Why Can't Some People Commit?
BY JEFF TAYLOR AND GINA PINGITORE, PH.D.
J.D. POWER AND ASSOCIATES
Face it. Runaway customers are just not that into your bank. What more can be done to nurture customers who will stay in good times and in bad? This exclusive report on the just-released J.D. Power and Associates Retail Banking Satisfaction StudySM ranks 33 of the largest banks' success in maximizing customer commitment.
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SYNOPSIS | The inaugural J.D. Power and Associates Retail Banking Satisfaction StudySM ranks 33 of the country's largest banks on the basis of customer satisfaction and customer commitment. Banks vary within a narrow band on customer satisfaction; the survey found more bank-to-bank variance in customer commitment although banking enjoys a much higher level of committed customers than JDPA finds in other industries. Satisfaction and commitment insights are offered as a means of driving bottom-line results, by employing customer service, product development and operations strategies aimed at retaining and attracting highly committed customers.
Recent customer relationship management strategies have focused on driving customer loyalty and building customer satisfaction. But - and this will be borne out by any bride or bridegroom - the state of "being loyal" or "being satisfied" falls short of the state of "being committed."
A business cannot depend upon fickle customers, and executives for years have intuited the emotional attachment of their "best customers." But now consumer research by J.D. Power and Associates (JDPA), announced in late February and available in this form exclusively in Banking Strategies, links a banking customer's commitment to a bottom-line impact for the provider.
A financial institution's success in gaining commitment, JDPA found, is a function of how customers feel as much as it is about how satisfied they are with services received. Banks vary within a rather narrow band in terms of customer satisfaction; it's in customer commitment (incorporating the customer experience, image of the institution and propensity of customers to be loyal) where the variance is. Why can't some people commit? The financial institution that addresses the reasons that keep customers from emotionally attaching may gain a competitive advantage in what is increasingly a commoditized business.
There are few firms better positioned to perform this analysis than JDPA. Each year, we survey millions of consumers around the world to gather their opinions and expectations about the products and services they purchase. This information is used to compile rankings based on product quality and customer satisfaction that gauge company performance. Companies that rank highest in the firm's studies are recognized for their achievements. Through the firm's research and publicity of research results, JDPA has served as a catalyst for positive change across many industries.
While JDPA is best known for its work in the automotive industry, the firm has expanded to serve a number of other industries including financial services. Financial services includes insurance, mortgage, brokerage, automotive lending, and most recently, retail banking.
The inaugural J.D. Power and Associates Retail Banking Satisfaction StudySM, published in February 2006, assessed 12,904 households regarding their opinions and experiences with their primary banking provider. The study focuses on 33 of the largest banks, which collectively represent nearly half of all FDIC-insured deposits. In the discussion that follows, we compare those banks based on the satisfaction level reported by their customers. We also describe how these satisfaction ratings were derived.
While measuring customer satisfaction remains our core focus, the firm recognizes that relying on satisfaction alone to gauge financial provider performance may not adequately explain customers' feelings about their banks. Customers have a composite view of their primary financial institution. In addition to encompassing their experiences at the bank, this view includes perceptions of the institution's image and the customers' own propensity to be loyal. This composite picture generates a measure we call "customer commitment," which is the most complete way to view a customer's relationship with his or her bank.
Transactional Satisfaction
When compared to our findings in other service-related industries, retail banking ranks in the middle of the pack in terms of customer satisfaction, similar to hotels and rental cars. This suggests the industry has some room for improvement overall. However, the differences between individual banks are fairly slight. Although each industry offers a unique set of experiences, our research has revealed that in industries or services where products are viewed as commodities (as in banking), there tends to be less differentiation in satisfaction ratings. Believing that most banks provide similar products and services, consumers tend to rate banks as basically the same.
But there are differences. JDPA's study finds that customers of smaller institutions, such as credit unions and community banks, tend to be more satisfied with their bank than are customers of the largest banks. A few larger banks, however, have been able to outperform not only the industry average but also the average smaller bank. Cherry Hill, N.J.-based Commerce Bancorp and Downey Savings and Loan, Newport Beach, Calif., are examples of banks with a strong customer focus that also rank high on convenience.
Branch convenience is just a piece of the story. To measure customer satisfaction, we have developed an index of 52 core questions to measure various factors critical to the customer experience: product, process, people, presentation and price - what we call "the five Ps."
For the banking industry, "transactional" satisfaction dominates the performance ratings because banking is a business built on transactions, such as deposits, withdrawals, lending, etc. The transaction factor is further subdivided into measures that gauge satisfaction where the transaction is conducted - whether in-person at the branch or via remote channels such as the call center, ATM or online. Interactions at the branch, ATM and online tend to have the greatest impact on customer satisfaction.
Along with transactions conducted via a customer service representative, online banking is the transaction channel with the highest average satisfaction level. With a higher percentage of customers who use the online channel, Commerce Bancorp and Wachovia Corp., Charlotte, N.C., both earn above-average ratings. This contributes to their customers' higher overall satisfaction.
Customers who visit the branch less often have a slight propensity to be less satisfied and less committed. Banks with the lowest in-person transaction usage include Citicorp Inc., New York; Wells Fargo & Co., San Francisco; Bank of America Corp., Charlotte, N.C.; JPMorgan Chase & Co., New York; and the former Bank One Corp., now owned by Morgan Chase. All five have in-person transaction rates below 77%, as compared to the industry average of 83%. Each bank also has low overall customer satisfaction, at least 20 index points below the industry average.
The relationship between branch types and satisfaction is difficult to ascertain. Downey Savings, with more than half of its branches located in supermarkets, earns well above average overall satisfaction. Yet Wayzata, Minn.-based TCF Financial Corp., another firm that relies on supermarket branches, ranks far below-average in overall satisfaction. TCF has much higher than normal wait times for all transaction channels: branch, online or call center.
The ATM channel can help boost satisfaction and commitment scores in some cases. Wells Fargo customers use ATMs more frequently for transactions (80% versus an industry average of 65%), and view this transaction method more positively than the industry average. In fact, ATM activity represents the only transaction method that Wells Fargo customers rate higher than the industry average.
By contrast, more than eight out of 10 customers of Union Bank of California (owned by San Francisco-based UnionBanCal Corp.) and Columbus, Ohio-based Huntington Bancshares Inc. use ATMs but don't rate the experience as positively. These lower ratings occur despite the fact that fewer Union Bank and Huntington Bank customers report an out-of-service ATM or one that's missing supplies; that's nearly one-and-a-half times better than the industry average.
Other Satisfaction Drivers
While customer transactional experience dominates the overall satisfaction ratings, perceptions of convenience, competitive product offerings and fees, financial statements and problem resolution are also important. By understanding the relative importance of each factor to satisfaction, a financial services provider can easily prioritize improvement efforts and direct resources to boost customer satisfaction. A poor problem resolution rating, for example, may flag training issues to be addressed or a negative effect of a bank policy.
Overall, problem resolution accounts for a small percentage of the customer's experience. But for those customers who actually experience a problem (one-fourth of those surveyed did), problem resolution becomes the most important element influencing their banking satisfaction.
The survey identified Seattle-based Washington Mutual Inc. as one bank doing a good job of addressing service problems. Wamu's customers are more satisfied with problem resolution, despite the fact that more of them experience problems. This is an exception. Most of the high-satisfaction banks minimize problems that customers experience, and nearly all of the survey leaders garner fewer than the average number of problems.
Convenience accounts for much of the high satisfaction rankings earned by Commerce Bancorp and Downey Savings. Commerce branches are open seven days a week and over half of Downey branches are located in supermarkets, which also have convenient hours and locations.
Satisfaction with product offerings doesn't vary much between banks, but Commerce and a few others earn high ratings. Institutions such as ING U.S. Financial Services, Atlanta, and World Savings Bank (subsidiary of Oakland, Calif.-based Golden West Financial Corp.) earn above-average satisfaction ratings on their fees.
Customer Commitment
We believe that more meaningful insights can be attained when overall satisfaction results are combined with an additional measure of customer sentiment - commitment. This approach yields a more complete measure of customers' attachment to their banks. By combining satisfaction, brand image ratings and customers' own propensity to be loyal, a more comprehensive picture emerges. This provides a greater degree of banking performance differentiation.
Much has been written about customer loyalty. No one in business would deny that loyal customers are preferable to indifferent ones. But analysis of the loyalty factor is often superficial. Typically, loyalty is measured as the intent to repeat a purchase or recommend a product or service to a friend or colleague. These measures, while important, describe only the outcome of loyalty, not the reasons for being loyal.
The JDPA Customer Commitment Model aims to help companies better understand what influences loyal behavior. It complements our Customer Satisfaction Index in that the customer experience is a major dimension affecting commitment. However, it differs by considering additional factors that drive loyal behavior, such as the image of a particular brand and the propensity of an individual customer to be loyal. These factors describe the "emotional" factors that affect the way a customer feels about a provider.
Customer Experience The customer experience in retail banking is defined by the convenience of branch locations, product offerings, transaction channels, accuracy, fees and problem resolution. As previously discussed, the ability to perform consistently in these areas is a major driver of satisfaction and directly contributes to a customer's level of commitment to a brand.
Across all of the industries where we have measured Customer Commitment, we consistently find that the customers' experience is the best determinant of commitment. In fact, in most industries, experience accounts for more than half of the level of commitment. In the business wireless industry, for example, customer experience accounts for 65%; in the restaurant industry, it's 64%. The corresponding percentage in retail banking is 56%.
Image While experience is important, it does not entirely predict whether a customer will stay with a brand. The automobile industry has some good examples of this phenomenon. For many years, Jaguar suffered from poor quality but still enjoyed strong customer loyalty. Conversely, the Ford Taurus earned relatively good scores for product quality but lost sales and market share.
Image may account for these disparities. Driving a Jaguar connoted a certain elevated status in spite of the brand's poor reliability; driving a Taurus lacked similar status, despite being reliable. Through effective marketing, public relations and other communication initiatives, customers can be coaxed to accept an image of a brand even if they have no direct experience with that brand.
A brand's image can best be understood by determining the characteristics or attributions that people assign to that brand. Image is the second most important factor in customer commitment. The higher the brand image score, the more positive the brand attributes, which include being viewed as innovative, fun, customer-oriented, reliable, etc.
Loyalty Propensity People vary widely in the degree to which they form attachments and commitments. Some people are prone to be loyal while others are "wanderers" (or runaways) and don't want to be tied down. Therefore, it is important to understand the influence of loyalty when developing models of commitment.
While there is little difference between brands when it comes to the number of loyal customers, these consumers play an important role in explaining or modeling consumer commitment and loyalty. For example, there will always be people who want to try competitors' products, despite having a strong positive perception of their primary company. Including an "individual difference factor" in the model helps to determine which elements companies can change, versus elements that are impossible to alter or impact because they reflect personality traits of customers that are resistant to change. This factor helps provide a more accurate predictor of true loyalty to a company.
Bottom-Line Impact
This discussion about customer commitment is not an esoteric exercise; it also has a bottom-line impact. A strong positive relationship exists between the level of customer commitment and a number of revenue-generating and cost-saving behaviors. JDPA has found this relationship not only in banking and other financial services but also in hospitality, airlines and telecommunications.
In these industries, a customer's level of commitment correlates with spending and other factors that drive revenue. For example, business wireless customers who are committed to their provider spend more each year, stay longer and advocate the provider six times more frequently than do customers who have low levels of commitment. In retail banking, highly committed customers use more bank services and place a greater share of their financial "wallet" at their primary bank. They also serve as a bank's best source of referral business and recommendations.
The banking industry, in fact, enjoys a much higher level of committed customers than we typically observe: 28% for retail banking, compared to 13% on average in other industries.
Why do some banks enjoy higher levels of customer commitment than others? For illustration, let's look at the institutions with the highest and lowest levels of customer commitment respectively - Commerce Bancorp and Birmingham, Ala.-based Regions Financial Corp.
With branches open seven days a week, Commerce Bancorp is highly rated for convenience and performs well in other measures, such as product offerings and fees, which contribute to its high customer satisfaction and commitment levels. Commerce Bancorp is also perceived as being customer-focused, providing personal service and for being an innovative company.
Regions Bank, with the lowest commitment scores, garnered reasonable satisfaction scores in our Retail Banking Study. Regions customers indicated that they receive speedy service and have few reported problems with their ATMs, both critical aspects of satisfaction. However, the bank suffers poor perceptions on innovation and reputation, both important image items.
ING is an example of an institution with a high level of customer commitment despite the disadvantages inherent in a direct channel strategy. Precisely because it offers its services nearly exclusively online, ING loses marks for providing very impersonal service. But despite these image liabilities, ING performs very well on the experience factor by providing a superior online banking experience combined with good product offerings and fee satisfaction. It also has earned an image as an innovator.
Customer commitment is an important measure, both in terms of its influence on revenue and the insights to be gained in understanding what drives it. While satisfaction remains the main factor influencing customer commitment, measuring both satisfaction and commitment offers the opportunity to understand the effect of one upon the other and the opportunity to know what motivates highly committed customers. This in turn can help banks develop strategies in customer service, product development and operations aimed at retaining and attracting highly committed customers.
As bankers prioritize initiatives within their institutions to improve performance, they need to consider that image ratings for a bank will be very slow to change. However, if a bank is clearly known for a particular image and begins to promote this image more prominently in its advertising, commitment levels could show rapid growth.
For most banks, however, improving the customer experience (ease of transaction and offering better products, etc.) will produce a more immediate impact on satisfaction and further drive customer commitment.
Questions or comments about this article? Post them at the Banking Strategies blog.
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