Most community banks believe that they can differentiate themselves from competitors by offering better service. However, the empirical data shows that the majority of banks fall into the trap of competing on price and credit structure, and neither of these competitive attributes is aligned with long-term bank success. Why is there such a disconnect between many bankers stated objective of competing on service and the reality of competing on price or credit structure? One reason is that while management and employees would like to offer a better level of service to their customers, few banks doing the required research, the planning and the execution of differentiating their service or their brand. We believe that customer service is very important to banking success, but by definition, only 5% of all banks achieve exceptional service, and only 10% of all banks achieve superior service. In this blog, we will outline how to think about your bank’s services and identify four attributes that most community banks may use to differentiate their services.
Why Service Matters
We do believe that customer satisfaction and repeat business is a direct result of the level of service that employees offer customers. The question for community banks is how to understand which customers your bank wants to target, what service these customers value and how to develop, measure and incent superior service. Community banks have rigorous methods, systems and committees to measure cash flow, net interest margin, and credit analysis, but most community banks do not spend the same resources in understanding and measuring service levels and customer satisfaction.
Competition creates customer expectations and today’s banking business is very competitive. Customers that have experienced superior service from other banks or other businesses expect to receive the same level of service from your bank. Studies continue to show a high correlation between customer satisfaction and business success.
Steps to Implementing Superior Service
Superior service takes substantial resources, thorough analysis, and an iterative process (constantly improving strategy).
The five steps to implementing superior service are outlined below:
- Identify desired results. Management must tie service to some quantifiable output. It could be customer loyalty, higher profitability, higher market share, reduced costs or reduced credit risk, decreased attrition, or higher shareholder value-added. It could also be a combination of outputs. However, a higher level of service for its own sake is rarely worth the effort. Any desired result (subject or objective) should be measurable.
- Segment your current and potential customers. Service is a finite and scarce resource, and a bank should not provide service to all customers and prospects evenly. If, for example, the bank’s desired goal is to increase profitability then service should be emphasized to profitable existing and potential customers. On the other hand, if the bank’s desired goal is to increase market share, then service should be emphasized for new customers and those that have the potential for cross-selling. To segment customers and prospects, management must understand current profitability, capital costs, growth potential, and the bank’s product capabilities. We continue to encounter banks that unwittingly allocate an inordinate amount of service resources to highly unprofitable customers or even highly unprofitable lines of business.
- Survey customers and potential customers. This step in the process is not as easy as it sounds and is fraught with countless obstacles and pitfalls. Luckily, much has been written about this topic and good marketers in banking or consultants can add substantial value here. Superior service is different for different client segments, and surveys will identify factors that drive customer satisfaction and determine customers’ priorities. Many organizations fall into the trap of relying almost exclusively on frontline employee interviews for survey data. Unfortunately, frontline employees introduce a substantial amount of bias. Employees often assume, incorrectly, that customers value certain attributes simply because those attributes have been emphasized by the bank in the past, or because employees find it easy to deliver those attributes. Banks must use multiple other survey methods such as face-to-face interviews, focus groups, mystery shopping, customer panels, email surveys, and comment cards. Surveying should not overlook past, potential, or competitors’ customers, because these customers may be where a bank should focus superior service to achieve its goals.
- Measure customers’ and prospects’ expectations. This step is different from surveys. In surveys the bank is listening to customers responses and gathering data; in measuring expectations, the bank is attempting to understand customers’ wants, needs, expectations, and preferences based on industry standards or averages. In this step, the bank is doing a competitive analysis of its ability compared to the industry. Every bank must understand how it is performing relative to competition because that is how customers will perceive your services. Service is a relative measure - if the average bank can obtain credit approval to commercial customers in two weeks, then customers will measure your bank against that benchmark.
- Identify your bank’s service attributes. Based on the first four steps a community bank then needs to identify what services it can offer that will attain maximum customer satisfaction at minimum cost. At this stage, a community bank will identify services that it can offer which can be delivered at a lower price, higher perceived value or differentiated from its competitors. We have identified four attributes that most community banks should emphasize in providing superior service.
Community banks cannot be all things to all customers because of limited size, time and resources. We believe that there are four attributes that most community banks can emphasize to effectively differentiate themselves from competitors – as shown in the chart below).
In a future blog we will explain how your bank can allocate service to each of the four attributes (responsiveness, influencer, flexibility, and continuity) and how your bank can position these services to differentiate from competitors (other community banks, credit unions, conduit lenders, insurance companies, national banks, and government agencies).
Submitted by Chris Nichols on April 08, 2019