To create a cadre of customer advocates, focus your efforts on “the three Rs”

 

The rapid adoption of online banking, electronic bill payment, and remote deposit capture is accelerating the movement away from personal contacts. Customers like the choice and convenience, but what happens to relationships as they increasingly transact via machine? How can a bank build customer loyalty in this environment?

In a business context, loyalty equates to a willingness to sacrifice on the part of the customer: a loyal customer may forgo a lower-cost solution from a competitor or give you time to improve capabilities because they value other aspects of doing business with you. Truly loyal customers can become advocates—they will put their reputations on the line to recommend you to friends because they trust you to deliver that value to others.

To put some numbers to it, the Council on Financial Competition estimates it costs between five and ten times more to attract a new customer than to keep an existing one. With mortgage and home equity lending on the decline; diminishing margins on commercial loans; reduced fees from NSFs and ancillary services; and increased competition from non-banks in all areas, customer retention and cross-sell remain vitally important as sources of revenue. Customers who are loyal believe the bank acts in their best interest on a regular basis and are most likely to remain with the bank, to make additional purchases, and to become advocates.

How to go beyond “satisfied”
Enormous amounts of resources have been spent by banks in measuring and improving customer satisfaction, but satisfaction alone does not imply loyalty. Analysis referenced by Business Week in October 2006 shows that between 60% and 80% of defecting customers describe themselves as “satisfied” or “very satisfied” just before they leave.

The degree to which a customer is loyal can be determined by a hierarchy of behaviors: retention, repurchase, and referral. Any single behavior alone does not mean a customer is loyal—repurchase, for example, may be a sign of inertia or indifference, particularly when products are viewed as commodities.

The key to realizing the value of loyalty is in developing customers who are so committed to you that they not only look to you first when they need something but also are also willing to encourage others to do business with you. New research from Harvard University on measuring and tracking Net Promoter Scores (NPS, a measure of the percent of customers that are promoters relative to those that are detractors) bears out that customer willingness to recommend a company correlates strongly with company growth across industries.

Retention
Celent estimates that over 60% of total financial, account maintenance, and servicing transactions now take place over the internet. This prevalence of electronic, self-directed transactions creates a greater need to provide high-quality, responsive service when things go wrong for the customer—and they will go wrong, whether because of an internally generated error or an external event, such as a fraudulent transaction.

Financial issues are among the most sensitive and anxiety-producing in peoples’ minds, so nothing will make a customer more frustrated than getting caught in the “VRU vortex” when they have a problem. The value of responding effectively at pivotal moments is paramount. According to Target Training International, more than 60% of all customers stop dealing with a company because of perceived indifference on the part of an employee. Worse yet, bad news gets around: Tarp Worldwide research found that customers who experience mild or strong dissatisfaction will tell between 9 and 16 other people!        

Identity theft is the most prominent consumer financial concern today. In response, many banks offer identity theft solutions that limit customers’ liability and immediately refund disputed balances while claims are being investigated. This immediate restitution fulfills the financial need of the customer, but what about the emotional need? Customers want to know what their bank is doing to protect them going forward. Did the provider immediately cancel the card and send a new one? Did the call center agent advise them on how they should monitor for future problems?

Customers understand that things go wrong, and they are increasingly willing to pay to receive effective service when it happens. Nevertheless, a single bad experience can turn an evangelist into a vigilante. Relieved of responsibility for processing volumes of transactions now handled electronically, front-line personnel have a golden opportunity to realize the promise of the service rhetoric, both in responding to problems and in helping people and businesses find the right products to meet their needs. If they are to do this effectively, recruiting and training activities for front-line staff must reflect a shift in expectations and roles from transaction processing to customer advisory and servicing.

Repurchase
Since Norwest set the high-water mark in relationships per household near seven in the early ’90s, many banks have invested heavily in systems to increase and track cross-sales. Driving high levels of repurchase, however, requires that banks also make the purchase process easy for the customer and that they make clear the value of their offers, especially when that value goes beyond a price advantage.

Progressive Insurance, for example, heavily touts its Progressive Direct program, which allows customers to shop online and compare prices among major competitors. The company does not promise to have the lowest price, but it is betting that customers will find value in more transparent pricing and assistance in making an important, but often intimidating, purchase decision. They also invest heavily in technology, including a best-in-class website and mobile field service to improve efficiency and responsiveness and reinforce the concept that doing business with the company is easy. Taken together, the message to customers is that the company can be trusted to deal with them honestly and help them through a crisis.

Referral
Customers become advocates for a business because they feel that they are getting a good value, generally determined by their perception of the quality of offerings for the price paid. Some companies compete by focusing primarily on the price portion of the equation, perhaps under the mistaken assumption that price-sensitive customers don’t care as much about service or some fuzzy sense of a “relationship.” Many of these organizations have found it challenging to create loyalty because they do not endeavor to build an emotional connection with the customer.

Building an emotional connection that encourages advocacy requires making customers believe you are consistently and proactively pursuing their best interests.  Despite little direct interaction with customers, ING Direct achieves this customer bond better than many traditional banks by personalizing the customer experience and positioning itself as an enabler to customers with savings goals (see profile, above).

In contrast, commercial lenders have historically built relationships through face-to-face interaction with customers.  In the past, a commercial customer referral was likely driven by three factors: willingness to lend, attractive rates, and an easy process. These values have been eroded, however, by greater access to information from multiple providers, increased price competition, and the streamlining of the borrowing process.  The financial companies making the most progress in sustaining and building on their personal relationships in this environment are those that have enhanced the value they are providing to business customers by becoming more active partners and advisors to the business far beyond the lending relationship.

Finally, it is impossible to create customer advocacy without building an image of consistency: of staff, of commitment to customers, of policy, of presence in a market or niche. Any successful community banker will tell you the key to their prosperity is the perception that they personally are committed to their customers and the bank is committed to the community it serves. They aren’t wrong. Customers will continue to seek out employees when they have service issues and look to how employees judge the company’s trustworthiness and transparency. Loyal employees work harder, but more importantly, their individual commitment to the organization, fostered by a feeling of being valued, listened to, and respected, is relayed to customers in their attitude and dedication to providing an outstanding customer experience.

Six steps to build loyalty
A few action items are essential to addressing the objectives of increasing retention, repurchase, and referrals as customers transact increasingly via electronic channels:

• Establish a baseline measure of loyalty at your company for both customers and employees.

• Train your front-line staff on the factors that will create delighted, not just satisfied, customers. Recruit front-line staff with these factors in mind.

• Evaluate the degree to which your products and packages make transparent their value to your customers.

• Clarify the role each channel will take in retention, repurchase, and referral motivation. Who is really responsible for what is in this loyalty equation?

• Audit and improve, if necessary, what you do to build employee loyalty. Assess employee perceptions of how effectively, honestly, and openly you communicate with them and the extent to which they feel heard, both of which increase commitment to the organization.

• Document your top five customer loyalty initiatives for next year. Seek to articulate the exact set of actions that your bank will take to maintain and improve loyalty in 2007. BJ

 

 

Although it is strictly an online bank, ING Direct engages its customers in a way that encourages loyalty and advocacy. The bank’s offerings are simple, straightforward, and easy to purchase. Beyond the basics, the company strives to position itself as an active ally to customers, offering specific, tangible payoffs that seem to resonate on an emotional level. The bank’s formula for building loyalty has helped it generate over $47 billion of deposits in six years.

Be wealthy. ING Direct offers one of the highest savings rates in the country and consistently reminds customers of the financial value it is providing. Each time it raises the interest rate on its flagship “Orange Savings” account, customers receive an e-mail saying “your savings rate just went up!” When customers log in, they see not only the interest they have earned in the past month, but what they earned since the beginning of the year and during the previous year.

Be wise. The bank represents itself as a partner in building financial literacy to help customers meet their long-term goals. Its “Planet Orange” financial education site is geared toward children and supplemented with information for teachers and parents. The bank gives awards to educators dedicated to teaching financial literacy.

Be secure. The bank has been a leader in implementing secure multi-layer authentication systems, and provides extensive information on privacy protection and security, including links to free virus protection software and plain-language advice.

Be heard. ING Direct reinforces its commitment to serving customers by keeping score via an online survey. The difference between this survey and others, however, is that the bank actually posts the results on its customer site. This “Report Card” shows grades for factors such as keeping things simple, products you want/need, protecting your privacy, responding to your questions, and attitude/tone in communications.

Be Orange. ING Direct explicitly encourages customers to promote the bank. It pays customers $10 for each referral and makes an initial deposit of $25 in the new account. In 2006 the bank held a “Show Your Orange” contest to encourage customers to share how ING Direct had positively impacted their financial habits.

 

The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0207/index.php?startid=42

TrackBack URI for this entry