Now That the Dust is Settling: Satisfying Post-Crisis …images.dealer.com/jdpa/pdf/10-US-RBSSPostCrisisConsumers...Now That the Dust is Settling: Satisfying Post-Crisis Consumers

A Global Marketing Information Company | businesscenter.jdpower.com4486/071610

Now That the Dust is Settling: Satisfying Post-Crisis Consumers

A J.D. Power and Associates White PaperJuly 2010

Financial Services Practice

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1


OverviewAs the dust settles on the financial crisis and financial institutions turn attention from the immediate requirement to manage capital, credit, and costs for short-term survival and back to the need to nurture customers, markets, and products for longer-term growth, J.D. Power and Associates is being asked: How have consumers changed? How has the crisis altered their needs and attitudes? How can companies alter service offerings and delivery to adjust to those changes?

Clearly, consumers have changed. In addition to becoming more fiscally conservative with their personal finances—the shift from spending to savings has been well-publicized—customers have become more skeptical of and cynical toward financial institutions. Near the peak of the crisis, at the end of 2008, J.D. Power and Associates found that customers were more pessimistic about the country, the economy, and their personal future than immediately post-9/11. Additionally, 84% of those polled agreed that financial institutions were responsible for the crisis.

Financial Services to Blame

0%

10%

20%

30%

40%

50%

Strongly agreeSomewhat agreeNeither disagreeor agree

Somewhat disagreeStrongly disagree

46%

38%

10%

4%2%

% o

f Cus

tom

ers

The financial services industry is responsible for thecurrent state of the housing and mortgage markets…

84%

Figure 1

Source: J.D. Power and Associates 2010 Retail Banking Satisfaction StudySM

Since 2007, customer satisfaction with the financial services that J.D. Power covers—banking, brokerage, credit cards, and mortgages—is, in most cases, falling and, at best, flat. In a particularly telling finding in the J.D. Power and Associates 2010 Retail Banking Satisfaction Study,SM customers express the sentiment that their bank’s focus continues to shift away from the best interests of their customers and toward the profitability of their bottom lines.

Customer satisfaction with financial services is, in most cases, falling and, at best, flat.



Decline in Customer Driven Brand Image

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2007 2008 2009 2010

5.054.83

4.624.83

4.444.23 4.25

4.04

4.754.47

4.33 4.21

Mea

n R

atin

g fo

rC

usto

mer

Driv

en v

s. P

rofit

Driv

en

Small BanksIndustry Average Large Banks

Figure 2


Note 1: Values may be affected by rounding Note 2: Large banks = 500 or more branches. Small banks = 50–499 branches.

Certainly, new and proposed regulations—the CARD Act of 2009; the Real Estate Settlement Procedures Act (RESPA); and a Consumer Financial Protection Agency—are evidence of the strength of public ill will toward financial institutions.

That said, customers have yet to vote with their feet and dollars. In the past three years, the lion’s share of core deposit growth has gone to the largest banks, as the almost-quaint notion of considering “safety and soundness” when selecting a bank has taken on a decidedly practical meaning. In the Retail Banking Satisfaction Study in both 2009 and 2010, the Brand Image rating for financial stability had the highest importance weight among customers. However, the tide may begin to turn. While it is difficult at this point to gauge the success of such movements as MoveYourMoney.org, J.D. Power is seeing an erosion in loyalty to the largest banks. Pre-crisis, in early 2007, the differences in professed loyalty among customers at the larger national banks and smaller regional players were narrow, with 39% of customers of large banks saying they would “definitely not switch,” compared with 42% at smaller banks. Earlier this year, that loyalty proxy had fallen to 32% for the big banks while holding steady at 41% for smaller competitors.

The reaction of financial institutions to both the opportunities and challenges in the new environment has been mixed. J.D. Power has seen a handful of institutions put the customer front and center of strategies aimed at gaining advantage by delivering a superior customer experience, while competitors are otherwise distracted. On the other hand, there are institutions that appear to be content with the status quo. The head of consumer research at a large institution was overheard recently saying, “I could shoot a customer’s dog, tell them I was from Bank X, and they would still bank with us.” Other institutions appear overly concerned with the overall industry response to changing conditions instead of worrying about their own reaction, bringing to mind the old joke about the campers and the bear: While fleeing a marauding bear, as one camper stops to put on shoes, the other exclaims, “Why are you bothering to put on shoes? You can’t outrun a bear!” To which the first camper replies, “I don’t have to outrun the bear—I just have to outrun you.”

Banks that deliver above-average satisfaction enjoy double the growth of banks with average satisfaction—and quadruple those banks with below-average satisfaction.



Refocusing on the BasicsThe point is that with a disgruntled and unsettled consumer base on the verge of flux, there is an opportunity to win by focusing on customers and providing a superior banking experience. Research that J.D. Power has conducted in conjunction with First Manhattan Consulting Group indicates that those banks delivering above-average satisfaction enjoy double the same-store deposit growth of those banks with average satisfaction—and quadruple those banks with below-average satisfaction.

Communication and Satisfaction

0% 5% 10% 15% 20%

Same Store Deposit Growth

Highest Quintile

2nd-4th Quintile

Lowest Quintile

19.4%

9.0%

5.0%

3.7%

1.3%

0.5%

2004–2007 2006–2007

Figure 3

Source: Retail banking customer satisfaction data, J.D. Power and Associates; deposit data and analysis, First Manhattan Consulting Group

J.D. Power’s view is that the path to victory is less about understanding how customers have changed and then manufacturing an appropriate response, and is more about refocusing on the basics, with a heightened sensitivity that customers—once burned, twice shy—will likely demand a higher level of transparency and accountability from their institutions. Toward that end, J.D. Power offers five suggestions:

1. Customer focus has to come from every level of the organization—not as lip service, but through a shared understanding of how a better experience for customers will translate into superior value for shareholders.

A common refrain is that successful customer satisfaction programs have to start at the top of the organization. But while a top-of-the-house focus on customers is necessary, if the linkage between customer satisfaction, financial impact, and ultimate shareholder value has not been firmly established, it is likely that customer and shareholder interests will be seen as mutually exclusive at critical decision-making junctures. Executive directives will ring hollow as mom-and-apple-pie platitudes give way to harder financial realities. Immediate needs to cut costs or divert resources elsewhere to deliver tangible dollar benefits will too often trump vague promises of future payoffs.

Not to suggest an overly myopic approach, but customer improvement programs need to be rooted in the reality of what drives customer behavior, which in turn drives incremental profitability. J.D. Power finds that of the various financial levers satisfaction can help push—higher word of mouth acquisition, reduced cost to serve, premium pricing—the two that have the greatest potential are deeper share of wallet and increased customer retention. However, flabbily conceived initiatives such as cross-sell programs, with the thought process of (a) delivering a good experience to customers; (b) earning the right to sell them something;

Customer improvement programs need to be rooted in the reality of what drives customer behavior, which in turn drives incremental profitability.



and (c) peddling the “product of the month” will not deliver. Similarly, reactive retention programs that identify customers at risk and then reach out to see what can be done to keep their business, or programs that route customers who want to close their account to the retention unit to try to chalk up a “save” do too little, too late.

Instead, retention programs need to be proactively targeted at the primary root causes of customer defection to get ahead of the issues that put customers at risk in the first place—that is, occurrence of certain problems (some problems have a far greater negative impact than others); repetition of problems; and poor resolution of problems that have occurred. Retention programs cannot be aimed at retention per se—they need to focus on eliminating specific problems and doing a better job of fixing those that do slip through the cracks.

Likewise, with respect to cross-sell, J.D. Power research indicates that the initial onboarding experience is the one aspect of the customer experience with the greatest impact on share of wallet. Better experiences at this initial moment of truth—which include comprehensive needs assessment; thorough communication of how to use and optimize the benefit of products purchased; and post-account initiation follow-up to ensure products are functioning properly—lead to a significantly higher share of wallet.

It is critical, therefore, to design customer improvement programs with the end result in mind. Start with understanding what changes in customer behavior will yield a financial benefit to the organization. The next step is to determine what improvements to the customer experience will drive those changes in behavior. Finally, define the role each level of the organization needs to play and changes they need to make to respective processes to deliver that improved customer experience.

2. The basic requirement of delivering a consistently error-free experience has yet to be achieved in financial services, and must be a primary area of focus.

More than two decades of focus on quality improvement and the elimination of defects in the manufacture of durable goods have certainly yielded results. In the past 10 years, for example, J.D. Power has found that satisfaction for durable goods manufacturers has steadily improved. A bellwether for manufacturing quality—the number of defects per 100 vehicles in the auto industry—has been steadily and significantly reduced. More importantly, the variance between the highest- and lowest-performing manufacturers has narrowed, indicating not only a higher quality experience for customers, but also a more consistent one.

U.S. Initial Vehicle Quality—Industry History

0

20

40

60

80

100

120

140

160

180

200

176 167 154 147 133 133 119 118 109

124 125 118108 109

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Prob

lem

s Pe

r 100

(PP1

00)

Study Year

IQS2 IQS3

3% average annualimprovement

6% average annualimprovement

Figure 4

Source: J.D. Power and Associates 2010 Initial Quality StudySM

The initial onboarding experience … has the greatest impact on share of wallet.



In service industries, on the other hand, satisfaction has remained more or less flat. The spread between the highest and lowest performers has widened. In financial services, overall satisfaction has declined since 2007, and many would point to the ambient negativity toward the industry as the cause.

Year-over-Year Declines

-60 -50 -40 -30 -20 -10 0 10 20 30 650 700 750 800 850 900

2009 Primary Mortgage Servicer

2009 Full Service Investor

2009 Primary Mortgage Origination

2009 Credit Card Satisfaction

2009 Retail Banking Satisfaction

2009 Insurance New Buyer

2009 Small Business Banking

2009 National Auto Insurance

2009 National Homeowners Insurance

Year-over-Year Change in Index

-54

-45

-18

-7

-3

-2

9

14

21

730

731

739

703

734

865

696

801

773

Figure 5


Yet the occurrence of reported problems—a key driver of dissatisfaction––continues to rise among retail banking and credit card customers. So, in an environment of negative public sentiment, which would beg for a heightened focus on doing a better job for customers, things are actually getting worse. The resolution of the problems that do occur isn’t much better. While a typical internal target for the “holy grail” of problem resolution—FCR, or first-call resolution—is in the 75%-80% range, J.D. Power finds that in retail banking, that standard is met only 60% of the time.

The need for improvement is clear. The problem is that the tried-and-true methods for quality improvement in the durable goods industries, such as Lean Six Sigma and LEAN business process improvement, do not lend themselves well to the majority of the issues driving customer complaints in financial services. In retail banking, for example, only one-third of reported problems fall into the production categories—transaction errors and incorrect account information—that process improvement programs are designed to address.

Most problems in banking involve either personal interactions that have gone bad or policies that have been poorly communicated and/or received. In these cases, the trick is not removing defects as much as it is understanding customer expectations coming into the transaction and either meeting those or mitigating the gap in expectations and fulfillment. An additional complexity is that expectations vary by customer, and even for the same customer over time. Performance from employee to employee and over time also varies, and personality style that works with one customer doesn’t necessarily work with another. The list of challenges goes on.

The spread between the highest and lowest performers in financial services has widened.



So, while Six Sigma programs can and should get at some of the problem issues that banks face, it is the management of interpersonal interactions that is really going to make the difference. The keys here are to:

• Get the right people—people who are upbeat and friendly are obvious, but it is essential that they have the ability to think on their feet and detach from the emotion (not take it personally).

• Continually articulate clear, but broad guidelines about what the company is trying to accomplish—think less procedure and more principle on understanding customer expectations, educating, and empathizing. Then give your people the flexibility to make important decisions. Raise the level of accountability by asking them to act as the spokesperson for the organization with every interaction instead of simply following procedures outlined for them.

• Provide sufficient tools to solve on the spot the most frequently encountered customer problems.

3. Provide employees who interact with customers with immediate feedback on those interactions.

Post-transaction tracking programs are a fundamental part of any solid satisfaction improvement effort. Results are used to measure progress, support incentive programs, and provide feedback to employees. However, too often the feedback to employees lacks the precision or urgency to generate and sustain desired behaviors.

Given that the majority of service inconsistencies can be either rooted in or addressed through personal interactions, it is critical for employees to be able to view their customer interactions through the eyes of customers. Lacking information about specific customer interactions to indicate otherwise, employees are enabled to ignore flaws, minimize bad behavior, and magnify successes. Even when specific feedback is provided, if there is any delay between when the transaction took place and the time the feedback is received, the tendency to rationalize away criticism rises.

J.D. Power recommends that post-transaction surveys be deployed via e-mail or phone the evening of the day the transaction takes place and that the results be delivered to employees the following day. A further suggestion is using a system of alerts to notify supervisors and managers of above- and below-average performances that warrant recognition or remedial action. The immediacy and urgency of customer feedback and managerial recognition and coaching will narrow gaps between employee understanding and behavior around both customer and company expectations.

4. It’s not about disclosure, it’s about communication, communication, communication!

With the rollout of the second phase of the CARD Act, some credit card company executives have commented that while the requirement for common disclosures should address communication issues with customers, it will also level the playing field and remove “better communication” as a competitive differentiator. Nothing could be further from the truth. Effective communication is a fundamental driver of satisfaction, and disclosure alone just doesn’t get you there.

Examples of the positive impact of communication J.D. Power has measured in its financial industry studies are numerous. For investors experiencing large portfolio losses, those whose financial advisors have proactively conducted portfolio reviews are more satisfied than those who are left in the dark. Credit card holders who are familiar with the features and benefits that come with their cards are more satisfied than those who aren’t familiar with them.

Probably more important is the effect of communications on mitigating the negative impact of certain policies on satisfaction. Policies aimed at managing earnings and risk—fees assessments and waivers, funds availability, credit underwriting—must balance customer

Too often, the feedback to employees lacks the precision or urgency to generate and sustain desired behaviors.



and shareholder interests in a zero sum game. What is good for the one may not be good for the other. Turning down a risky loan protects shareholders, but is bound to make the customer unhappy. However, better communication can lessen the blow. For customers who pay banking fees, satisfaction is higher among those who have had the fees explained up front than those who haven’t. Similarly, when changes to fees are made, customers who are aware in advance are more satisfied than those who are unaware. In the past two years, the time needed and the documents required to close loans has increased significantly. However, when time frames and requirements are explained up front, there is no negative impact on satisfaction.

Communication, though, is not just a matter of telling the customer or making disclosures. A classic example of this is in the annual J.D. Power and Associates Credit Card Satisfaction Study,SM which finds half of the cardholders surveyed are unaware of the APR on their cards, despite the APR being disclosed on monthly statements for decades now as a requirement of Regulation Z.

In another example, the need for and payoff of a two-way street of communication is particularly evident in establishing a new small business banking relationship. As expected, customers whose banks explain to them in person such aspects of their new account as fee structures are more likely to fully understand their fees and, therefore, be more satisfied. To take it a step further, small business owners who say that their business banker asked specific, relevant questions to identify their needs and then personally followed up with them after the account was opened are also much more likely to report that their business banker “completely understood” their company, which is one of the biggest drivers of small business banking satisfaction. Interestingly, these same customers are far less likely to report having any kind of problem with their account, underscoring the importance of communication as a way of eliminating initial misunderstandings that often result in problems later on.

5. Take the opportunity to redefine your value proposition.

Why should people bank with you? What do you have that the other banks don’t have? The ability to answer these questions with a concise, tangible, and meaningful value proposition goes a long way in winning and satisfying customers.

The common denominator of the perennially highest-performing/high-scoring companies in J.D. Power and Associates’ financial services studies is a clear and consistent value proposition. As examples, USAA “knows what it means to serve” its target audience with the life-and-death urgency and immediacy of an imminent deployment. TD Bank’s legacy Commerce Bank explicitly lives out its tagline of “America’s Most Convenient Bank,” with more branches, longer hours, and fewer “silly” rules. American Express integrates benefits, rewards, personal interactions, and brand campaigns to fulfill emotional needs to be unique, valued, and recognized—and in doing so, is able to charge a premium price for the premium experience delivered. In the 2009 Credit Card Satisfaction Study, American Express secured the enviable position of ranking highest in overall satisfaction and second in satisfaction with fees at the same time its customers report paying annual fees that are double the competition.

Redefining the value proposition is particularly important in retail banking, where it is now fundamentally broken. Larger depositors and heavy over-drafters effectively cross-subsidize the rest of the customer base. Whether it is because free checking has hit the growth wall or because legislation will demand it, the current model has to change. Now is the time to understand deeply what customers value; what they are willing to pay for; and what value you can provide now or in the future better than your competitors can—and in a sustainable way—and then price explicitly for that value. It is clear that much of the lack of transparency in pricing that the industry has been plagued with is due to a reluctance borne of the thought: “If you really knew how we were planning to make money off of you, you wouldn’t do business with us.” If there’s one thing J.D. Power is certain of, it’s that the days of profiting from the ignorance and inertia of customers are gone forever.

Redefining the value proposition is particularly important in retail banking, where it is now fundamentally broken.

Communication mitigates the negative impact of certain policies on satisfaction.



ConclusionThe market is ripe for the handful of institutions that are willing and able to take on the challenges discussed above. It won’t be easy. It’s not as simplistic as latching on to the one number that will tell you everything you need to know, as the current CEO love affair with Net Promoter Score would suggest. Success will require the intellectual energy to understand and establish the links between your actions, customer behavior, and financial results. It will necessitate managerial discipline to install and maintain the tools and systems that will give individual employees the ability to make good decisions and act for the organization on behalf of your customers and provide granular feedback to self-direct improvement. Finally, it will demand spirited leadership to model and support the change needed at every level of the organization to view the world through the lens of the customer and act accordingly.

It won’t be easy, but it will be worth it. Financially, that is clear. Work that J.D. Power has done with Novantas, LLC suggests that, within retail banking, movement from average satisfaction to above-average satisfaction will yield an incremental 2% in core deposit growth. But in addition to that, it provides the opportunity to be one of the few institutions to stand out and take the high ground in an ocean of public ill will, and start to re-establish the trust that has been so badly tarnished.

Copyright © 2010 by J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

The information contained herein has been obtained by J.D. Power and Associates from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, J.D. Power and Associates does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from use of such information.

This material is the property of J.D. Power and Associates or is licensed to J.D. Power and Associates. This material may only be reproduced, transmitted, excerpted, distributed or commingled with other information, with the express written permission of J.D. Power and Associates. The user of this material shall not edit, modify, or alter any portion. Requests for use may be submitted to [email protected]. Any material quoted from this publication must be attributed to “Now That the Dust is Settling: Satisfying Post-Crisis Consumers, published by J.D. Power and Associates, © 2010 by J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.” Advertising claims cannot be based on information published in this report.

J.D. Power and Associates ServicesCustom Continuous Research J.D. Power and Associates conducts custom, proprietary research and customer satisfaction measurement and tracking with Acutrend,™ a new tool that allows companies to continuously monitor the customer experience for your company in comparison to your competitors’ companies. Acutrend combines real-time customer satisfaction data with J.D. Power customer satisfaction benchmark data for your industry, providing an unprecedented view of performance at the most detailed level of the customer experience and giving your company the information to make improvements that keep it competitive and profitable. To learn more about Acutrend, please visit: jdpower.com/tracking

Automotive ForecastingThe J.D. Power Automotive Forecasting team is comprised of statisticians, economists, and experts in demographics who combine their knowledge of consumer behavior with the latest statistical modeling techniques to measure and track the global automotive industry. The team leverages its consumer and forecasting databases to predict sales, production, powertrain configurations, demand for future technologies, product cycle plans, and trends in vehicle prices and contenting. To learn more about Automotive Forecasting, please visit: jdpower.com/forecasting

Mystery ShoppingJ.D. Power and Associates’ mystery shopping programs evaluate how consistently employees communicate their company’s mission, vision, values, and brand promise, primarily through measuring sales and service process execution. To measure consistency across the customer experience, J.D. Power deploys mystery shoppers to assess their employees’ performance across a range of identified customer touch points. This provides objective, highly actionable and tactical information that allows organizations to compare their performance with key competitors, better understand operational strengths and weaknesses, and develop strategies for improvements. To learn more about mystery shopping programs, please visit: jdpower.com/mysteryshopping

Power Information Network® (PIN)The Power Information Network (PIN) provides clients across Canada and the United States with real-time automotive information, analysis, and decision-support tools to reduce risk exposure, improve marketing and remarketing effectiveness, and increase profitability. PIN automotive solutions are based on the collection and analysis of daily new- and used-vehicle retail transaction data. Details from these transactions are evaluated to create products that focus on key measures, including price, cost, profit, finance, lease, and trade-in values. To learn more about PIN, please call 800.947.6988 or e-mail [email protected] or visit: jdpower.com/PIN

Call Center Certification Programs J.D. Power and Associates call center certification programs help consumers and B2B customers identify product and service providers that deliver an outstanding customer experience. To become certified, the client call center must meet or exceed the customer satisfaction benchmark established by the most recent J.D. Power and Associates customer satisfaction research study. Call centers that become certified may then have the opportunity to license the J.D. Power brand to enhance consumer recognition of their certification. To learn more about call center certification programs, please visit: jdpower.com/certificationprograms

ConsultingJ.D. Power and Associates’ consulting services assist clients in developing competitive advantages by helping them understand and integrate the Voice of the Customer into their strategic planning and operational activities. The methodologies employed are practical and proven, yielding measurable results and providing clients with assistance in developing and refining processes and products from concept through sales and service. To learn more about consulting services, please visit: jdpower.com/consulting

Web Intelligence The J.D. Power and Associates Web Intelligence Research Division offers a breakthrough capability to analyze social media—to provide richer and deeper insights about topics of most importance to online content creators. J.D. Power Web Intelligence crawls more than 100 million blogs each week and collects unaided opinions of the online community—turning it into valuable marketing intelligence about markets, trends, issues, segments, brands, products, and services. To learn more about Web Intelligence research, please visit: jdpower.com/webintelligence.com

Turning Information Into Action®

About J.D. Power and AssociatesJ.D. Power and Associates is a global marketing information services company operating in key business sectors across a variety of industries, including market research, automotive forecasting, performance improvement, Web intelligence, and customer satisfaction. Established in 1968, the company has been listening to consumers and business customers; analyzing their opinions and perceptions; and refining research techniques and study methodologies to offer some of the most advanced product quality, customer satisfaction, and tracking research available today. The company’s quality and satisfaction measurements are based on responses from millions of consumers annually. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.

3730988k_WP

For more information about J.D. Power’s suite of products and services, e-mail [email protected] or call 888.537.6937.

®

Documents

Now That the Dust is Settling: Satisfying Post-Crisis …images.dealer.com/jdpa/pdf/10-US-RBSSPostCrisisConsumers...Now That the Dust is Settling: Satisfying Post-Crisis Consumers