to the customer experience plate is retail banking.  Today, several of the nation’s largest banks have entire departments devoted to providing an excellent customer experience.  Many are spending tens of thousands of dollars to be considered for the Malcolm Baldrige National Quality Award, which has specific criteria based on customer knowledge, service and outcomes.

So how successful have these customer-focused efforts been?  That question was the impetus behind a national survey of banking consumers conducted by The MSR Group, a market research company working with banks across the US.  Initiated in the fourth quarter of 2006, the study queries bank customers about their willingness to recommend and repurchase along with their use and quality evaluation of various banking services. The data are refreshed quarterly to ensure timely comparisons.

The positive news is that the study shows nearly sixty-five percent of US consumers are Advocates of their bank.  Looking just at this group of customers, it is easy to see their value: a full 88 percent have told someone something positive about their bank.

But advocacy is just an end result.  Getting there is the real challenge for banks.  To build Advocates, retail banking institutions must have a clear picture of their customer base and how that fits into the competitive landscape.

A closer look at specific areas advocacy, service quality and service recovery clearly shows an opportunity exists for those banks willing to understand how they compare to the competition, have knowledge of the particular needs of their customers and develop initiatives around those needs.

Customer Advocacy
Much of The MSR Group’s industry research differentiates true advocates from self-reported promoters (see Fred Reichheld’s book “The Ultimate Question,” for a more complete description of promoters). The company found that combining responses to the ‘willingness to recommend’ (the only factor required to be a ‘promoter’) with ‘willingness to open additional accounts’ enhanced the predictability that a customer would be engaged enough to actually begin the desired word-of-mouth promotion cycle.

In the national study, a Net Advocacy Rating (NAR) is computed by subtracting the percentage of At Risk and Dissatisfied customers from the Advocates. The NAR for 2006 and 2007 is shown in the table below.  While the national NAR has not changed significantly since the beginning of the study, looking at changes within customer segments provides both good and bad news: the percentage of Loyal customers has increased, while the percentage of both Advocates and At Risk customers has decreased.  Monitoring changes within their customer segments helps banks evaluate and identify strategies to improve their NAR. 

Service Quality
The relationship between advocacy and service quality is clear: nearly two out of three Advocates who told someone about their bank talked about service quality.  In general, US consumers consider interactions at the branch and on the Internet to provide the highest quality of service, while ATM and call center interactions are considered to provide lower levels of service.  However, between fourth quarter 2006 and second quarter 2007 service quality ratings declined for all service delivery points with the exception of call centers.

Branch quality ratings decreased from an index of 87.2 to 86.6 in just six months, while satisfaction with ATMs fell from 82.9 to 80.4 in that same timeframe.  Nationally, diminished levels of satisfaction with ATM services have been driven by declines in ratings for convenience of location, safety and security and adequate supplies of envelopes and pens. More than half of all US consumers are using ATMs, with fifty-three percent of respondents reporting having used an ATM at least once within the previous three months. 

Online service quality ratings declined from an index of 87.3 in first quarter 2007 to 85.6 by second quarter. At the same time, the percentage of consumers reporting that they had used a bank Internet site to monitor account balances, transfer funds, and for other account activities jumped from approximately 32 percent to 37 percent.

Online ease of use ratings dropped 4.1 index points. With more consumers migrating to online banking services the result is a higher percentage of customers who lack online experience.  As these consumers work their way through the natural learning curve, future results may show a turnaround in ease of use ratings.  However, having user-friendly sites will become even more critical as more new users test the on-line banking option.

Although rated the lowest of all service delivery points, satisfaction with call center service has remained fairly steady, running between 80.9 and 81.7.

Margaret Moog, Senior Vice President and Head of Customer Service for HSBC Bank US, believes the national comparative norms provided by the study benefit customers and offer banks an opportunity to differentiate themselves from their competitors.  “National norms provide benchmarks to gauge how well HSBC is doing against its competition.  By comparing results, we can identify areas of opportunity and focus our efforts on understanding differences which ultimately allow us to improve the customer experience,” she said. 

Regional differences
While national information provides an industry barometer, regional  differences clarify the need for banks with branches in multiple areas of the country to have region-specific strategies for everything from the way employees interact with customers to the marketing of specific services.

Customers in the Midwest and South are most satisfied with branch services, giving index ratings of 88.1 and 87.4 respectively; while customers in the West are the least satisfied, having an index rating of only 85.3.  Consumers in the Northeast part of the country fall closest to the national average with an index rating of 86.1.

Usage differs regionally as well. In the Midwest, ATM usage jumped from 46.9 percent in fourth quarter 2006 to 55.3 percent by second quarter 2007.

At Bank of the West, with headquarters in San Francisco and nearly 700 branches across the country, the regional comparisons have been useful.

“We have a very diverse customer base.  Everything from large cities in California to Midwestern hometowns with a population of 1,000,” said Susan Strong, Vice President of Sales and Service at Bank of the West. “Seeing how the ratings differ around the country has been very useful in understanding our markets and in working with our branches across the United States.”

Cross selling
Promoting new services in a way that is meaningful to customers is a challenge for many banks.  Bank of the West’s Strong notes that, while it can be difficult, her organization has begun an initiative to do just that.

“We have our bankers asking questions of our customers to understand their specific needs (both present and future) and then offering products that will meet those needs.  It is interesting to see how our employees are doing overall compared to our competition,” she said.

Nationally, bank employees have stepped up their cross-selling efforts over the last six months.  Twenty-two percent of customers surveyed in second quarter 2007 report that branch employees recommended additional products and services during their branch visit, compared with 14 percent in fourth quarter 2006.

Since beginning its cross-sell initiative, Bank of the West has experienced steady growth in the number of customers reporting that an employee had recommended additional products or services beyond the customer’s originally inquiry.  If its increases continue at their current rate, Bank of the West’s cross-selling scores will exceed the national average by third quarter 2007.

Problem resolution and relationship to advocacy
In spite of a bank’s best efforts to provide an excellent customer experience through expanded conveniences and personalized service, problems are still bound to occur.

How a bank responds to a customer calling with a problem or issue affects the customer experience in two ways. First, Advocates are less likely to call with a problem or issue, so identifying and then reducing the incidence of problems and issues is one strategy.  Second, the level of satisfaction with the outcome of the experience influences a customer’s willingness to recommend and repurchase.

Nationally, 14.5 percent of customers experienced a problem with their bank in the last 12 months.  Problems relating to fees and charges on their account were most often mentioned (20 percent of respondents), 11 percent said staff or statement error and ten percent cited bank policies and procedures.

In general, it appears that banks are doing a good job of responding to customer concerns; 69 percent of those who experienced a problem report that it was resolved.  Banks in the Northeast tend to have higher rates of problem resolution with 90 percent of customers reporting that their problem had been resolved.

The way a bank resolves a problem does impact the future relationship between it and the customer. 
Seventy-five percent of advocates who called with a problem said they were very satisfied with the way it was resolved compared to 37.5 of those in the At Risk segment and none of the Dissatisfied.

While customers who never experience a problem have the greatest loyalty, banks can still make up for some of the resultant loss of goodwill by seeking resolution that, to the extent possible, is acceptable to the customer and by providing a stellar service experience.

Bank Selection Criteria
In addition to providing insight to how the US consumer judges his or her bank, this study also tested how specific attributes figure into the initial selection of a bank.  Based on the overwhelming impact of service on a positive banking relationship, it comes as no surprise that among the tested attributes, providing “loyal, old fashioned service” ranks highest in importance to customers when choosing a bank.  What may be somewhat surprising is that a bank that “gives back to the community ranks second while one that is “conservative and has a strong financial history” ranks third in importance.

Banks that make an organization-wide commitment to providing loyal, old fashioned service, have systems and processes in place to follow up immediately on customer concerns, and who never lose sight of the need to continually cross-sell to the needs of their customers will thrive in the competitive retail banking environment.

Methodology
The MSR Group National Banking Survey is a rolling tracking study.  At any given time the study has a minimum of 1,200 data points.  Each quarter, the oldest quarter of data is dropped off and an equal number of new data points are added.  An equal number of surveys are conducted within each of the four quadrants of the US as defined by the US Census Bureau (West, Midwest, South and Northeast). 

The study employs a Random Digit Dialing (RDD) technique.  Respondents are screened to be at least 18 years of age and they must have utilized their bank within the previous 30 days for at least one of the following transaction types: branch visit, ATM, Internet or call center.

About the Authors
Debra Dahab, Ph.D., Vice President of Research Services at The MSR Group.  Dr. Dahab has expertise in the area of consumer behavior and how consumers evaluate products and service experiences.  With a diverse background in international and cross-cultural marketing, Dr. Dahab oversees research design and provides direction in the conversion of data into practical recommendations to achieve competitive advantage.  She received her BA in political science from the University of Iowa and an MBA and Ph.D. in marketing from the University of Nebraska-Lincoln.  Dr. Dahab has served as an Adjunct Professor at the University of Nebraska-Lincoln and an Assistant Professor at Creighton University and the University of Wisconsin-Madison.

Laura O’Gara, Vice President of Marketing for The MSR Group.  Ms. O’Gara has spent nearly 20 years in the marketing and market research industries.  With an appreciation of both the theoretical and practical value of research, she provides the company and its clients with insight and direction for the use of market data within an organization.  She received a BA in journalism from Creighton University.

Julian Vermaas, Manager of Market Research at The MSR Group.  With nearly 20 years in the market research field, Julian serves as a research advisor and consultant providing clients with a depth of knowledge in customer satisfaction and loyalty measurement.  A graduate of the University of Nebraska-Lincoln, Julian holds two bachelor degrees and has advanced training in statistics, survey research and methodology.