Winning Customer Advocacy in UK Retail Banking
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Nearly every bank can recognise the importance of winning loyal customers, but most find it difficult to mobilise to achieve it. Winning customer advocacy in UK retail banking By Barney Hamilton, Matt Symonds and Elizabeth Hogbin Barney Hamilton is a partner in Bain & Company’s London office and a member of the firm’s Customer Strategy & Marketing practice. Matt Symonds is a partner in Bain’s London office and a member of the Financial Services practice. Elizabeth Hogbin is a manager in Bain’s London office. Copyright © 2011 Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Winning customer advocacy in UK retail banking Nearly every bank would be an enormous hassle with little to be gained. The best Anne could look forward can recognise the to would be taking a small measure of revenge importance of winning by telling others how poorly her bank had loyal customers, but treated her and going elsewhere for her new mortgage. most find it difficult to mobilise to achieve it. In the 21st-century world of 24/7, have-it- your-way customer convenience, sorry tales like Anne’s are played out day after day in Leaving town for an eagerly anticipated week- bank branches, call centres and ATMs across end getaway abroad, Anne, a longtime cus- the UK. Retail banks have long been more tomer of a leading high street bank, stopped preoccupied, appropriately, with countering by her local branch to make an ATM with- threats of fraud and satisfying regulators than drawal. When her card did not work, she went focusing on the damage that their me-too inside to report the problem. The service products, hidden fees and indifferent service representative could not immediately diagnose have done to undermine consumer trust. what had gone wrong, but suspecting fraud, They now face unprecedented customer unrest cancelled the customer’s debit card and, in at a time when regulatory scrutiny is ramp- the process, suspended her credit card as well. ing up under the aegis of the newly created Unable to rely on convenient plastic to pay Financial Conduct Authority (FCA). The FCA for her trip, Anne asked to buy euros, so she will have a delicate role to play erecting new would at least have cash. Sorry, the service customer safeguards while not throwing up rep replied. He explained that to purchase barriers that could hinder banks from deliv- the foreign currency Anne would have had to ering a better customer experience. call ahead to ensure that the branch had an The world of UK banking is also being rocked adequate supply on hand. by a feisty new crop of competitors. Some, Well, then, how about withdrawing cash from like Tesco, the supermarket chain, or Metro her current account? Surely, with £6,000 on Bank, a new bank patterned on the successful deposit and her account set up to be replen- model pioneered by Commerce Bank in the ished automatically with her monthly pay- US, come armed with the customer-friendly check that should be possible. Of course, techniques of modern retailing. Other nimble the rep answered, but no more than £200. newcomers are racing to compete for sales Bank policy! of banks or parts of banks, such as the upcom- ing sale of 600 branches by Lloyds Banking Ultimately forced to borrow from a compan- Group. Many of the new entrants are unen- ion to cover her travel costs, Anne spent her cumbered by the legacy infrastructure and holiday weekend fuming over how much she processes that burden the industry incumbents. would like to dump her unhelpful bank. But as she reflected on the horror stories her This combination of economic, regulatory friends had told her about their own banks, and competitive factors threatens to make UK she reluctantly recognised that switching retail banking a significantly less profitable 1 Winning customer advocacy in UK retail banking business than it was pre-crisis. But it also and the big high street banks, in particular— opens up a new competitive “white space” for are a long way from being able to capitalise banks—both the big high street incumbents on the attractive economics of customer and the new entrants—to capture market share advocacy. To determine what sets banks that and lift profitability by rebuilding customer are earning customer loyalty apart from ones relationships. The implications for how retail that are not, Bain collaborated with Research banks compete are already disruptive and will Now, the online polling firm, to survey people be transformational. To seize this new oppor- best able to render a judgment—the banks’ tunity, leading banks will set themselves own customers. Research Now asked 9,064 apart from the competition by designing bank customers to rate on a scale of zero to products and services and delivering experi- 10 how likely they would be to recommend ences that provide real benefit to their cus- their principal bank to a friend or relative. To tomers. By doing so, they will be able to stand derive a measure of the strength of a bank’s out in a category where most customers think overall customer advocacy, we subtracted from their bank is nothing special. the percentage of its customers who gave top scores (nine or 10) the percentage of respon- In this environment, banks will need to focus dents who identified themselves as clear on converting customers from frustrated detrac- detractors (with ratings between zero and six). tors into loyal advocates. Bain & Company’s work with banks in markets around the world As the results in Figure 1 show, customers has consistently demonstrated the power of are largely unhappy with their banks, with customer advocacy. Loyal bank customers in fewer than one in three earning positive scores. the UK buy more products, maintain higher Indeed, each of the advocacy leaders—First balances and usage in the products they own, Direct, the Co-Operative Bank and Nationwide and cost less to serve. They also recommend Building Society—is a niche player, operating their bank to their friends and colleagues, a customer-focused business model that is becoming, in effect, a highly credible volun- strikingly different from the one traditional teer salesforce. Our analysis has found that banks are pursuing. Especially worrisome for customers who give their principal bank top incumbents, the most-profitable affluent cus- marks are worth 35 per cent more over a tomers with annual household incomes top- five-year period than those who are only luke- ping £100,000 gave higher scores to the win- warm about the treatment they receive and ners and lower scores to the laggards than fully 60 per cent more than detractors who less affluent respondents did (see Figure 2). give the lowest ratings. In other words, banks that invest in winning advocates can generate Where do the largest retail banks fall short? more attractive returns than rolling out an Our survey found that they are unable to design ambitious new marketing plan or adding offers or deliver experiences that delight their new branches. customers. Fully half of the respondents who self-identified as detractors told us there was Some incumbent banks and most new ones simply nothing at all special about their bank are already embracing the challenge—others (see Figure 3). The failure to give customers will be left behind. However, most UK banks— a reason to feel a modicum of enthusiasm 2 Winning customer advocacy in UK retail banking Figure 1: Leading and lagging UK banks and finance companies NPS® (June 2010) The Winners The Rest 40% 33% 27% 20% 20 1% 0 Average 3% 6% 9% 11% 15% 20 17% 18% 18% 20% 21% 24% 28% 40 36% 40% 60 First Co Nation Direct Op wide Note: Average lines represent a straight average of relevant banks and consumer finance companies where N>30; Net Promoter® and NPS® are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Source: Bain/Research Now UK Net Promoter Research, June 2010, N=9,064 responses Figure 2: Loyalty leaders earn higher scores from affluent customers NPS (2010) 60% 40 20 0 20 40 Higher income Lower income Note: High income is £100K+ per household per year, Low income is <£100K per household per year. Amex high income sample is small (N=29) and therefore potentially unrepresentative Source: Bain/Research Now UK Net Promoter Research, June 2010, N=3,370 3 Winning customer advocacy in UK retail banking Figure 3: Detractors find UK banks “nothing special” Percentage of comments 100% Don’t make recommendations 80 “Nothing special” 60 Personal brand relationship 40 Product/Price 20 Service 0 Detractors Note: N=6,046; Responses weighted by profit pool Source: Bain Financial Services practice for what is fundamentally a relationship busi- petitive “white space”, inviting competitors to ness overshadowed all other reasons respon- pick off prized customers eager to defect for dents cited for giving their bank low marks, a better deal. including product quality and price. Certainly the big-bank laggards are burdened Banks are not alone in struggling to deliver by more challenges than are faced by adroit superior customer experiences. Our research competitors like First Direct, Co-Op Bank indicates that just one company in eight gets and Nationwide with their far simpler busi- it right, despite the obvious business case for ness models. Our survey reveals that customer delighting customers. But that shouldn’t give advocacy is won or lost based on how banks bankers comfort that the implications of deliver a few critical factors. Overwhelmingly, mediocrity are anything less than profound. customers told us that outstanding and con- It condemns organisations that cannot rise sistent service is the quality they most value.