Branding Banks for shareholder value   Discussion Draft   Section 6.0




         Branding banks
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   Perception of
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Branding Banks for shareholder value   Discussion Draft                       Section 6.0



I developed much of my thinki...
Branding Banks for shareholder value       Discussion Draft                        Section 6.0



Is measuring customer sa...
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As I discussed in Sect...
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Why then doesn’t a suc...
Branding Banks for shareholder value   Discussion Draft                          Section 6.0



Is favourable perception o...
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This las...
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new territories of t...
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this regard. Brand open...
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There were two things th...
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Satisfaction and the TNS A...
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intere...
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are and that this has a ...
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Conversion model weaknes...
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Users of satisfaction sco...
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Well, did you expect eve...
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Measurement scales



A ...
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Questionnaire design issu...
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Qualitative research neve...
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However, I do understand t...
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       Assurance (the kno...
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Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
Branding Banks For Shareholder Value 6.0 Brand Measurement
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Branding Banks For Shareholder Value 6.0 Brand Measurement

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This is the 6th section of Branding banks for shareholder value. This section covers the measurement of bank brands by market research.

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Branding Banks For Shareholder Value 6.0 Brand Measurement

  1. 1. Branding Banks for shareholder value Discussion Draft Section 6.0 Branding banks for shareholder value Section 6.0 Measuring bank brands July 2010 1 © Geoffrey Johns 25 July 2010
  2. 2. Branding Banks for shareholder value Discussion Draft Section 6.0 Delivered and planned series of papers Discussion Draft Release Date Order.Version Creating shareholder value - an outline 1.0 Mar-10 Knowing customers 2.0 Mar-10 How customer perceptions develop 3.0 Apr-10 Why brand banks? 4.0 Apr-10 Why can't banks brand? 5.0 May-10 Measuring bank brands 6.0 TBA Measuring relationship value 7.0 TBA Gaps diagnosis 8.0 TBA Bank structure and brand control 9.0 TBA Process level brand control 10.0 TBA Building the brand story 11.0 TBA Communicating bank brands 12.0 TBA Valuing bank brands 13.0 TBA Brands and the future of banking 14.0 TBA Competitive bank branding strategies 15.0 TBA Introduction My purpose, in this series of papers is to define the path from bank branding and customer perception to shareholder value. How does investment in brand and perceptions generate value? The exhibit below illustrates my starting point in making this connection. 2 © Geoffrey Johns 25 July 2010
  3. 3. Branding Banks for shareholder value Discussion Draft Section 6.0 Perception of Customer price perceptions Perception of Bank Business unit specification efficiency performance fit to needs Shareholder value Perceptions Bank W Corporate of service financial centre experience structure performance Weakens Mix of Perceptions businesses of brand improves Investment in brand Investment in brand strengthens customer perceptions but reduces bank efficiency by necessarily increasing expenses. Most banks make this trade-off based on experience and judgement. While I doubt that this type of decision can be reduced to any simple equation, I do believe that better frameworks‟ for thinking about it are available. I also argue that successful branding is vital to banks but that it is at the extreme end of difficulty on the spectrum of all brands. The normal ways of thinking about corporate brands do not work well for banks. Creating and managing a bank brand is so difficult in fact that the corporate competence in surmounting the challenges is a source of sustainable competitive advantage. This advantage can only be achieved by an understanding of the issues and their implications. There must be a particularly disciplined set of decisions within a well designed policy framework. In some aspects this goes to the heart of and challenges conventional management thought. I am serialising this series of discussion drafts on LinkedIn and slideshare and welcome any comments. The papers are work in progress towards a book I intend to write one day. I am recording my own journey over many years trying to come to grips with these issues. My approach is mainly founded on practical experience but I have been dutiful in trying to make best use of theory and whatever data I could access. I am happy to be connected to anyone on LinkedIn who shares my interest in fiancé sector marketing. 3 © Geoffrey Johns 25 July 2010
  4. 4. Branding Banks for shareholder value Discussion Draft Section 6.0 I developed much of my thinking on this subject working with the Finance & Business Services team of TNS Australiai. I am grateful for their input and support. However any opinions I express are mine alone. In developing my thoughts I have drawn on the work of others. Attribution is always recorded. Should anyone reading this be concerned that their ideas have been misrepresented or used inappropriately I should be happy to amend or withdraw them. Measuring perceptions of brand In this sixth section of branding banks for shareholder value I want to discuss the measurement of brand perceptions. If we are to make a connection between perceptions of brand and shareholder value it is necessary to measure both. In this section, I want to cover:  the relationship between customer satisfaction and customers‟ perceptions of brand;  measuring customer satisfaction;  perceptions of customer satisfaction as it has been measured in three academic studies of personal finance markets;  my findings about what customer perceptions seem to make a difference to satisfaction and brand image in business markets;  the issue of multiple brand audiences;  The way forward, as I see it, in getting a better handle on how bank brands are perceived. The relationship between brand perception and satisfaction Brand as a store of satisfaction 4 © Geoffrey Johns 25 July 2010
  5. 5. Branding Banks for shareholder value Discussion Draft Section 6.0 Is measuring customer satisfaction is enough to get a fix on the power of the brand? Does satisfaction = brand? To return to the definition of brand that I asserted in Section 4, the first part of which (shown in blue) I accept from John Grant as axiomatic for my purposes: “A brand is a cluster of strategic cultural ideas” that inculcates and modifies our expectations of the way the world works. The addition in green is mine. I have used this diagram to illustrate how I see the role of brand in modifying experience. BRAND Customer expectations The objective Customer quality of the perception of experience the experience In the context of bankingii, brands modify the perceptions of experience as I illustrate here. Experience modifies first, immediate expectations, and then the attitudes that give rise to expectations and finally the deeper held beliefs which are articulated in the real world through attitudesiii. Our expectations are generated through brand perception in ways I shall discuss in more depth in a subsequent section. 5 © Geoffrey Johns 25 July 2010
  6. 6. Branding Banks for shareholder value Discussion Draft Section 6.0 Beliefs Reframing feedback Attitudes (Reusable decisions) Contextualisation feedback Needs Expectations Choices Realignment feedback Interpretation Experience (feedback) Outcomes Expectations influence both the outcome and our interpretation of the outcome. The exhibit below amplifies this a little. A customer with a favourable brand impression is more likely to do two things. The first is to have, at the outset, a higher commitment to the success of an interaction with the bank. By interaction I mean anything from telephoning to make a complaint to calling into a branch to make an inquiry about refinancing a mortgage. Banking products and services are among those that depend on collaboration between the suppler and the customer for successful outcomes. For example, a customer with a complaint who has a poor perception of the brand goes into the interaction with an adversarial rather than solution seeking game plan. During the interaction they are likely to induce a negative reaction from the bank staff members and this, of course, can easily spiral. Similarly if the customer goes in expecting a bad outcome the interaction is more likely to lead to one. The interaction meanders towards the conclusion predicted in the customer‟s mind. Finally, brand influences the interpretation of the outcome. ‘They fixed my problem just like they always do.’ 6 © Geoffrey Johns 25 July 2010
  7. 7. Branding Banks for shareholder value Discussion Draft Section 6.0 Favourable Perception of brand Customer Favourable commitment to expectations of the interaction the interaction Favourable interpretation of the outcome Good bank performance Favourable outcome Effective bank processes and resources And there is one further feedback loop to add. Once observed, the commitment of bank resources is reinforced, confirming the loop. The difficulty for the bank lies in the observation of the process which is more difficult to measure than you might think. Many banks give up on a course of action just before benefits become apparent because their antennae are insufficiently well attuned. Favourable Perception of brand Customer Favourable commitment to expectations of the interaction the interaction Favourable interpretation of the outcome Good bank performance Favourable outcome Effective bank processes and reinvestment resources 7 © Geoffrey Johns 25 July 2010
  8. 8. Branding Banks for shareholder value Discussion Draft Section 6.0 As I discussed in Section 4, there is a self reinforcing loop in the development of customer perceptions as experience of the event interacts with accumulated brand experience. Where brand experience and event experience conflict there is a clear management issue at hand. But where they reinforce each other, either up or down, there is momentum. It is true that banking momentum can appear almost glacial in its pace. Deciding of the right things to do and consistently doing them over a long period is a big part of the answer. Tourist: How do you get these lawns looking so beautiful? Gardener: We just keep watering them, mowing them, rolling them. Tourist: That doesn’t sound difficult, how long does it take? Gardener: About 400 years. And while I have my old joke book out, I shall also fail to resist: Man in sports car to wayside yokel: What’s the fastest road to London? Yokel: Well, if I were you I wouldn’t be starting from here. Bank brands tend not to be starting from the right place. A few decades ago might have been better. I used the diagram below in Section 4 – „Why brand banks?‟ to illustrate the momentum imparted when brand experience and event experience reinforce each other. 8 © Geoffrey Johns 25 July 2010
  9. 9. Branding Banks for shareholder value Discussion Draft Section 6.0 Why then doesn’t a successful bank just maintain this momentum ever onwards and upwards, while the unsuccessful ones go down? I suspect this is largely due the cyclical and structural factors I outlined in Section 5 and the interactions between them. The playing surface never stays smooth and level for long enough. But also it is caused by flagging in management resolve. Too often things happen too slowly or in ways undiscerned and management support for a strategy is withdrawn. These things are hard to observe and measure. To do so is an important management discipline. To sum up, when we measure satisfaction, we are measuring the impression left by a series of experiences modified by brand and changing brand perceptions. Favourable brand perception has dimensions that satisfaction alone does not. What does a favourable brand perception do that satisfaction alone does not? 9 © Geoffrey Johns 25 July 2010
  10. 10. Branding Banks for shareholder value Discussion Draft Section 6.0 Is favourable perception of the brand the same as customer satisfaction? I think not. Perceptions of brand allow you enter the realms where experience has less power. This happens in two ways:  First satisfaction with what is experienced can be transferred to things not yet experienced; and  Secondly satisfaction can be transferred from the concrete particular to the abstract universal. I shall elaborate below. In the meantime, I don‟t want to imply here that there is a simple path from repeated event satisfaction to favourable brand perceptions. This repeated event satisfaction creates the opportunity for branding not the branding itself. There needs to be a vehicle of mental pathways and associations to do that. As John Grant says there has to be „a cluster of strategic cultural ideas’ acting as a conveyer. I shall pursue this line of thought in Section 11 – „Building the brand story’. Close to hand and heart By „close to hand and heart‟ I mean those products and services that the customer needs and uses now. Typically, bank customers are rarely satisfied in a way that transcends the here and now. Too much is simply expected to go right. If an interaction with the bank goes well today that‟s enough. Brands, I believe can extend that a little, however, when they are well managed. I want here to use a familiar marketing matrix in a different way to how it is usually deployed. The customer‟s satisfaction with the „here and now‟ can be extended to products, services and distribution channels:  offered under the brand that exist but that they don‟t yet use;  that they use now as they respond to their future needs; and  that the bank may introduce in the future. 10 © Geoffrey Johns 25 July 2010
  11. 11. Branding Banks for shareholder value Discussion Draft Section 6.0 This last point is important to, for example, the future development of online banking. Imagine being offered a new online banking service by a bank that consistently makes mistakes in your paper statements. Products, services, markets, distribution channels Existing New Perception of events as Perceptions of Present modified by brand perceptions of Time perspective brand Perceptions of Perceptions of Future brand brand Brand here fills in parts of the matrix that satisfaction alone does not fully reach into. The reason is that bank satisfaction tends to be passive and reactive. It does not extend unless in some way articulated. A good brand requires customer satisfaction as a base but it requires other things as well. More distant but more lasting Another set of dimensions are those shown in the exhibit which follows. They appear less immediate but because they require a greater stretch on imagination, beyond the self and the self‟s immediate needs can create a deeper impression. Perceptions once extended into new territory are I believe likely to be sustained. The breakthrough into 11 © Geoffrey Johns 25 July 2010
  12. 12. Branding Banks for shareholder value Discussion Draft Section 6.0 new territories of thought is hard to retreat from. It tends to stick in people‟s minds because it is newly created territory in their mental map. Focus Me Others Perception of events as Pragmatic Perceptions of modified by brand perceptions of brand Outlook Perceptions of Perceptions of Ideal brand brand I see this branding effect as having two dimensions: First, it extends satisfaction beyond „me‟ to „us‟. „If I’m satisfied with this service so will others be’. This inevitably carries with in people‟s mind the connotation of „us‟ as „me and my tribe‟ or „me and the tribe I want to be in‟. The effect can be powerful. It extends to ‘I am one of the group of people experiencing satisfaction with this brand’. Secondly, it can go from the pragmatic to the ideal. That is to say, from the strictly utilitarian to something socio culturally valuable independently of the user. It becomes the right way to do things. All the things above that I have tried to designate as „brand‟ rather than satisfaction have one further capability. Satisfaction can be better than that of a rival bank. But it cannot be a different kind of thing. Competition takes place along a single continuum in 12 © Geoffrey Johns 25 July 2010
  13. 13. Branding Banks for shareholder value Discussion Draft Section 6.0 this regard. Brand opens competition to many dimensions creating, as it does so, more opportunities for differentiation. The foundation for brand is personal experiences but brands build bridges from personal experiences to broader perspectives, aspirations and concerns. Having said this, for customers, the foundation of favourable brand perception is indeed satisfaction. It is to the measurement of satisfaction that I shall turn next. We also need to consider the development of brand perception in the minds of non-customers with no experience of the product or service. I shall return to this later in this section. For now I want to conclude that favourable brands stretch customer satisfaction into dimensions other than the individual customer‟s here and now. More than this a good brand shifts the customer‟s mental focus from the concrete particular to the abstract universal. For this to happen the customer must believe that the benefit that they derive from the interaction with their bank results from some core value or institutional capability that resides deep within the bank and is nurtured there. Measuring satisfaction A (very) short history of customer satisfaction measures in banking Of course it has always been a good idea to keep customers happy. The „customer is always right‟ has been with us for a while. I suspect, however, that systematic research into bank customer satisfaction is relatively recent. Around 1990 I asked to see all the customer research for Westpac‟s commercial banking unit and was directly to a rickety but large wooden cupboard. Out fell a few dozen or so large, dusty, ring bound books of research. They were all issue specific (this or that product or campaign) rather than systematic tracking. Clearly each had be read once or twice, nodded wisely over and chucked into the cupboard. It took a couple of decades to get to where we are now in measuring satisfaction. 13 © Geoffrey Johns 25 July 2010
  14. 14. Branding Banks for shareholder value Discussion Draft Section 6.0 There were two things that gave impetus to measuring satisfaction. One that appealed to the thinkers in banks was ultimately caused by Edwards Deming‟s quality management concept. Banks came late to quality management (many came not at all). It did make sense, though, that measuring the quality of process depended on some guide to the quality of output that customers required. Now this isn‟t easy in banking. Compare it to, say, manufacturing a part to go into a larger assembly. If the specification of the ball bearing is 14.25 millimetres diameter that‟s the target, no question. Obviously, banking is harder to get that level of „hard and fast‟. Thereby hangs a thought that I shall pursue later in another section. For now though the need to measure satisfaction in some way or another became more important. By contrast, the road to measuring satisfaction for the „doers‟ among bank executives came with a realisation, which seemed to dawn on the whole world all at once during the Nineties. We discovered that retaining customers costs a lot less than winning new ones. By year 2000 at least two bank CEOs in Australia had satisfaction measures as part of the KPIs agreed with them by their Boards (and probably all of them). But then, after a few years, people began to question whether satisfaction was enough. Criticism came mainly from two sources. First satisfaction alone did not appear to be a good predictor of customer behaviour. Secondly, for some people, measurement of satisfaction seemed to make life too easy for the people being measured. The bar had not been set high enough. To take the first point, satisfaction seemed not a good guide to customer defection or to their value to the bank. Indeed some very satisfied customers were underpriced for risk, so no wonder. Other dissatisfied customers were so because their bank, quite correctly, was trying to manage credit default. But even so it was found that some satisfied customers that a bank wanted to keep were defecting. Some studies purported to show that satisfaction only predicts behaviour when satisfaction scores are very high. I think the reason for this is less that there is a sudden kink in the satisfaction / behaviour curve. I think it because a hidden dimension comes into play. We see this at work in the Conversion Model, which I discuss later. 14 © Geoffrey Johns 25 July 2010
  15. 15. Branding Banks for shareholder value Discussion Draft Section 6.0 The second point goes to the heart of bank management and I shall more to say about it later in this series of papers. For now though consider the exhibit below. It shows the result of a survey of about 23,000 relationship managed business customers. There was a response rate of roughly half. The waves were carried out in the years 1995 to 1997, inclusive. It was approximately two years after a major restructure and the relationship managers and their support teams were getting good scores for customer satisfaction. About 70% of customers were being giving scores of 8 or better. But in the minds of some people at their head office that wasn‟t supposed to happen. It looked all too easy. But then how do you raise the bar to 8 out 10, especially when many respondents don‟t give 10s on principle. ‘It leaves no room for improvement’, they say. Overall Rating of Relationship Manager Service and Support Wave 1 Wave 2 Wave 3 Avg Response 7.23 Avg Response 7.98 Avg Response 8.05 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 10 10 10 NA NA NA 0 5 10 15 20 25 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Percentage of respondents Percentage of respondents Percentage of respondents Source - CTS It was generally decided; (by those not being measured) that something more demanding was needediv. As well as these things, banks, in my experience, are not good at linking satisfaction measures to process management or design. Measuring satisfaction is seen as just a way of keeping score rather taking decisions. As far as I can see, this is not a widespread concern among others. It is, however, a central theme of this book. 15 © Geoffrey Johns 25 July 2010
  16. 16. Branding Banks for shareholder value Discussion Draft Section 6.0 Satisfaction and the TNS Australia Business Finance Monitor The TNS Australia Business Finance Monitorv is a sophisticated survey of the banking behaviour and perceptions of businesses with turnovers of up to AUD 100,000 vi. For general references to TNS and the Kantar Group, of which it is now a part, see the endnote. I reiterate that while I am grateful for having worked with TNS Australia for nearly a decade any views I express are mine alone and do not necessarily reflect TNS thinking. In making reference to the BFM I use no indicators for any individual client and only show data that is already in the public domain. In its design the BFM survey had to do two things of special relevance to this series of papers. One was to incorporate some measures that were a given because they were used by one or more of the subscribing banks as part of their internal processes. For example satisfaction measures are included in some in the Key performance indicators of the CEOs of some banks. This means that it is vitally important to the client that the underlying question does not change so the time series is maintained. Secondly, the questionnaire design involved input from a group of highly experienced and competent market research expertsvii. Naturally there was not total agreement either on what elements to include and how to word the questionnaire. The end result was a compromise but not, in my view, a bad one. As I progress through this section I shall comment where my views were or have come to be at variance with the questionnaire as it is presented here. Hindsight is of course easier than foresight and I learned a lot during the course of my involvement. As a result of the situation I have described, the BFM include questions from more than one approach to measuring satisfaction:  Two different versions of a straight satisfaction question with, as far as I know, no particular source.  The satisfaction question as it is incorporated into Jan Hofmeyr‟s Conversion Model™; 16 © Geoffrey Johns 25 July 2010
  17. 17. Branding Banks for shareholder value Discussion Draft Section 6.0  A version of the Net Promoter Score (NPS) question, developed by Fred Reichheld; and  A version of the Customer Value Added question, developed by Ray Kordulpleski. In the exhibit below I set out the text of the questions side by side. I‟m going to refer to such questions as focal questions because they act as a bridge between understanding a lot of detail about the customer‟s perceptions and situation and making predictions about the customer‟s behaviour. Put simply for now. Beliefs Reframing feedback Attitudes ( Reusable decision) s Contextualisation feedback Needs Expectations Choices Realignment feedback Interpretation Experience feedback ( ) Outcomes 17 © Geoffrey Johns 25 July 2010
  18. 18. Branding Banks for shareholder value Discussion Draft Section 6.0 Standard Conversion Model NPS / Advocacy CVA satisfaction Standard satisfaction satisfaction question satisfaction question question question question (2) Overall, how Overall, on a scale Using a scale of 1 to Taking everything And thinking about satisfied or from 1 to 10, where 10 where 1 is into consideration - all of your business dissatisfied are you 10 means 'perfect in 'definitely would not the products, the accounts, loans, with your every way' and 1 recommend' and 10 service you receive investments and relationship with means 'completely is 'definitely would and the fees and service dealings with [main bank] on a unsatisfactory', how recommend', how charges that you [main bank], how scale of 1 to 5, would you rate your likely would you be to have to pay - how would you rate their where 5 is as experience with [name recommend [main would you rate [main overall satisfied as you of provider] for bank] to your bank] overall for the performance? Is it could be, and 1 is as business banking? business associates value they offer your excellent…? dissatisfied as you for their business business? Would you could be. Are you…? banking needs? say they give you excellent value for money…? BFM Q 8-5 BFM Q 10-2 BFM Q11-6 BFM Q11-2 BFM Q11-3 Note that the Conversion Model™ satisfaction question only operates in conjunction with the other question that combine with is to assess customer commitment. These questions are. Conversion Model Conversion Model Conversion Model Conversion Model satisfaction question perception of importance of choice / perception of alternatives question involvement question alternatives question question Overall, on a scale from 1 to I'd now like to ask you how Thinking about the selection I‟m now going to read three 10, where 10 means 'perfect you feel about different of a bank or other financial statements about business in every way' and 1 means institutions with regard to institution for your business, banking institutions. Thinking 'completely unsatisfactory', business banking. Please on a scale of 1 to 5 where 5 about your business banking how would you rate your indicate your feelings about is not important at all and 1 with each bank , please tell experience with [name of each institution by giving a is extremely important, how me which statement best provider] for business score between 1 and 7. If important to you is the describes how you feel about banking? you have a very negative decision about which provider this institution. attitude towards a particular to go to? Is it? 1 There are many good institution then you should reasons to continue dealing give it a score of 1. On the [Extremely important1;Very with [BANK] and no good other hand, if you have an important2;Moderately reasons to change. exceptionally positive important3;Slightly 2There are many good attitude towards it, you important4;Not important at reasons to continue dealing should give it a score of 7. all5 with [BANK] but there are also many good reasons to change. 3There are few good reasons to continue dealing with [BANK] and many good reasons to change. BFM Q 10-2 BFM Q 10-1 Q10-3 Q10-4 I might be uniquely positioned to talk about these several ways of getting to the measurement of customer commitment. Surprising there seemed relatively little client 18 © Geoffrey Johns 25 July 2010
  19. 19. Branding Banks for shareholder value Discussion Draft Section 6.0 interest in making comparisons between the focal question approaches so my data is not as rich as it might be. The Net Promoter Score™ (NPS) NPS / Advocacy question Undoubtedly, NPS has taken the market research world by storm. „It would be difficult to overstate the impact of Net Promoter on Using a scale of 1 to 10 where 1 is management‟viii The BFM Advisory council of client representatives asked 'definitely would not recommend' and 10 is 'definitely would for it to be included in the questionnaire from July 2007 as a replacement recommend', how likely would you be to for the advocacy question it had included, hitherto ix. recommend [main bank] to your business associates for their business banking needs? Net Promoter is a customer loyalty metric developed by Fred Reichheld and BFM Q11-6 Bain & Company, It was introduced by Reichheld in his 2003 Harvard Business Review article "The One Number You Need to Grow". It is controversial in its claim to be ‘the one number you need to grow’. Studies such as that of Timothy L. Keiningham et al (op cit) cast doubt over claims that NPS is a superior measure. For reasons I’ll deal with below it probably isn’t all that inferior either. For my immediate purposes, however, it is a measure that looks beyond the respondent’s satisfaction to look a little more broadly at how the customer sees the brand. It asks customers to interpret their experience of the brand in the context of their relationship with other people. I think it the question is most useful as a guide to word of mouth but it is serviceable as a satisfaction focal question providing you don’t get carried away by its claims to unassailable superiority. The question itself presents a problem that seems not to have been picked up by the various critics of NPS that I have read. Two things are, conflated: the first is the customer‟s satisfaction with the product or service. This is saying, „I, the customer, am so satisfied that I would take the (unusual) extra step of recommending this to others‟. In a sense that can be expressed as „I will associate my brand with your brand‟. The second thing is the customer‟s intention to talk about the product or service at all. This raises questions such as does the product or service appeal especially to people who like talking about products. Does this matter in real life? I think it can do. Are, for example Apple computers the product of choice of the „chattering classes? I think they 19 © Geoffrey Johns 25 July 2010
  20. 20. Branding Banks for shareholder value Discussion Draft Section 6.0 are and that this has a positive impact on the Apple brand. My main point here is that any attempt to modify the focus question in a satisfaction survey will raise complicating issues of interpretation. This matters more when the focal question is used for deep analysis as opposed to merely keeping score. We have seen that the BFM asks the NPS question as well as other satisfaction related questions. I don‟t see why this shouldn‟t be done. In point of fact, I‟d ask the word of mouth question, ideally, a little differently. But given its apparent popularity with senior executives I see no real harm in adopting the Reichheld wording. I should prefer to ask other questions though concerning the frequency with which and circumstances in which people seek and offer opinions about banksx. A bigger question in my mind is how is that this form of satisfaction question became so popular so quickly, a point to which I shall return xi as I believe the underlying causes are central to my argument. The exhibit below compares, the NPS with commitment s measured by the Conversion Model. The data is for Australian business banks and customers up to AUD 5 million turnover. NPS is measured as the aggregate of scores 9 and 10 on a ten point scale minus the aggregate of scores 1 – 6. The conversion model rating is measured by the percentage of committed customers to all customers. I am not revealing the names of specific banks in these papers. But it does seem useful to distinguish here between small (S) and big (B) banks. 20 © Geoffrey Johns 25 July 2010
  21. 21. Branding Banks for shareholder value Discussion Draft Section 6.0 Comparison of Commitment and Net Promoter Score 50% R² = 0.7141 S 40% S 30% 20% Net Promoter Score S 10% S S 0% S S S -10% B -20% B B -30% B -40% 40% 50% 60% 70% 80% 90% 100% Commitment You‟ll have to take my word for it that I can explain the outlying among the smaller banks. The difference shown between the big and smaller banks is interesting, however. Big banks seem to score less well on the NPS than measured by commitment. I think there are a couple of reasons:  First, the smaller banks tend to have come from a background of personal banking (mainly home loans) and are growing into their business banking footprints attracting initially firms that are especially attracted to their business models. I suspect that these firms tend to have a something of an evangelical relationship with their banks;  Secondly, the smaller banks tend to have a larger proportion of customers outside the main cities of Sydney and Melbourne in smaller towns and rural areas where there is greater community spirit and supportiveness;  Thirdly, the smaller banks tend to have stayed closer to businesses managed-at- the-branch model which means that there is a greater sense of community in dealing with the bank. 21 © Geoffrey Johns 25 July 2010
  22. 22. Branding Banks for shareholder value Discussion Draft Section 6.0 To the extent that these things are true, the NPS does pick up on intention to promote as opposed to being merely an expression of extreme customer alignment with the bank. This may support my view that the NPS is more useful as a measure of word of mouth than it is of satisfaction per se. Customer Value Analysis™ (CVA) Ray Kordupleski, author of Mastering Customer Value Management: The Art and Science of Creating Competitive Advantage introduced CVA and, among clients I know, it achieved nearly the same popularity as NPS. One bank I have dealt with, Suncorp is one of the main examples given in Kordulpleski‟s book. CVA is based on the idea that satisfaction should be related closely to perceptions of value for money. With candour (almost defying belief), Kordulpleaski states in the introduction to his book CVA satisfaction that he chose the name CVA because it resonated with the Stern, question Stewart term Economic Value Added (EVA), which lent it credence as a Taking everything into consideration - business. Actually, customer value measurement is vital and I shall turn the products, the service you receive to it in the next section in this series of papers. CVA has nothing to do and the fees and charges that you have to pay - how with this and is simply another way of adjusting the basic satisfaction would you rate [main bank] overall for the question to get a supposedly better result. The basic thought is value they offer your business? Would you say they give you customers can be satisfied with a product or service but don‟t think its excellent value for money…? value for money. This assumes that when asked about satisfaction they BFM Q11-2 won‟t, in their assessment, take account of what it costs them. It also directs attention towards cost away from the other three elements recognised by Croxford et al, in the work I cite in Section 1 of this series of papers and adapt in the exhibit below. 22 © Geoffrey Johns 25 July 2010
  23. 23. Branding Banks for shareholder value Discussion Draft Section 6.0 + Perception of price Customer perceptions + Perception of specification fit to needs + + Perceptions of service experience Perceptions of brand It is quite difficult to get survey respondents to think about all four elements at once. As with all surveys the part of the totality that their mind snaps to in the instant they have to respond will depend on factors including:  the sort of person they are (refer back to Section 2, where I introduce segmentation by attitudes to finances);  their situation at the time they respond (for example people‟s first reactions can change depending on whether they are at home or a work);  their most recent salient experience with the product / service;  the positioning of the question in the survey questionnaire. As far as possible I prefer the question to be as simple as possible to avoid any leading of the respondent. 23 © Geoffrey Johns 25 July 2010
  24. 24. Branding Banks for shareholder value Discussion Draft Section 6.0 Correlation of Commitment with CVA 80% S 70% S 60% S CVA score 50% S S S S 40% S B B 30% B B 20% 40% 50% 60% 70% 80% 90% 100% Commitment The exhibit above shows a rather similar position to what we saw for the comparison between the Conversion Model and the NPS but for different reasons I believe. I believe it is indeed more likely that the customers of larger banks are more fully priced. Larger banks tend to be more attuned to shareholder expectations of return. Moreover, they can rely less on a growth premium in their share price than can smaller banks. In addition to this their greater share of customers in urban centres may indicate a greater focus by these customers on the cost of banking. How the Conversion Model works I have already introduced the Conversion Model in Section 3 of this series of papers. It is a psychological measure developed by Jan Hofmeyr that segments customers into eight groups as illustrated below. 24 © Geoffrey Johns 25 July 2010
  25. 25. Branding Banks for shareholder value Discussion Draft Section 6.0 Total market Customers Non- customers Committed Uncommitted Open Unavailable Entrenched Average Weakly Strongly Shallow Convertible Available Ambivalent committed committed unavailable unavailable I have only worked with a slightly older version of the Conversion Model than the one currently used. This is the one I discuss here. I understand that the version to which TNS has proprietary rights has been simplified somewhat in application without any loss of information content. I also understand that Jan Hofmeyr has developed a similar model to which Synovate, a market research company, has a proprietary right. I have no knowledge of this model. The central satisfaction measure in the BFM is commitment derived from the Conversion Model. In the version with which i am familiar it derives from four elements:  Satisfaction / needs fit;  Importance of the purchase decision to the customer;  Perception of alternatives;  Ambivalence. It is a key feature of the Conversion Model that all studies which use it enter data into a central database from which norms are generated that place the results within the context of the country and industry. There are approximately 7,000 such studies at present. Satisfaction / needs fit The Conversion Model does not abolish satisfaction. In fact satisfaction is the „active ingredient in commitment. The other factors in commitment are primarily influenced by satisfaction but also to some extent by intrinsic factors. I shall explain this below. The exhibit here emphasises the dynamic nature of the development of commitment of which the Conversion Model takes a snapshot in time. 25 © Geoffrey Johns 25 July 2010
  26. 26. Branding Banks for shareholder value Discussion Draft Section 6.0 Conversion Model satisfaction question Overall, on a scale from 1 to 10, where 10 Leads to means 'perfect in every way' and 1 means 'completely unsatisfactory', how Need for new would you rate your experience with [name product / service of provider] for business banking? Loss of business Leads to Leads to Enhanced perception of BFM Q 10-2 alternatives More negative ambivalence Leads to Leads to Leads to Increased Leads to importance of choice of bank dissatisfaction Leads to Leads to Adverse experiences Importance The Conversion Model view of the world is that customers cannot be committed to a product or service that is unimportant to them. Choosing a bank is more important than choosing the office cleaners. To which a sceptic might respond – but for any category the importance of the buying decision is of much the importance across all users. However, this is not the case. In my research, among Australian SMEs with turnover up to AUD 5 million, two thirds of them rated importance in the top two categories in a 5 point scale and one third in the bottom 3 categories. This confirms what many bankers believe about the market. There are two fairly distinct groups. In the words of Alan xii Price „the customer you win on price today you’ll lose on price tomorrow’. In Conversion Model terms the transition paths of ‘low importance’ customers are indicated by the red arrows and those of „high importance’ customer by the blue arrows. 26 © Geoffrey Johns 25 July 2010
  27. 27. Branding Banks for shareholder value Discussion Draft Section 6.0 Customers Non- customers Committed Uncommitted Open Unavailable Entrenched Average Weakly Strongly Shallow Convertible Available Ambivalent committed committed unavailable unavailable When we talk of satisfied customers who still defect, it seems likely to me that some of them do so simply because a relationship with any bank is simply not that important to them. They can be tempted on price or relaxed lending conditions. Leads to Need for new product / service Loss of business Leads to Leads to Search for alternatives More negative ambivalence Leads to Leads to Can lead to Changes in intrinsic Leads to customer Increased management beliefs Leads to importance of choice of bank dissatisfaction Leads to Leads to Deterioration of economic Leads to conditions Adverse experiences Perception of alternatives 27 © Geoffrey Johns 25 July 2010
  28. 28. Branding Banks for shareholder value Discussion Draft Section 6.0 The Conversion Model also takes into account customer‟s perception of alternatives. A satisfied customer may defect simply because they might be even more satisfied with a rival bank. This process is illustrated below. Leads to Need for new product / service Loss of business Leads to Leads to Enhanced perception of alternatives More negative ambivalence Leads to Leads to Leads to Increased Leads to importance of choice of bank dissatisfaction Leads to Leads to Adverse experiences Ambivalence The Conversion Model‟s variable it describes as „ambivalence‟ is very like an intention to switch question common in many surveys. In a sense a poor rating on this measure is a culmination of a series of events adverse to the bank. Dissatisfaction leads to an intensified search for alternatives weakening the position of the incumbent bank as shown in the exhibit below. 28 © Geoffrey Johns 25 July 2010
  29. 29. Branding Banks for shareholder value Discussion Draft Section 6.0 Leads to Need for new product / service Loss of business Leads to Leads to Enhanced perception of alternatives More negative ambivalence Leads to Leads to Leads to Increased Leads to importance of choice of bank dissatisfaction Leads to Leads to Adverse experiences Dissecting the Conversion Model None of the questions that constitute the Conversion Model are unusual. Each for them could easily appear in any survey questionnaire. For example, the ambivalence question is just a version of an „intention to switch‟ question. What is special about the Conversion Model is the way in which it brings the four elements together into commitment, based on statistically derived norms. The following exhibits are taken from a study I did of the Australian farm sector some years ago. From the exhibit below you can see that among farmers, frequently reported in the Australian media as hating their banks, few fall into the South West quadrant of the matrix. That is the quadrant where respondents don‟t like their bank but there is inertia because they think that all banks are the same. The majority are in the quadrant where they quite like their bank but are also open to at least one other bank. 29 © Geoffrey Johns 25 July 2010
  30. 30. Branding Banks for shareholder value Discussion Draft Section 6.0 Satisfaction / Needs fit 1 2 3 4 5 6 7 8 9 10 Attitude towards alternatives 7 6 5% 62% 5 29% 4 3 2 1% 3% 1 Looking more closely, I next introduce the ambivalence question. Of the 5% of the market less satisfied with their bank there are still relatively few (37%) who say they believe there are few good reasons to stay and many to change. This is where we see the inertia in the market. It is not caused by the „all banks are bastards‟ mindset. Satisfaction / Needs fit 1 2 3 4 5 6 7 8 9 10 Attitude towards alternatives 7 20% 5 74% 62 6 43% 23% 5 37% 3% 4 3 0% 1 77% 3 2 43% 19% 1 57% 4% I offer this glimpse to make the point that the dynamics of the commitment over time should be understood to see how the situation is unfurling. As a group, these farmers have reached the point where they are open to alternatives but see no compelling reason to change at this point. 30 © Geoffrey Johns 25 July 2010
  31. 31. Branding Banks for shareholder value Discussion Draft Section 6.0 Conversion model weaknesses The primary problem clients seem to have with the Conversion Model is its black box effect. Four questions are asked xiii and these are brought together in a proprietary algorithm into a classification in to one of eight commitment segments. This has the beneficial effect of maintain some central control over the use of the Conversion Model that I don‟t think applies to the same extent to NPS and CVA where researchers can just incorporate the question into a survey. They do not necessarily have a comparative database to work with. This is obviously an advantage for the Conversion model in normalising outputs by industry and country. But it does have a serious downside. A great issue that client side market researchers have is this. Consider when they are being questioned by segment managers as to why, say, the commitment measure (on which their performances might be measured) has fallen. How well does it go down, do you think, when they have to say they don‟t know what happens when the responses to the four questions goes into the black box? Now this doesn‟t much worry me. I don‟t see why, for performance measurement, banks don‟t just use the satisfaction / needs fit part of the Conversion model measure. Nothing is lost from what they would have anyway. The reply then seems to be, “ah but people might measure me by commitment anyway. It is part of a wider problem in using research data. It is one I shall return to after a brief discussion of some related issues. General issues with measuring satisfaction Statistical validity 31 © Geoffrey Johns 25 July 2010
  32. 32. Branding Banks for shareholder value Discussion Draft Section 6.0 Users of satisfaction scores no matter how they are derived seem to spend a lot of time considering the „statistical validity‟ of the results. Well I can sort this out for everyone straight away. There is none: well, none worth speaking of – not in a scientific sense.. The first rule of sampling is that every member of the population has an equal chance of being selected. With customers, this never happens, ever. It doesn‟t even happen with a staff survey over which you have more control. I‟ve never seen good evidence about who responds to surveys but, like pretty much everyone else, my experience suggests to me that it is people towards the high end of satisfaction and the dissatisfied. Mind you, I haven‟t really seen the twin peaked distributions that you‟d expect if this were true. With panels you get people who want to be on panels. With incentives you get people for whom the incentive means something. But whatever you get is not going to be statistically valid. Let me offer two anecdotes and you can make a judgement about how rare you think these instances might be. An elderly woman I know took pity on a cold wet door-to-door research woman one Yorkshire Sunday. She answered some door step questions and accepted £5 to fill out a „phone directory sized questionnaire. But as she was frail and tired my partner and I took on the task of completing the questionnaire on her behalf. Much of it didn‟t apply, for example cosmetics, overseas travel and theatre going. It still took us, taking turns, on and off the best part of a week. We did do our best though to reflect what we thought he lady‟s thoughts would be. I once had dinner with a half a dozen Barossa Valley winemakers and their accountant – himself a winemaker. They were all customers of my bank. When I asked about the client survey I had used recently, the accountant told me that all the others gave him the questionnaire to complete for them. He told me he did try to reflect the individual experiences of each of them. 32 © Geoffrey Johns 25 July 2010
  33. 33. Branding Banks for shareholder value Discussion Draft Section 6.0 Well, did you expect every bit of market research to come to you in dust free laboratory condition? Sample sizes Sample sizes are rarely what we should like them to be. In my experience we sometimes say that around thirtyish is enough. It is, sometimes. But that is in limited circumstances where the dimensions we are sampling for are few (well one actually). So in predicting the proportion of red billiard balls in a bag of red and white ones it might be ok. But in ascertaining the loan balances of a sample of customers it is less so. I expect it‟s always hard to satisfy statistical standards. In my practical experience it‟s best to be nervous with any sample shy of 100 or so. Incomplete population data What actually is the population that is being sampled? This is not as straightforward as it sounds. Take the segment, often used in Australia of SMEs with turnover less than AUD 5 million. From memory there are an very large uncounted number not captured by government Goods and Services Tax returns alone. These returns are the main basis for keeping count od Australian businesses. What is being measured, actually? In my experience this is often a poorly understood issue, even among market research specialists. In banking what to you want to measure? Is it something about the customers themselves or something about their value to shareholders? For example, supposing you discover that the proportion of customers with turnover < AUD 5 million committed to their bank is 50% by number. It could easily be the proportion of their (say) loans from the bank held by committed customers is 70% a big difference. So what do you want to measure? In most cases i would want to know the characteristics of my balance sheet rather than of my customers. But most bank research doesn‟t tell you that. 33 © Geoffrey Johns 25 July 2010
  34. 34. Branding Banks for shareholder value Discussion Draft Section 6.0 Measurement scales A variety of scales are used. Sometimes people get very hung up on this. I tend to use 1 -10 because respondents are most used to it and it presents as little barrier as possible between them and the script. But even discrete data can be deceptive. The gap between 1 and two rating, for example is 100%. The gap between 9 and 10 is 10%. Valid responses Having met the cost of getting through to a valid respondent, naturally you want to ask as much as you can. My best information is that there is deterioration in response and an increase in the dropout rate if an interview goes much longer than 20 minutes. Telephone seems to work best as far as I can see but is expensive and increasingly will run counter to privacy regulation. Panels will become important but while a panel can tell you a lot about the voice of the market it is less useful for the voice of the customer. It is hard to find a panel that can be made representative of a defined customer base. The auto pilot response to ratings My experience of people answering any form of satisfaction question on the telephone is that they immediately get what the questioner is on about and translate that in their minds directly to he / she wants to know how much I like it. This actually mostly gives you the right answer but doesn‟t add much for the case for subtly worded questions. Respondents screen out the subtlety because they get what you mean almost before you say it. Also, people have some tendency to get into a rut when answering a series of questions.  ‘How responsive are they?.... 6  How consistent are they? ....6  How well do they support the community?...6  What’s your favourite colour?...6’ 34 © Geoffrey Johns 25 July 2010
  35. 35. Branding Banks for shareholder value Discussion Draft Section 6.0 Questionnaire design issues There is never a perfect design but be aware of this. Introducing a satisfaction question in the wake of a series of questions about face to face service will almost certainly condition the respondent to answering about their satisfaction with face to face service. If you wanted to know about their satisfaction with the bank as a whole, including, products and other distribution channels, you are not likely to get it. So what is the big problem I was talking about earlier? All these little problems come together as one very big problem when mixed with one important fact of banking. Some people have a vested interest in looking hard for and imperfections in the data. As we have seen these are inevitable so a hard look need not take that long. These people are really anyone in a management position who is being measured by satisfaction scores and for whom the numbers come up wrong. I am reasonably certain that I know of specific cases where senior management have adopted market research policies designed to disguise their failure. This is a really big problem with using satisfaction research for measuring performance as opposed for to taking marketing decisions. And some clients, perhaps most clients see performance measurement as the main or sole purpose of satisfaction surveys. In these circumstances there will also be a tendency for clients to try to discredit the research. Market research is always a bit like holding an X-ray up to the light and wondering if the patient really did swallow a hammer. If it suits a senior manager to render the research process toothless is usually possible to do so. But it isn‟t something that can be turned on and off. There are banks that are opportunistic and banks aren‟t. I‟m going to hold off for a bit before I decide on the right work for them. But in the meantime I will say that a bank can‟t have it both ways. Or at least they can only fool some of the people some of the time. Handling market research well is a demanding organisational skill. It takes a certain kind of maturity. This must be based on a realistic understanding of what research can achieve coupled with profound understanding of the industry context. The relationship between quantitative and qualitative research 35 © Geoffrey Johns 25 July 2010
  36. 36. Branding Banks for shareholder value Discussion Draft Section 6.0 Qualitative research never measures anything. This shouldn‟t need saying but I‟ve heard clients drawing conclusions about what the market thinks from a couple of focus groups too often to know that it does. Qualitative research Interpret Design Quantitative research „We’ll run it past a couple of focus groups’ is one of those marketing phases that give a pretty good clue that not a lot of thinking is going on. Qualitative research can be very useful indentifying things like:  The way customers related to the product or service;  The language and terminology they use to talk about it;  How they use it;  What they see as benefits;  How they compare providers;  How central it is to their lives. But it tells you next to nothing about how much the respondent‟s views are shared by others. These things though do help in formulating quantitative surveys and interpreting results. But is only the quantitative survey that is in any way helpful to the measurement of brand. 36 © Geoffrey Johns 25 July 2010
  37. 37. Branding Banks for shareholder value Discussion Draft Section 6.0 Why the obsession with asking just one question? Would CEOs be happy if the CFO said he or she could tell them all they needed to know about the business with just one line of the profit and loss statement? Too much emphasis gets put on the focal satisfaction question. It is never the only question you need to ask. It is next to useless if you can‟t go backwards from it to comprehend the underlying reasons. Also you need to be able to identify the characteristics of respondents in terms of their underlying characteristics and their banking behaviour. Without this, measuring satisfaction no matter what question you prefer is unattainable. It is just keeping score. The exhibit below outlines the overall research framework that needs to be established. I have heard managers saying that their approach, say, CVA is best and then go on to describe the framework of questions and analyses that interprets the CVA question in terms of the framework below and predictions of its outcome. They believe that all of this is integral to CVA. It is important to realise that these are common to all focal satisfaction questions. The overall framework is the same whatever the focal question. The framework can vary a lot depending on the industry and sometimes the individual organisation. These difference must not be attributed, however to the satisfaction question being used be it CVA, NPS, Conversion Model or anything else. 37 © Geoffrey Johns 25 July 2010
  38. 38. Branding Banks for shareholder value Discussion Draft Section 6.0 Affluence Age Facts about the respondent Attitude to finances Products held, which bank(s)? Facts about the respondent‟s banking Distribution channels behaviour used, frequency Predictions about the respondent‟s behaviour Satisfaction with bank A Facts about the Customer defined respondent‟s perception criteria perceptions of specific Perception of brand A banks Alternatives Customer defined switching, seeping criteria Action threshhold Projected stimuli Some concluding thoughts on measuring satisfaction I have tried to outline the satisfaction measurement approaches with which i am familiar. There are surely others of which I am unaware. Those i have described, however, are all used extensively in banking and other industries. I hope they are at least representativexiv. Here is my verdict. I would prefer, given a blank sheet, to use the Conversion Model rather than any other approach I know of. I like it because while it contains a simple unadorned and uncontaminated satisfaction it has, in the concept of commitment, more predictive power. It is a segmentation tool that is calibrated to a large number of studies even though the mechanism by which this is achieved is opaque. 38 © Geoffrey Johns 25 July 2010
  39. 39. Branding Banks for shareholder value Discussion Draft Section 6.0 However, I do understand that it hard for bank to move away from an existing approach. The break has to be for a significant and demonstrable improvement. Otherwise the disruption to management thinking and the loss of historic data is hard to justify. For these reasons, approaches such as CVA and NPS are not far inferior (though they are not, in my view in any sense, superior) to the Conversion Model PROVIDING: All respondent ratings of other institutions that they deal with or know of are maintained AT THE RSPONDENT RECORD LEVEL. That is to say that an approach that gives, say, a CVA score of 40% to one bank and 55% to another based on their customers is inferior if we do not know how each is rated by each respondent. This is possible with the Conversion Model but not intrinsically, unless specified, with any other methodology. Three academic studies in personal finance I want to turn to exploring some of the drivers of customer satisfaction in personal banking. Fiordelisi and Molyneux (op. cit.) refer to three academic studies of customer satisfaction in relevant fields. Not being an academic and not have access to the necessary search tools, I don‟t know if these are comprehensive. I expect that they might be, Fiordelisi and Molyneux are thorough, I‟d say, and know their way round academic research. But even if they are not, they are, in my experience, representative. In any event, these studies are a good starting point. The exhibit below shows indicates where we are in analysis of satisfaction. We are attempting to uncover the descriptive criteria attributes in which customers think about what makes them satisfied by a bank‟s services. 39 © Geoffrey Johns 25 July 2010
  40. 40. Branding Banks for shareholder value Discussion Draft Section 6.0 Affluence Age Facts about the respondent Attitude to finances Products held, which bank(s)? Facts about the respondent‟s banking Distribution channels behaviour used, frequency Predictions about the respondent‟s behaviour Satisfaction with bank A Facts about the Customer defined respondent‟s perception criteria perceptions of specific Perception of brand A banks Alternatives Customer defined switching, seeping criteria Action threshhold Projected stimuli My purpose here is to begin to work towards a useful taxonomy of perceived benefits that is valid across all banking markets and across all brand audiences. This might not equate exactly to the design of a survey questionnaire but at some level of aggregation it is desirable to express a total brand view. An element, say „responsiveness‟ may require different wording in the personal banking market than for rating agencies. But the broad concept should remain the same. In this case, that concept is the banks willingness to interact with an external group with a willingness to interact and respond to their needs. In my experience of deterioration of bank brands a failing in this area at the branch level is mirrored in a failing at the top floor of the head office. Conceptual Model of Service Quality (Parasuraman et alxv) This study focused on service firms in general. They identified ten dimensions of customer satisfaction. These were reduced to five as the elements shown below showed a high rate of correlation. They were brought together under the term „empathy‟. 40 © Geoffrey Johns 25 July 2010
  41. 41. Branding Banks for shareholder value Discussion Draft Section 6.0 access courtesy communication empathy credibility security understanding / knowing the customer I‟m wary of this. I am indeed wary of letting statistical analysis over-ride business judgement rather than acting as a pointer to something interesting. The above elements may all correlate but that doesn‟t make them much the same from a customer‟s perspective. Moreover, I doubt if a high level of correlation would be found in personal banking. Access would not be seen as much the same as understanding / knowing the customer, for example. It is quite easy to experience courtesy from a banker who quite evidently has no understanding of your financial situation. In business banking, where I have deeper experience, „understanding my business‟ is a key discriminator between banks from a customer‟s experience. In general, however, I don‟t doubt that empathy does matter. Key elements, I believe, include:  Knowing me and my situation;  Knowing how I like to communicate and deal with people; and  Engaging with my values and aspirations. However, to go along with Parasuruman et al, the dimensions we are left with are now:  Reliability (the consistency of performance and dependability eg the company performs the service right first time and honours any promises);  Responsiveness (the willingness or readiness of employees to provide services); 41 © Geoffrey Johns 25 July 2010
  42. 42. Branding Banks for shareholder value Discussion Draft Section 6.0  Assurance (the knowledge and courtesy of employees and their ability to inspire trust and confidence);  Empathy (the care and individual attention that a company provides its customers);  Tangibles (the physical evidence of the service). These are close to my own understanding of what matters in the market. The determinants of Service Quality: Satisfiers and Dissatisfiers” R Johnstonxvi This study identifies these drivers of satisfaction.  reliability  commitment  ability to answer customer‟s need  flexibility  integrity  competence  functionality  access  aesthetics  courtesy  care / attention  friendliness  communication  tidiness  comfort  safety Johnson distinguishes between hygienic factors – those that do not create satisfaction if well managed but create dissatisfaction if poorly managed – and those that create satisfaction, more or less in proportion to how well they are managed. This is related to Kano Analysis, which is discussed in detail elsewhere in this series of papers. The elements in italic font above are seen as hygiene factors. 42 © Geoffrey Johns 25 July 2010
  43. 43. Branding Banks for shareholder value Discussion Draft Section 6.0 Also Johnson contains elements that parallel some that Parusuraman groups under „empathy‟. I show the correspondences below. Parusuraman Johnston access access courtesy courtesy friendliness Care, attention communication communication ability to answer credibility competence integrity customers‟ needs security safety understanding / knowing the customer Not comparable aesthetics commitment functionality comfort reliability tidiness flexibilty Of these, it seems to me access matters too much to be grouped under empathy. Access is not easy to define. It is about providing customers with ease to access to the bank, in branches and offices, though Point of Sale machines and Automatic Teller Machines; through „phone and online. More importantly it is about integrating these. Most of the studies I discuss here were made at a time when this integration was not so important. Courtesy, friendliness are certainly important. They matter because much of banking is a commodity so a smile does make a difference. They also matter because banking of anything is a a little stressful for customers. They could come under the heading empathy but I wonder if perhaps they should be there in their own right and, in the questionnaire at least not masked by an abstract term. 43 © Geoffrey Johns 25 July 2010

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