- Customers who are promoters (defined as those whose survey
rating identified them as their bank's most loyal advocates) stay
longer with their banks than those who are not. They also buy more
products, refer more new customers and cost less to serve.
- Among affluent US customers, a promoter is worth $9,500 more
than a detractor over the tenure of his or her relationship with a
bank.
- The Net Promoter® Score (NPS®) for direct banks
exceeded those of national branch network banks by 69 percentage
points. Direct bank customers cited a recommendation from a friend,
colleague or family member as the principal reason they selected
their bank nearly twice as often as did customers of national
branch network or regional banks.
- Our analysis found that the banks that are loyalty leaders
enjoy a growth rate that is 10 percent higher and a cost of funds
that is 80 basis points lower than banks that are price
leaders.
The loyalty leaders
- A company's standing with customers can be measured
meaningfully only in relation to that of other competitors with
whom customers can reasonably choose to do business. In retail
banking, the relevant basis for comparing customer loyalty is
within geographic regions.
- The survey identified loyalty leaders among large, traditional
banks in each market. In the US, TD Bank leads in the Northeast
region; SunTrust is the leader in the South; Harris occupies the
top spot in the Midwest; and Bank of the West is No. 1 in the West.
In Canada, TD Canada Trust is the loyalty leader, and Ixe Banco
leads in Mexico.
- The fact that some regional banks attained scores close to
those of direct banks or local community banks and credit unions
demonstrates that larger banks can earn the loyalty of their
customers.
What drives loyalty?
- Service delivery clearly has the greatest potential to set a
bank apart for good or for ill. Promoters cited "service" over six
times more frequently than "rates and fees" or "branches" as their
top reason for recommending their bank. Poor service delivery
topped the list of factors named by detractors, with "rates and
fees" not far behind.
- Banks underperform among prime, mid-career customers aged 25 to
55 years, earning scores much lower than those given by younger and
older segments.
- Banks rated poorly with their most affluent customers. Among US
banks, respondents from households with investable assets of $1
million or more gave an NPS averaging just 2 percent (versus 16
percent from those with assets between $100,000 and $500,000).
What banks can do
- Large banks can put in place business systems and develop
organizational cultures that enable them to behave much like their
smaller, more-focused competitors.
- Loyalty leaders build their success on a common set of
principles, embracing these six practices. They:
- Measure their customer loyalty versus their competitors by
segment.
- Calculate the value of their promoters, passives and detractors
to the business's bottom line.
- Prioritize issues that have the greatest potential to create
promoters or avoid detractors.
- Close the loop by channeling customer feedback to frontline
employees, who quickly follow up directly with customers for
service recovery and learn how to better serve them in the
future.
- Engage employees by instilling loyalty disciplines through more
effective hiring, training, listening, coaching and
rewarding.
- Act at every level of the organization to convert insights into
learning and cultural change to improve steadily the customer
experience. - Many banks have adopted some of the elements. But true
breakthroughs in customer loyalty and economic results come only
when all six are in place, something very few banks have achieved.
Bain has worked with organizations pursuing customer advocacy and
has found ways to overcome many of the common roadblocks.
1. Introduction: Banks need a new playbook to achieve
sustainable growth
The near-collapse of the global financial system has left
bankers searching for a profitable path forward in a permanently
altered competitive landscape. Public trust in financial services
companies has sunk to historic lows, underscoring the need for
retail bankers to repair badly damaged customer relationships. To
do this, however, banks need to rethink deeply entrenched business
practices. Tough new financial-reform legislation in the US brings
banks under tight scrutiny, restricts the businesses in which they
will be permitted to operate, sets higher capital requirements,
limits fees and introduces a new layer of oversight in the form of
a consumer financial protection watchdog.
The turbulence has made it clear that the two principal growth
strategies banks relied on for years mergers and acquisitions and
ever-increasing fee income-have run their course. While smaller
banks may continue to pursue consolidation, increased concentration
among the big banks will no longer be an option, as regulators seek
to limit the number of institutions that are "too big to fail."
Gone, too, is the quick fix of raising fees, penalties and other
charges, which ended with the credit crisis and deep recession-and
the regulatory backlash they provoked. One measure of the sweeping
changes: Earnings from fees and charges amounting to 40 percent of
total checking account profits are now at risk and will not easily
be replaced.
In this challenge lies an opportunity for the industry to write
a new, more solid and sustainable foundation for growth. For most
retail banks, the best way forward will be organic growth rooted in
strong customer relationships and the economic rewards they
deliver. Like any organization that systematically sets out to
convert customers into advocates, the most effective players put
customer loyalty at the heart of their growth strategies. They
embrace new management disciplines, apply new metrics to track
customer sentiment and refocus their organizations from the
executive suite to the frontlines on improving the customer
experience. They also build the infrastructure, information systems
and training programs that enable them to make customer feedback an
integral part of how they operate.
Some banks embarked on this journey years ago and are now
showing the way forward and reaping the rewards. Several regional
banks, community banks and credit unions have the principles of
customer loyalty hard-wired into their business models and are now
taking market share from the loyalty laggards. Fast growing direct
banks, like USAA Federal Savings and ING Direct in the US and
President's Choice Financial in Canada, manage to win some of the
highest levels of customer advocacy achieved in any industry. But
apart from a few super-regional banks, none of the biggest retail
banks have yet to make much visible headway despite years of
hit-or-miss customer initiatives. To make meaningful progress, they
need to learn how to home in on the right actions that will boost
loyalty among the right customers and produce attractive financial
returns.
Bain & Company is uniquely well positioned to help companies
advance on their loyalty journeys. Pioneers in the field, we have
been refining techniques that help companies become
customer-focused organizations and realize bottom-line benefits for
nearly two decades. Building on the work of Fred Reichheld, a Bain
Fellow and director emeritus, we have developed a comprehensive set
of disciplines for implanting a customer loyalty system into
organizations' strategic outlook and operating rhythms. Using a
simple, reliable metric for tracking loyalty called the Net
Promoter Score (NPS), companies are able to channel a steady stream
of real-time customer feedback from the boardroom to the
frontlines, making the voice of the customer a presence at every
level of the organization and a spur for continuous improvement
where it matters most. Our work helping more than 20 retail banking
institutions design and implement customer loyalty programs around
the globe has enabled us to co-develop many of the industry's best
practices.
Putting that experience to work in this report, we collaborated
with e-Rewards, a leading market research firm, to poll more than
89,000 US, Canadian and Mexican customers of national branch
networks, regional banks, direct banks, and hundreds of community
banks and credit unions to measure their loyalty to their primary
bank. We linked what respondents told us to their bank's financial
performance. Probing deeper, we explore the root causes of their
loyalty. We disaggregate the overall sample to understand the
differences in customers' attitudes toward their banks by gender,
age group, household income and assets. We demonstrate the
substantial incremental profitability promoters deliver to the
banks that treat them well. The report concludes by describing what
banks that aspire to sustainable, organic customer-led growth can
do, laying out the architecture of a top-to-bottom customer loyalty
program. While there can and should be early wins that deliver
measurable benefits and encourage the organization on the journey,
there are no "quick fixes." The route to success is a long one,
requiring the sustained commitment of senior management and active
engagement of every employee. But as we will see in the pages of
this report, the destination is well worth the trip. The rewards
from customer loyalty for banks that stay the course can be
substantial and, when fully implemented, they multiply and become
self-reinforcing over the long run.
2. Why loyalty matters
The power of customer loyalty is clear and compelling: It leads
to more profitable growth. Loyal customers stay longer with banks
that treat them well. They buy more of their products, and they
cost less to serve. They recommend their bank to their friends and
colleagues, becoming, in effect, a highly credible volunteer
salesforce. Investing in loyalty can generate more attractive
returns than rolling out an ambitious new marketing plan or
building new branches.
Far less simple is the "how": It is hard to marshal the data,
insights and efforts needed to achieve customer loyalty and to tie
those to economic outcomes. Most attempts to measure loyalty cannot
clearly identify the organization's most loyal customers. They also
fail to reveal what managers and frontline employees can learn from
their customers' experiences, what actions the bank needs to take
or how these initiatives will deliver bottom-line business
results.
An effective loyalty system needs to accomplish four things.
First, it must make it possible for a bank to categorize individual
customers by the intensity of their loyalty. Second, it needs to
expose the root causes underlying customer loyalty that point the
way to specific actions management and employees need to take that
will steadily improve the customer experience. Third, it needs to
be grounded in customer economics that enable a bank to calculate
the lifetime value of a loyal customer-and what it would be worth
to convert other customers like them into loyalists. Finally, it
must have the sustained commitment of the bank's senior leaders to
propel customer-focused organizational change by using insights the
loyalty system generates into policy, process and product
improvements and daily frontline behaviors. Leadership engagement
is the single most important ingredient to elevate loyalty from a
marketing exercise into a core mission.
Bain has found that the Net Promoter approach can help
accomplish all of these objectives. By asking customers to rate on
a scale from zero to 10 how likely they would be to recommend their
bank to a friend or relative, companies can sort their customer
base into promoters (those responding with scores of nine or 10),
passives (who answer with a seven or eight) and detractors (giving
scores from zero to six). Each group-promoters, passives and
detractors-exhibits different purchasing and referral behaviors,
and understanding the motivations, needs, likes and dislikes of
each can lead to actions and decisions that can grow the business.
Subtracting the percentage of detractors from the promoters yields
a bank's Net Promoter Score (NPS), a single simple number that, as
we will see, yields powerful insights. NPS is a key that helps
unlock organizational changes that most bankers would otherwise
struggle to achieve.
Used as a competitive benchmark, Net Promoter makes clear that
winning customer loyalty is valuable not just because it is the
"right" thing to do but because loyalty is inextricably tied to
profitable growth. Indeed, it is striking how the relationship
between loyalty scores and deposit growth rates plays out among the
different banking business models we examined. Earning the highest
NPS with an average of 63, the direct banks saw their deposits
increase between 2007 and 2009 at a 13 percent annual rate
compounded. Credit unions and community banks, which have long
placed a premium on being customer friendly, have been rewarded
with both high NPS and strong deposit growth averaging,
respectively, 6.1 percent and 7.5 percent compounded annually. In
contrast, deposit growth was essentially flat, overall, at the
regional banks and national branch network banks, whose customers
gave the lowest NPS (+5 percent and -6 percent, respectively). The
gap between the customer loyalty of national and regional banks, on
the one hand, and the community banks, credit unions and direct
banks, on the other, is wide and increasing.
Underpinning the correlation between loyalty and growth is the
very different behavior of promoter, passive and detractor
customers. Our analysis of customer attrition rates, for example,
has found defections among promoters are only one-third those of
detractors. Promoters also devote a greater share of wallet to and
buy more products from their primary bank.
Completing the virtuous cycle, promoters are also far more
likely than detractors or passives to refer new customers to their
banks. During the past year, the promoters in our sample made more
than six times more referrals than detractors and more than twice
as many as passives. Consistent with the higher NPS they gave,
customers at direct banks provided more than twice as many
referrals over the past year as did their counterparts at regional
or national branch network banks. That higher propensity to refer
is making a big impact on direct banks' new-customer recruitment.
The proportion of direct bank customers in our sample who told us
that positive word of mouth from a friend, colleague or family
member was the principal reason they selected their bank was nearly
twice that of national branch network or regional bank customers.
This result underscores that while the big retail banks invested
heavily in their branch footprint and in marketing to bring in new
customers, the loyalty leaders have their customers selling for
them.
The impact of promoters' lower attrition rates, commitment of a
greater share of their spending, and greater likelihood to refer
new customers flows directly to the bottom line and accumulates
over time. Across our US sample of affluent customers, converting a
passive customer into a promoter adds $6,700, on average, over
their tenure as a customer, while creating a detractor destroys
$2,800 of value-a total difference of $9,500. But even that fails
to capture the full upside. The new customers that promoters refer
are likelier to become promoters themselves-and generate a chain of
secondary referrals that further boost each promoter's value.
The value of customer loyalty is not limited only to the revenue
side of the ledger. Our calculation does not include, for instance,
the added benefits that accrue from the fact that promoters cost
less to serve than detractors. They make fewer demands on call
centers, raise fewer problems and conflicts that need to be
resolved, and are more apt to rely on self-service tools to conduct
transactions.
Loyalty leaders also do not need to price as aggressively as
their competitors. According to our analysis, banks that were price
leaders (meaning those paying top rates on deposits in their
markets in order to attract new business) enjoyed an annual deposit
growth rate of 5 percent from 2002 through 2007 but faced a cost of
funds of 265 basis points. In contrast, the loyalty leaders that
paid only average rates turned in a 5.6 percent annual deposit
growth rate but paid just 184 basis points for their funds. In
other words, banks can choose to buy growth through pricing or they
can earn an even higher rate of growth at lower cost through the
loyalty advantage.
3. The loyalty leaders
If the upheaval of the past three years has demonstrated
anything it is that periods of economic and industry turmoil shake
up banks' relationships with their account holders and open vast
opportunities to win new customers or alienate existing ones.
The pattern abundantly evident in the Bain survey is that
customers are inclined to value banks that value them. Direct banks
were the clear loyalty winners. With their simple, low-cost
business model of providing just a few attractively priced products
delivered and serviced online and through efficient call centers,
they score high with respondents because they invest in serving
them well. The power of customer loyalty to help a bank to weather
economic and industry turbulence also shows up in the higher NPS of
community banks and credit unions.
To be sure, bad publicity in the aftermath of the bank bailouts
has been a major factor in the declining customer loyalty to the
big banks, which fell dramatically as the crisis intensified in
2008. Overall, scores of the national branch network banks and
regional banks recovered in 2009, but they dipped again this year
even as the banking system further stabilized. Clearly, there is
much ground the major banks, as a group, need to regain and
important lessons they can learn from banks that pursue a more
consumer-friendly business model.
Our survey did find loyalty leaders among the large, traditional
retail institutions in all three national markets we examined. Even
as NPS at the regionals and nationals declined overall, survey
respondents identified 11 banks as standouts that have earned their
loyalty. The top-rated banks-among them TD Bank, TD Canada Trust (a
subsidiary of TD Bank's Canadian parent), BB&T, Bank of the
West, SunTrust Bank, Regions Bank and Mexico's Ixe Banco-all posted
significantly higher scores than peers in their regional
markets.
The leadership of the regional banks in the overall US rankings
reflects their stronger relationship to customers in the respective
markets where they operate. Their superior standing relative to
their local competitors is critical. Our work in industry after
industry has found that having a high relative NPS (that is, "high"
relative to that of competitors in a given market) is the best
predictor of organic growth across industries and markets. The
importance of relative NPS is especially striking in the Mexican
bank rankings, where nearly all received scores that would put them
among the leaders in the other markets but are relative laggards to
top-scoring Ixe Banco. The high scores likely reflect cultural
norms in rating standards among Mexican customers, who are less
openly critical when asked to rate service providers. (In contract,
Japanese consumers are tough graders.) For that reason, we have
broken the rankings down by 1egion to identify how the best stack
up on the most relevant standard of comparison. One lesson in this
for the large banks is that they should not benchmark themselves
only against their national or super-regional rivals but also
against the direct banks and nearby community banks and credit
unions.
Judged by that standard, what do the relative NPS rankings
reveal? In the US Northeast region, TD Bank has grown to become the
region's top-scoring bank through its commitment to understanding
local customers and building an exceptional service model through
extended hours, friendly service and community spiritedness. Other
Northeast regionals, notably M&T Bank and PNC Bank, ranked high
with NPS ratings of +13 percent and +12 percent, respectively.
Contrary to the widely held view that the loyalty leaders earn
customer plaudits at the expense of profits, these top-scoring
regionals have recently produced profit margins that exceed the
industry average.
In the West, where the national branch network banks have a
large market share and regional banks are less common, it is
nevertheless a regional-Bank of the West-that tops the NPS ratings.
Said one Bank of the West promoter, reflecting a sentiment
expressed by many: "My bank gets to know their customers and makes
you feel part of the family."
Regional banks are well represented across the South, where
SunTrust, Regions and BB&T were the NPS leaders. "The bank is
great to work with, and the people are very caring and interested
in helping in all facets," said one SunTrust promoter. "It's the
friendliest bank I know," echoed another. Of Regions Bank, a
promoter enthused: "They offer excellent customer service and are
willing to work with you to resolve any banking needs."
In the Midwest, another market with a strong regional bank
tradition, Harris Bank and M&I Bank took the top two positions
in the customer rankings. Describing what they liked about Harris
Bank, customers said: "They don't nickel-and-dime with fees. It's
easy to do business with them." M&I customers praised their
bank as "consistent and reliable. They provide quality services
with no surprises."
Among Canadian banks, TD Canada Trust is the clear loyalty
leader among the branch network banks. Its parent, TD Bank
Financial Group, acquired customer-friendly Commerce Bank in the US
in 2008 and worked hard to preserve and adopt most of the service
features that made Commerce one of the most popular banks with its
markets, as it rebranded it as TD Bank and integrated it
post-merger.
In Mexico, Ixe Banco stands far ahead of the competition with an
NPS of 78 percent. A relatively small niche bank, Ixe Banco has
earned its top ranking by focusing intently on an affluent customer
base with highly personalized service. "They provide an exclusive
and personal customer experience that makes me feel valued," said
one promoter.
The loyalty leaders' strong scores and superior relative
rankings are merely the beginning of the story of what sets them
apart from the laggards. As we will see in the next section, the
top performers rely on their customers to help them understand
those aspects of service delivery that are critical for delighting
promoters or alienating detractors. Then, using direct customer
feedback as their guide, they mobilize the entire organization to
continuously refine the skills, attitudes and behaviors that enable
them to extend their lead.
4. What drives loyalty?
Opportunities to create a promoter or a detractor accumulate
transaction by transaction-at teller windows, on the website,
through call centers or via ATMs-over hundreds of interactions
customers have with their banks. For most of these, customers have
every reason to expect efficiency and accuracy. They can easily
become detractors when their bank falls short, but they see no
reason to reward their bank for delivering as promised. Relatively
few interactions-quickly replacing a lost or stolen credit card,
for example, or helping a bereaved family member transfer assets of
a recently deceased loved one-have the potential to create
promoters.
In an attempt to get statistically valid feedback on customer
interactions, many banks subject their customers to a battery of
detailed questions about the service they received. The mountain of
data they get back takes a long time to evaluate, can be hard to
decipher, yet ends up revealing little about what really matters to
customers. Gleaning the most important and actionable insights from
customers requires a disciplined, and far simpler, approach. By
soliciting customer input regularly through short surveys
immediately following interactions, and then quickly sorting,
analyzing and circulating results throughout the organization, a
bank can use the feedback to identify-and act to improve-the
experiences that have the greatest potential to delight or
annoy.
It is often the language customers use to describe how they feel
about the service they received that crystallizes the most
important issues. In the Bain survey, respondents were asked to
describe in their own unprompted words the top-of-mind reason they
gave their bank the Net Promoter Score they did. This lets
customers-not the survey designers-determine what matters most. The
importance respondents (whether promoters, passives or detractors)
ascribed to any reason was a function of how frequently it was
mentioned. One simple way to visualize this feedback is depicted on
the inside covers of the report, where the size of the word is
proportionate to how often it was mentioned-promoters' top issues
inside the front cover and detractors' inside the back.
Digging deeper, we sorted the thousands of comments we received
into 10 categories that were broad, yet distinct. Thus, customers
who spoke of their bank's "trustworthiness" had their comments
clustered with those of others who mentioned its "size,"
"reliability" or "stability" in the umbrella category of "brand
reputation." We gathered mentions touching on the banks'
"friendliness," "problem resolution" skills, and "knowledgeable
staff" and several other like attributes into a broader "service"
category. (See the methodology appendix for details on the
categorization of comments.)
What did the respondents say bank customers really want?
"Service" was overwhelmingly the top reason promoters cited for
recommending their bank. It was mentioned more than six times more
often than "rates and fees" or "branches," which were second and
third, respectively. Further underscoring the importance of
service, detractors cited poor service delivery as the chief factor
influencing the low scores they gave, although "rates and fees" was
not far behind.
Respondents' comments confirmed how much rates and fees can
enhance or undermine customer loyalty. Promoters who are customers
of community banks, credit unions or direct banks were about as
likely to mention the service their bank offers as their
counterparts who keep their accounts at a national or regional
bank. Yet, they were four times more likely to praise their bank's
rates and fees. Among detractors, customers at national and
regional banks cited poor rates and high fees in their negative
comments more than twice as often as other respondents.
The power of service clearly provides the greatest potential to
set a bank apart for good or for ill. Of course, banks have worked
on service-improvement initiatives for decades, with inconsistent
results, at least in terms of clearly demonstrable economic
returns. Many banks suffer from what might be called
"service-initiative fatigue," a sense that there are too many
things to improve to make a difference or that delivering truly
differentiated service is too expensive. It is true that
systematically striving to deliver exceptional service requires
hard work. But it often ends up saving money because it roots out
defects that drive up costs from complaints, service calls and
re-work. Moreover, delivering service that delights does not
necessarily cost very much. For example, our analysis of the
verbatims showed that respondents, by a factor of two, described
simple "friendliness" is the service feature that is most important
for winning their loyalty.
Indeed, loyalty leaders drew the most consistent praise for
going above and beyond for their "friendliness," "helpfulness" and
"problem resolution." "They are friendly and helpful," said one
respondent of her bank. "[There's] never a problem they can't
solve." "They consistently exceed expectations," said another. "I
love the bank's values, customer service and commitment," said a
third. "They make me feel like they really look out for my best
interest." "Friendly service" may not be easy to define or deliver,
but it is far less expensive than investing in major systems
upgrades. Delivering friendly services is inextricably linked to
improved employee loyalty, stronger corporate culture and effective
training. Getting the connection right can be highly profitable.
(We will expand on this connection in Section 5.)
Leading banks demonstrate that winning customer loyalty and
advocacy is a big step beyond earning mere satisfaction. Delivering
a satisfactory experience requires a company simply to meet
customers' basic requirements competently with products that work
as promised and by resolving problems as expected. Meriting
customer loyalty demands much more. Loyalty leaders differentiate
themselves by delivering ordinary services exceptionally well and
by their ability to provide exceptional services and product
features that the competition cannot match.
Among banks in the NPS survey, only direct banks like USAA, ING,
President's Choice Financial and the best of the community banks
and credit unions come close to meeting that exacting standard. The
scores and the customer comments show that the best-scoring banks
do a better job at delivering consistent, friendly service that
wins promoters and eliminating the defects-notably high fees and
poor rates-that breed detractors. For the direct-bank survey
participants, nearly three-quarters identified themselves as
promoters and fully three out of five gave their bank a perfect
score of 10. The direct banks came by their high promoter scores by
reinforcing customer-centered cultures, operating systems and
frontline engagement that focused relentlessly on serving account
holders well.
Further segmentation of the survey responses clearly showed that
nearly all banks could earn greater loyalty from their
customers-particularly those who present the greatest economic
potential. Grouping the respondent population by age, for example,
our analysis found banks are underperforming among their mid-career
customers aged 25 to 55 years whose banking and borrowing needs are
usually greatest. Customers in the prime age segments of 25 to 35
years and 36 to 55 years gave their banks an NPS of just 11
percent-well below the score that late-career and elderly
respondents over age 56 gave. (We also cut the data by respondents'
gender and found that, although women were somewhat likelier than
men to be promoters, there were otherwise no major differences in
their behavior.)
Banks also could do a much better job serving groups that should
be their most important targets, namely their wealthiest customers.
US respondents from households with investable assets of $1 million
or more gave their banks an NPS of just 2 percent. Among national
branch network banks, the NPS for customers whose household
investable assets top $1 million was -15 percent, nearly twice as
bad as that given by customers with assets between $500,000 and $1
million. For regional banks, the NPS of the wealthiest customer
segment drops to -5 percent from +5 percent for the next wealthiest
customer group. Even the direct banks fall short in meeting the
more discriminating needs of affluent customers. The NPS given by
the highest-net-worth respondents, at +38 percent, was more than 20
percentage points lower than for the next wealthiest group.
Across the board, the most affluent respondents reported
negative experiences with their bank's service, fees and rates in
numbers far greater than less-affluent respondents. The lower
scores given by wealthier customers may be a reflection of the fact
that their banks fail to meet their higher expectations set by
their experience with other industries. Airlines and luxury hotels,
for example, provide first-class accommodation and personalized
concierge services. Private banks and asset management firms that
cater to the affluent provide "white glove" attention to
high-net-worth clients. Most retail banks, in contrast, have
struggled to carve out an equivalent high-end service offering for
affluent account holders. However, one bank in our survey, Mexico's
Ixe Banco, has developed a service model that differentiates it
along this important dimension. Ixe Banco executives make it a
responsibility to know the bank's affluent clients by name; track
important personal events, like birthdays; and even deliver checks
or currency exchange to customers' homes or offices.
The consequences of banks' inability to win more affluent
promoters and reduce their number of detractors are striking-and
costly. Our analysis of the survey data found that promoters among
every wealth segment purchased more products than detractors and
that the gap between the average number of products promoters owned
relative to detractors widened with income. For example, promoters
with household assets below $100,000 owned an average 2.8 products
versus 2.3 for detractors. However, promoters whose investable
assets exceeded $1 million owned 3.7 products compared with just
2.8 for the detractors with equivalent wealth. By capitalizing on
the more sophisticated needs and greater reliance of their
well-heeled customers for advice and products that meet them, banks
that set out to boost their NPS among the affluent stand to capture
many times the premium earnings from this already highly valuable
cohort.
Across every wealth segment, affluent promoters showed a greater
propensity to give positive referrals to
their bank. Promoters from households with investable wealth below
$100,000 said they recommended their bank to friends or relatives
an average 3.8 times; the wealthiest promoters gave 4.1 referrals,
on average.
Major implications flow from these findings. Customers value
good service and they know it when they experience it. For a start,
banks need to cultivate an assurance that they offer fair pricing
and reasonable fees. But delivering on customers' basic expectation
of consistently reliable service is only a precondition for making
loyalty possible. Banks need to provide service that goes well
beyond the ordinary to reap the truly attractive rewards that come
to those that understand, relentlessly pursue and merit the loyalty
of the most attractive customer segments.
Unfortunately, too many banks design their value propositions,
service delivery processes and customer experiences around an
average consumer. Banks that are content to hit the average should
not be surprised when they reap mediocre results. The question is:
What do banks need to do to excel? We turn to that topic next.
5. What banks can do
The drill is familiar to most bank executives who have ever
tried to spur customer-led organic growth. Implement training
programs to help customer-facing employees project a "friendlier"
image. Check. Develop incentives to increase product cross-selling.
Check. Fine-tune processes to eliminate service defects. Check.
Launch a rewards campaign to improve retention rates or encourage
account holders who refer their friends. Check, check.
What bank hasn't tried each of these approaches-many of them
repeatedly? Most yield some short-term gains. But those usually
dissipate in the next round of cost-cutting, or when the "gamers"
the bank paid to acquire as customers find a better deal elsewhere,
or when senior management moves on to new priorities.
It is no coincidence that loyalty leaders are very focused (like
the direct banks) or small organizations (like the community banks
and credit unions). Their business models allow them to concentrate
obsessively on their customers and build their entire operating
system around them. Of course, doing this is much harder for large,
complicated organizations, and it takes years of sustained effort
to achieve lasting results. But it would be a mistake to believe
that sheer size is an impenetrable barrier to success. The solution
lies in bridging the gap with customers by enabling the big
organization to think and act like a nimble small one.
The best practices we have codified from our work with banking
loyalty leaders across the globe reveal a clear pattern. Effective
loyalty systems enable these companies to get close to their
customers and align the entire organization around the mission of
earning their loyalty by addressing two related challenges
simultaneously. First, senior leaders use the lens of customer
input to chart the bank's strategic direction and better allocate
resources. Their objective: to profitably meet the most important
needs of attractive customer segments in ways that set their bank
apart from its competitors. Second, and in parallel, it implants
disciplines that channel a steady flow of customer feedback to
frontline employees who use it to learn, act and improve every
day.
Both top-down strategy setting and bottom-up frontline
activation are critical. Do only the first and the business will
struggle to translate strategic insights into day-to-day actions.
Do only the second and the organization can waste efforts on the
wrong priorities. Loyalty leaders integrate the two by building
capabilities around six key elements.
1. Measure
The leaders begin by defining what competitive success built on
customer loyalty means for their organization and determining how
they will measure it. For many banks, Net Promoter Score (NPS) is
the tool that underpins their loyalty system by providing a
reliable metric for the health of their customer relationships.
Central to its appeal is NPS's ability to allow a bank to use the
"would you recommend" question to quickly sort its own and its
competitors' customers into promoters, passives and detractors and
assess its competitive position.
When NPS is used as a benchmark of competitiveness, what matters
most is not the bank's absolute score but how it stacks up relative
to its direct competitors across relevant product markets and
geographies. Thus, a bank that receives a low NPS yet ranks higher
with customers than all of its direct competitors is indisputably
best in class and likely to gain market share. By slicing the data
by customer segment, a bank is able to zero in on how well it is
able to serve the most attractive, highest-value customers.
The ability to capture competitive insights in a single,
auditable metric makes NPS powerful because it is easy to
communicate throughout the organization and it is actionable. It
puts customer-focused decision making front and center at all
levels, assigns accountability and can be linked to individual
target customers. Through the understanding it provides about
competitors' relative strengths and weaknesses, it also becomes a
cornerstone for determining which customer segments to pursue,
where to compete and in what products markets to play. This
clarity, flexibility and reliability put NPS (or any other
similarly clear, single measure that meets the needs described
here) at the heart of a loyalty system based on direct customer
feedback that reinforces organization-wide learning and continuous
improvement.
2. Value
Loyalty leaders ground the actions they take in the economics of
their customer relationships. Identifying their most profitable
customers, their finance teams calculate how much a promoter,
passive and detractor is worth to the bank's bottom line. They also
quantify the additional profit they stand to gain by converting a
passive to promoter or reducing their number of detractors. Loyalty
economics becomes a central pillar in their decision-making
processes and a reference point when undertaking investments.
Without this, investments in loyalty seldom last when budgets get
tight.
How this works in practice can be seen in the experience of a
major North American retail bank. When the bank's marketers set out
to use NPS to guide its new-customer recruitment initiatives, their
analysis revealed that top-quartile customers accounted for more
than 70 percent of total profits. Digging deeper the marketing team
developed a demographic profile of these account holders by age,
income and the products and services they bought. Based on this
template, the team constructed its NPS initiative to focus on
potential new customers who shared these prized characteristics.
The factors that created promoters or detractors among this segment
differed markedly from the factors driving loyalty among other,
less attractive segments. An "on average" look at NPS among all
customers would have resulted in suboptimal capital allocation.
3. Prioritize
Not content to know only who their promoters and detractors are,
loyalty leaders delve deeper to ferret out the root causes that
lead customers to hold the opinions they do. They identify these by
asking a follow up to the "would you recommend" question, inviting
respondents to briefly describe in their own words the chief reason
they gave the score they did. Gathering and sorting their answers,
they then prioritize the "moments of truth" that matter most and
formalize an ongoing process for addressing the issues they
uncover.
At a leading regional bank, for example, customer verbatims
revealed that a significant number of detractors were annoyed that
it took the bank anywhere from three to five business days to
provide a replacement debit card. Tasking an operations team to
work on the problem, the team discovered that service delays at
this important touchpoint were aggravating some of the bank's most
active and profitable customers disproportionately. Recognizing
that it risked jeopardizing its relations with this key segment,
the bank quickened its card-replacement and shipment processes to
put a new card in a customer's wallet within 24 hours. Seeing
positive results from the new policy, the bank made the one-day
replacement guarantee a part of its marketing pitch to attract new
customers. Its NPS and new-account recruitment both climbed.
4. Close the loop
Identifying those touchpoints where contacts have the biggest
influence on shaping the customer experience and making them a
priority is crucial, but it is only an important first step.
Loyalty leaders go further by creating closed-loop learning
processes that channel a regular flow of feedback customers provide
to the frontline employees and their supervisors for direct
follow-up. The two-way exchanges between customers willing to
discuss their recent service experience and the employees who
served them provide opportunities for employees to learn directly
from the customer herself how they can refine their service skills.
Equally important, the follow-up dialogue assures customers that
someone is listening to what they have to say and is prepared to
take steps to rectify a problem. Effective closed-loop feedback
processes put protocols in place for employees to rapidly escalate
issues customers raise to other parts of the organization where
remedial action, a process change or a policy adjustment may be
required.
Brainstorming among members of a frontline work unit who meet
regularly to review the customer feedback they receive can be a
source of simple solutions that have a significant impact on
improving the customer experience. Sometimes what they learn is
surprisingly basic and simple to implement. For example, a local
manager of a major bank discovered in the feedback that several
customers found it a hassle to visit the branch because it was hard
to maneuver their children's strollers through the office layout.
They did not want to leave their young children unattended near the
front entrance but were frustrated by the obstacles on the path to
teller windows, ATMs or service desks. The manager relocated some
of the obvious barriers that hindered movement in his branch and
recommended that the bank make minor layout changes that ultimately
eliminated the annoyance. Without the direct customer feedback, the
bank would have been much slower to recognize the problem-or even
failed to recognize that it had one.
5. Engage
A loyalty system cannot be imposed from the top down but instead
is a set of attitudes and behaviors deeply embedded in the
metabolism of the organization. It is central to the job of all
employees to strive to make promoters of their customers. Engaging
employees in this mission requires the organization to instill
loyalty disciplines by doing four things: First, develop training
programs to introduce and reinforce customer loyalty. Employees
need to understand what service skills they need to bring to the
job to earn a top score of 10. Second, managers and supervisors
need to provide ongoing, real-time feedback and coaching on their
customer-service skills. Verbatims on individual employee
performance gathered from NPS surveys become indispensable tools
for mentoring and guides for improvement. Third, employee
engagement needs to be built in a work environment grounded in
candor and trust. The organization needs to create forums and
communications channels that allow employees' voices to be heard.
Many banks that have adopted NPS to measure customer loyalty also
use internal NPS surveys to assess whether employees would
recommend their bank as a place to work. Finally, employees need to
be inspired to continue to lift their performance. Positive
customer feedback and testimonials from promoters provide countless
stories to celebrate and share throughout the organization.
6. Act
Net Promoter Scores and verbatim feedback provide the raw
material that feed a loyalty system. But it is the capabilities of
the organization at every level to absorb what customers are saying
and convert insights into learning that result in action and
improvement that achieves true organic growth. Banks that excel at
these develop cross-functional teams to drive initiatives and
facilitate the sharing of best practices. They embed active
learning from customers and continuous improvement into the daily
business rhythms of the organization. And they develop processes to
ensure follow-through.
The experience of the credit-card unit of a major North American
bank illustrates how the spirit of learning, acting and improving
takes root in a concrete way. Customer feedback from cardholders
revealed very negative feedback around the process of collections
calls for late payments. On the surface, this might not seem like
an area to worry about loyalty; after all, these are customers who
are delinquent and may ultimately lead to write-offs. The first
priority, the unit's managers thought, should be the speedy
collection of unpaid balances. But when they looked deeper into the
profile of the customers who were on the receiving end of these
calls, they discovered that a significant proportion were
cardholders with high credit limits and included many in the bank's
most profitable segment.
As the team dug deeper into the data, they also found that
agents with the best collection rates also had the highest NPS.
Speaking to the agents and observing them as they worked, they
discovered that these employees were more effective than their
peers in conveying empathy and building trust in a way that made
customers more willing to pay. The team overhauled call protocols,
rewrote scripts for how the calls could be conducted in a more
positive manner and retrained agents to take a friendlier and more
sympathetic tone. When the new procedures were in place, the bank's
follow-up NPS surveys confirmed that customers who were treated
well paid off their balances faster and had much higher loyalty
scores. The benefits did not end there. The encouragement to treat
customers well and the improved results they saw from their efforts
also lifted the morale and loyalty of the collectors, significantly
reducing staff turnover.
Each of these six elements can help advance a company's customer
focus, but their real power multiplies when they are brought
together into an integrated loyalty system. Banks that adopt only
the NPS metric but fail to embrace closed-loop feedback, prioritize
the right touchpoints, or develop the cross-functional teaming to
learn, adapt and improve miss out on its compounding benefits.
Integrating the six elements to achieve truly transformational
change requires organizational infrastructure, information
technology support and appropriate tools for reporting and tracking
the closed-loop feedback process. A true loyalty system can be
built only by taking a holistic approach. Banks that adopt just the
NPS measurement tool without embracing all of the disciplines that
make the system robust capture only a small fraction of the
gains.
Perhaps the most important glue of all is effective leadership
and communications. Senior executives who communicate the loyalty
program's goals and progress internally and externally set the tone
and example for its success. They demonstrate the organization's
commitment to increasing the proportion of promoters by creating a
customer leadership team to advance its objectives. They lead by
example, participating directly in the customer feedback process
and even personally fielding calls with promoters and detractors.
They raise the goal of linking organic growth and customer loyalty
by developing a loyalty "report card" and elevating its importance
to that of hitting financial targets. Finally, they and their
boards make the achievement of organic customer-led growth an
integral part of their compensation. Accountability for building
healthy, enduring customer relationships is every employee's
mission, and that starts at the very top.
Appendix: Methodology
Bain & Company partnered with e-Rewards, the online global
market research organization, to survey consumer panels in the
United States, Canada and Mexico to gauge their loyalty to their
principal bank and the underlying reasons they hold the views they
do. Conducted in June and July 2010, the survey polled 89,025
customers of 90 national branch banks, regional banks, private
banks and direct banks plus hundreds of community banks and credit
unions in the United States, Canada and Mexico. We included in the
individual bank analysis only those banks for which we received at
least 170 valid responses. We grouped all community banks and
credit unions together and evaluated the responses we received from
their customers as a single business-model category.
The respondent sample: To reflect that banking
market and ensure robust, statistically valid results, the
respondent sample included somewhat higher proportions of
middle-aged and affluent households than the overall US population.
By age, people between 36 and 55 years make up 22 percent of the
total population but account for 43 percent of all respondents. By
contrast, households headed by people in the age range 18 to 25
years are 13 percent of the population as a whole but 8 percent of
the survey sample. Likewise, by income, households earning less
than $49,000 annually comprise 55 percent of the total population
but only 26 percent of our sample. Those earning more than $100,000
a year are 14 percent of the population but 30 percent of the
sample. Each region of the US is represented in the sample in
approximately the same proportion as its population.
Survey questions: The survey questionnaire
consisted of 11 main questions. Once respondents identified their
primary bank, they were asked the following three questions to
assess their feelings of loyalty to that institution:
- On a scale of zero to 10, where zero represents not at all
likely and 10 extremely likely, how likely are you to recommend
your primary bank to a friend or relative?
- Tell us why you gave your primary bank that score.
- In the last year, how many times did you recommend your primary
bank to a friend or relative?
Respondents were then asked to identify the major reasons they
initially chose to open an account with their primary bank and
which of the bank's products they have. The remaining five
questions elicited demographic profile information on age, gender,
household income, investable assets and region of residence.
Analysis of respondent comments: For each of the four bank
categories whose customers we surveyed, we randomly sampled nearly
3,000 open-ended verbatim comments respondents offered as the chief
reasons they gave their banks the score they did. We coded the
comments into 66 categories. We then grouped related categories
into the 10 meta-categories as listed below:
- ATMs: General ATM, location/quantity; ease of
use; features/services offered; safety/security; international
availability
- Banking processes: Proactive communication;
account security/ID theft; secure systems; timely statements/bills;
clear and accurate communications; serious error resolution
- Branches: General branch; quantity of
locations; hours of operation; cleanliness/atmosphere; wait time in
line
- Brand reputation: General reputation;
trustworthy; size/stability; reliable
- Emotional: General emotional; sense of
loyalty; there when needed; better than other providers
- Fees: General fees; ATM; CD; current/checking
account; money market account; savings account; overdraft; wire
transfer; international; online; added/changed/ hidden/transparent;
credit cards
- Online banking: General online; bill pay;
easy/user friendly; features/services offered
- Product: General product; CD; checking;
investing; mobile banking; mortgage; savings; loan/line of credit;
rewards; credit cards
- Rates: General rates; mortgage; CD; deposit;
line of credit; loan
- Service: General service; friendliness;
helpfulness; knowledgeable; feel valued; understand my needs;
problem resolution; speed
State to region mapping: Banks in the 50 US
states and District of Columbia were assigned to the following four
regions:
- Midwest: IA, IL, IN, KS, MI, MN, MO, ND, NE,
OH, SD, WI
- Northeast: CT, MA, ME, NH, NJ, NY, PA, RI,
VT
- South: AL, AR, DC, DE, FL, GA, KY, LA, MD, MS,
NC, OK, SC, TN, TX, VA, WV
- West: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR,
UT, WA, WY
Statistical significance of findings: The
results of our data analysis are robust both for the measurement of
bank NPS by region and for respondent NPS for each demographic
category. The NPS measured for each bank included in the regional
rankings is statistically significant to an 80 percent confidence
level, with a two-tailed test of the confidence interval ranging
from plus or minus 1.5 percent (n > or = 4,500) to plus or minus
7.5 percent (n = 170).
For the analysis of NPS by demographic subcategories of
respondents' age, income, gender and investable assets, we again
aimed for results that would be statistically significant at the 80
percent confidence level. Given the large size of our overall
sample (n =74,840 in the US) and its overweighting in some age,
income and affluence categories, the confidence interval for most
demographic subgroups is plus or minus 0.4 percent. For the
numerically smallest subcategory of respondents (those having
investable assets greater than $1 million), the number in our
survey sample was 2,600, yielding a confidence interval of plus or
minus 2.1 percent that the NPS score they provided would be
significant at the 80 percent level.
Key contacts in Bain's Global Financial Services
practice
Global: Alan Colberg
Americas: Andrew Schwedel
Europe, Middle East and Africa: Paolo
Bordogna
Asia-Pacific: Edmund Lin; Gary Turner
Acknowledgments
This report was prepared by Gerard du Toit, leader of Bain's
Banking practice in the Americas, Beth Johnson, leader of Bain's
Customer Strategy & Marketing practice in the Americas; and a
team lead by Maureen Burns, senior manager in the Americas
Financial Services practice, and Christy deGooyer, Financial
Services practice area manager.
The authors thank Aaron Cheris, Rob Markey, Fred Reichheld,
Antonio Rodrigues and Diego Santamaria for their contributions and
Lou Richman for his editorial support.
We are grateful to e-Rewards for their valuable assistance
conducting the NPS customer survey and their responsiveness to our
special requests.
