Publicly owned banks need to weigh short-term financial results against long-term customer loyalty.
Posted Jun 9, 2005
Forrester Research released its advocacy rankings for 15 firms at its ninth annual Finance Forum. Rankings for 15 firms dropped 5 percent or more during the past year, while only three rankings--all of credit unions--rose by 5 percent or more. Of the 34 companies ranked, only seven had a majority of their customers rate them high on customer advocacy. "This is a consistent trend we see every year," says Tom Watson, analyst at Forrester Research. "Whether it's banks, brokerages, or insurers, the privately owned institutions always do better at these rankings."
The survey results are based on responses sent on a regular basis to 5,000 households via mailed questionnaires. Forrester asked the respondents to rate their bank, brokerage, or insurer on a scale of 1 to 5, with 5 being the best. The results determined customer advocacy, or the perception by customers that a firm does what's best for them, and not its own bottom line.
In general, customer-owned firms like USAA, AAA, and credit unions have the highest percentage of customers rating them high on customer advocacy. Of the seven banks that had the majority of their customers rate them high on customer advocacy, five of them--USAA, AAA, State Farm, Vanguard, and credit unions--are customer owned. A sixth, Edward Jones, is privately held. Large retail banks rated the lowest, with seven of the bottom eight firms being top retail banks. The last three spots in Forrester's ranking were also the three largest U.S. banks--Bank of America, Citi, and JPMorgan Chase.
Firms with high numbers of customer service reps held the middle ground. Full-service brokerages like Merrill Lynch and agent-based insurers like MetLife dominated the middle third of the rankings. How can a firm like AIG, caught up in recent accounting scandals, still rank reasonably well? Bill Doyle, vice president and principal analyst at Forrester Research, maintains that live agents and advisors who represent them "insulate" the firm from harsher judgment.
According to Doyle, mergers are one of the culprits hurting public financial institutions. They disrupt customer routines and dilute customer-centric cultures. Additionally, the high number of customer interactions makes them more vulnerable to problems. Despite mergers, some publicly owned banks are scoring well among customers. Credit unions were rated very highly by their customers, and two top banks, Wachovia and Wells Fargo, had more than twice as many customers rating them high on customer advocacy, as did Citi and JPMorgan Chase, two other top-five banks.
"This year overall customer advocacy scores were down. Mergers have played a big part in that," Doyle says. "On the other hand, companies like E*TRADE and Wells Fargo, which both saw a boost in their rankings since last year, have implemented services to make their customers' financial dealings easier.
"Canadian banks are a great example of banks that are doing a good job of customer advocacy," Doyle says. "Scotia Bank has a tool on their Web site that will tell you if you're paying too much in account fees. Even though its less money for them, they understand if they satisfy their customers, they'll probably recommend that bank to others. A lot of U.S. banks don't do that. A lot of their account revenue comes from fees and penalties, and they're fine with it."
Financial institutions need to implement a strategy that appeals to the customers' loyalty and general satisfaction by being "transparent" about how their products compare to the competition. E*TRADE is one example. "If a customer finds a better rate someplace else, E*TRADE will compare the mortgages and tell you the better deal," Watson says. "It might seem like they're giving away business. In fact, they've found that most people will continue the mortgage with them regardless because they're impressed by the level of honesty."
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