Myths have played an important role in the development of societies. It was through these stories that powerful civilizations instilled societal guidelines—promoting a certain way of thinking and behaving. In today’s advanced society, is the importance of customer service a myth within the financial service industry?
Almost every industry focuses on customer service to a certain extent, but in the financial services industry customer service doesn’t seem to carry as much weight as other initiatives which define the strategic direction for the bank. Many efforts have been made to better understand consumer behaviors to identify what effects loyalty to a financial institution (FI) and how to provide positive customer experiences. Customer service is a popular and well researched area, but the idea that good customer service contributes to the bottom line seems myth-like. Can good customer service increase revenues for a FI? This post will first define good customer service and then discuss how exceptional customer service can increase loyalty and revenue—debunking the myth that customer service is not a profitability driver.
Defining Customer Service: A Staggering Effort
There doesn’t seem to be a single definition or clear understanding of what good customer service is, because in many cases it’s subjective. The murkiness surrounding customer service influences the perception (read: myth) that this area of focus doesn’t render a crucial initiative of success for many members of the financial services industry. For example, one standard dictionary asserts that customer service is the “assistance and other resources that a company provides to the people who buy and use its products and services.” Under this definition, simply providing online access to account balances qualifies as customer service. Let’s be honest, customers have higher expectations of FIs these days (thanks Apple and Amazon).
In an increasingly customer-centric, usability-crazed society, customers expect to feel valued, understood, and supported by their FI. Hence, customer service should be defined to account for more intangible factors. Let’s rework the previous definition to include the intangible aspect: “acts or dialog that an FI facilitates (via CSRs, online chat, or online processes) better understand and empower valuable people who buy and use its products and services.”
Understanding the Measures of Customer Service
At a bank, customer service can be delivered through a variety of channels including: branch, call center, website, and online—the responsibility of handling high stakes interactions falling to the front-line staff, the customer service representatives (CSRs) in the branch and call center. The importance of customer service in a bank-to-consumer relationship can be measured in three ways which can be directly be associated with customer loyalty and revenues: 1)attrition rates, 2)additional product and service purchases, and 3)word of mouth (WOM) promotion and the number of referrals a customer makes.
Decreasing the Likelihood of Attrition
Good customer service can sometimes be overlooked as the CSR just doing their job well, which proves the experience has met the customer’s expectations. This supports the theory that a negative customer service interaction (i.e. customer friction) is more memorable due to the inconsistency with the consumers’ expectation. Over the length of the customers’ relationship with a FI, it is probable that customer friction happens occasionally. However, consistently bad customer service has a negative effect on a customer’s perception of the FI which greatly enhances the likelihood of a profitable customer getting fed up and shopping around for a bank that offers a more pleasant experience. For example, if a CSR offers you the same cross-sell product every time you go in the branch to make a deposit and every time you decline the offer, the experience becomes so annoying that some customers consider switching banks. If the CSR was able to note that the customer declined the offer the first instance and in the future offered a more tailored product based on the customer’s life stage and next most likely needed product, the customer will feel known by the FI and not annoyed. Good customer service can be the “stickiness” required to ensure customers don’t attrite because they can get a checking, savings and credit card accounts at five different places down the street.
Growing Wallet Share with Customers
Much of the industry literature promotes the idea that customer service will enhance customer loyalty, ultimately leading to increased profitability. One example of enhanced loyalty leading to increased profits is when CSRs provide the sense of a personal relationship in order to demonstrate an understanding of a customer’s needs when offering them tailored products. Customers are more likely to accept these personalized offers based on the positive interactions they have had in the past. In addition, CSRs that demonstrate a personal relationship (either real or supported by technology) have higher sales rates because they are presenting offers tailored specifically to the customer’s needs at the appropriate time.
For current bank customers, product pricing is also a factor in overall satisfaction with the institution. As stated earlier, customers want to feel like their FI values them as a customer. A way for FIs to do this is to offer profitable customers relationship-based pricing on products or bundles. A lower interest rate on behalf of a dedicated customer can go a long way in enhancing that customer’s satisfaction, loyalty, and profitability to your institution. This can ensure your customers’ perception of the value they are getting from your institution is more than the cost to be a customer.
Word-of-Mouth Promotion and Referrals
Marketing 101 has taught us that positive customer interactions do contribute to a customer’s willingness to tell others of their experience. When there is a “personal” connection customers feel an increased sense of obligation to provide as much value back as they believe they have received. In instances of truly exceptional service, customers may feel that the CSR did them a favor which would explain the customers’ response of enhanced trust, a longer-term relationship with the bank, increased loyalty, referrals, or choosing the same bank for their next product purchase. This supports the hypothesis that consistently positive customer service interactions can result in loyalty to an FI.
From Myth to Reality
After reviewing customer service from a variety of aspects, it is now possible to return to the question of whether the importance of customer service is a myth perpetuated to encourage companies and consumers alike to behave a certain way or whether it does represent a strategy critical to FI success.
Considering the facts, I believe customer service creates satisfaction that ultimately leads to customers who are more likely to consider additional products and even encourage their family and friends to switch banks. However, I’m still waiting for proof of Big Foot!
How does your financial institution view customer service? Is this an initiative critical for success?