A couple weeks ago we walked into a community bank conducting a customer persona exercise. We were impressed, but quickly noticed that not all of senior management were believers. The question arose, what is the value of a quality customer experience at a bank?
It is a hard question, but the folks at Medallia teamed up with Harvard Business School to come up a quantification of what a quality experience is worth for a company that has a transactional focus like a lending-driven bank and for a relationship-driven company that is also analogous for some types of community banks.
What they found is that a quality customer experience not only makes a difference, but makes a significant difference.
For the study, the group narrowed down their control points to customer feedback and future revenue by individual customers. For future revenue, they looked revenue at a given point in time, and then tracked revenue and satisfaction over time for the subsequent year. While transactional banks are primarily focused on how many transactions a customer can bring the bank and the size of those transactions, relationship banks care about products-per-customer, retention and lifetime value. The study controlled for past customer experiences and non-customer experience factors in order to better distill how revenue and customer experience are related.
The conclusion of the research was that for transaction-driven institutions, customers that rated their customer experience high produced 140% more revenue compared to those with low-rated customer experience.
For relationship-driven institutions, lifetime value is the main driver of profitability and here, experience mattered even more. Customers that rated the experience the poorest only had a 43% probability of maintaining that relationship after 12 months. This compares to members to customers that rated their customer experience high had a 74% chance of maintaining their relationship after one year.
Further, the level of experience quality correlated to lifetime length. This allows banks to accurately project customer profitability. Customers with the lowest score had a customer life of about 14 months, while a customer with the highest scores had a lifetime of over six years.
This study is pivotal for those bankers that are looking for quantification to support a new initiative or maintain a current initiative. For those cost focused, and what banker isn’t, it is also important to point out that not only does a customer experience initiative often result in greater revenue as the study points out, but it also results in a greater number of referrals and a cost reducer.
While referrals are easy to understand, many bankers overlook the fact that happier customers mean fewer calls, less problems, less branch visits and greater use of digital channels. In addition, happier customers mean happier employees which mean other happier customers and happier management.
This data should cause many bankers to rethink their position that they cannot afford a customer experience initiative. The reality is that a positive customer experience is a competitive advantage and will drive performance. If your bank has done a customer persona exercise, you are likely well on your way to delivering a superior customer experience, if not, be sure to check our article on customer personas as well as a free template to help banks develop their own customer personas.
Submitted by Chris Nichols on August 07, 2014