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  • Unlocking customer advocacy in retail banking

    IBM Global Business Services

    Customer Relationship Management

    The customer focused enterprise

  • 1

    Unlocking customer advocacy in retail banking

    Introduction We consistently hear banks touting their

    commitment to being customer friendly and

    going the extra mile for their customers.

    Accordingly, branches are once again in

    vogue, and executives have declared that

    improving the customer experience is the

    priority for the organization. As mergers and

    acquisitions become less attractive, leading

    financial institutions look increasingly to their

    existing customer base for growth. Critical

    organic growth measures – cross-sell, retention

    and new customer acquisition – dominate

    nearly every retail bank’s agenda. However,

    many banks have yet to identify the right

    mix of customers, marketing and sales

    programs, employee incentives, and process

    and technology improvements to produce

    higher returns. Despite significant investment,

    the largest banks are not well positioned

    for organic growth: our research shows the

    majority of customers will be reluctant to

    commit to a deeper relationship as a conse-

    quence of their prior cumulative experience

    with the bank.

    In order for banks to fully achieve the benefits

    from organic growth, bank executives need

    to understand customer attitude and its

    impact on customer behavior. Customers who

    have a positive attitude toward the bank are

    advocates, while those whose experiences

    shape negative opinions become antagonists.

    As such, a bank’s ability to effectively manage

    and influence customer attitude becomes

    paramount to achieving organic growth.

    The customer focused enterprise

    If banks are not aware of customers’ attitudes toward their organizations

    – and the impact these perceptions have on financial performance – they

    may be counting on organic growth that simply will not materialize.

    But by identifying which customers are advocates, apathetics and

    antagonists, banks can more precisely target customer experience

    improvement initiatives based on a more informed understanding of

    customer preferences and future value. To boost the bottom line, we

    believe banks must increase focus on customer attitude.

    Unlocking customer advocacy in retail banking

  • 2 IBM Global Business Services

    In this study, we establish the link between

    advocacy and higher profitability, respon-

    siveness and trust and explore three critical


    • Are banks fully positioned to grow organi-


    • Can a focus on improving advocacy unlock

    growth potential?

    • How can banks capture the opportunity?

    Identifying bank customers who can be

    converted into advocates must be a tenet of

    any customer focused organic growth strategy.

    To move customers into advocate-level rela-

    tionships, the customer experience must be

    well understood, continuously monitored and

    proactively managed. We believe that banks

    that effectively improve operations to align with

    the desired customer experience can create a

    new and sustainable competitive advantage.

    2 IBM Global Business Services

    About the research

    The goal of this study was to understand customers’ perceptions of their primary bank’s

    performance based on their ranking of key attributes of what we’re calling the customer focused

    enterprise (CFE). North American banks were classified into four tiers based on asset level: National,

    Regional, Community and Credit Unions.

    This quantitative research builds on the IBM customer focused enterprise study completed in

    April 2006.1 Over 3000 US banking consumers were surveyed via telephone and the Internet. The

    questionnaire consisted of 25 questions about interviewees’ perception of CFE operational character-

    istics as they pertained to their primary bank, as well as their purchase intentions and some general

    financial services profiling questions.

    Customers were classified into advocacy segments based on their answers to three questions: those

    who would recommend their bank, would go to their bank first for a new financial services need and

    would not switch if offered a competitive product. Advocates, the top tier, have a high likelihood to

    recommend, high purchase intent and low switching intent; Apathetics comprise the middle tier, and

    antagonistic customers are the lowest tier.

    To measure customers’ perception of bank performance, we asked customers to rate their

    primary bank on a number of rational and emotive CFE attributes. The rational attributes evaluated

    customers’ perception of their physical interactions with the bank and included statements such

    as, my bank corrects errors when they occur, my bank uses the information it already has received

    from me rather than asking for me to provide it repeatedly, my bank gives me plenty of ways to

    bank with them, including in person, on the phone or online. The emotive statements sought to

    understand how customers felt toward their bank, and included statements such as: my bank values

    my business, my bank understands my financial goals, my bank weighs both sides of the issue when

    I have a problem and resolves it fairly.

    Workshops were held with a team of senior IBM Financial Services and CRM consultants along

    with statistical analysts to review the research findings and develop recommendations for banking


    This study is a continuation of the IBM “CRM Done Right” series, following 2004’s “CRM done right:

    Executive handbook for realizing the value of CRM” and the 2006 executive handbook, “Advocacy in

    the customer focused enterprise.” 2

  • 3 Unlocking customer advocacy in retail banking

    Are banks fully positioned to grow organically?

    Traditional competitive levers are nearing exhaustion

    Merger and acquisition activity among the

    largest players has reached regulatory and

    operational limitations. In the U.S. market,

    Bank of America’s acquisition of Fleet

    Financial puts the bank near the govern-

    ment’s limitation that no bank may hold

    more than 10 percent of total outstanding

    deposits – forcing the bank to look into loan

    portfolios domestically (its acquisition of

    MBNA is a prime example) and internation-

    ally (i.e., its investment in China Construction

    Bank) for net new acquisitions.3 Other banks

    have reached operational limitations on their

    growth trajectory, leading banks to explore

    other growth levers such as new product

    development and new distribution channels/


    However, with the exception of minor

    changes to pricing and terms, little has

    changed in the landscape of financial

    solutions available to customers. The

    majority of product “features” present in

    checking, savings, credit and loan products

    when they were introduced decades ago

    are largely still intact today. Additionally,

    banks have sought to derive new sources

    of revenue from existing products by

    establishing what have become known by

    consumers as “nuisance fees.” However,

    customers have become sensitive to these

    fees; our study showed that 47 percent of

    customers agreed that their bank’s fees are

    too high. The increase in fees, coupled with

    little new product innovation, has affected

    customers’ perceptions of banks.

    “They just keep adding and adding (fees)

    and giving nothing in return”

    – Bank customer, IBM survey

    The impact of fee income is compounded

    by the fact that banks are facing pressure

    from wealth management and brokerage

    firms that have introduced cash manage-

    ment products to attract consumers seeking

    a greater breadth of financial services. With

    demographic shifts in the United States,

    most notably the increase in baby boomer

    retirement, the threat of assets walking out

    the back door is reality today.

    Finally, cost containment efforts made in

    the “name of the customer” have had little

    impact on differentiating the customer

    experience. Many banks have dramati-

    cally improved operating efficiency, but lost

    connections with their customers. Banks

    continue to invest in call center consolida-

    tions, channel integration and customer

    service improvements, but we see little

    improvement in customers’ attitudes and

    perceptions of service capabilities. In fact,

    other studies indicate that large banks’

    customer satisfaction rates are 15 percent

    below the scores of other leading companies. 4

    Unlocking customer advocacy in retail banking The customer focused enterprise

    Growth through M&A

    has legal and practical

    limits, but organic

    growth is