Financial Services Firms Must Invest In Customer Advocacy

Despite being part of one of the first sectors to latch onto CRM, some financial services (FS) institutions have struggled with cultivating long-lasting customer relationships. But, according to a new report from Forrester Research, that may be on the verge of changing, and the reason may have everything to do with the perception of independence. According to the report, "Customer Advocacy 2007: How Customers Rate Banks, Brokerages, Insurers, and Credit Card Issuers," unveiled Monday at Forrester's Finance Forum 2007 in New York, more FS companies are placing greater emphasis on improving the customer experience. The report stresses the concept of "customer advocacy," scoring each company based on the percentage of customers who believe that a firm does what's best for them, not just the firm's bottom line. The fourth annual scorecard, which is based on a survey of 5,000 U.S. consumers, evaluates 53 U.S. banks, brokerages, insurers, and, for the first time, credit card issuers. In Forrester's findings, four of the top five spots went to local, regional, or independent firms, as opposed to conglomerates with a nationwide footprint. Insurers, including property and casualty insurers, fared particularly well in Forrester's findings, thanks in part to the strong performance of USAA. The firm, which specializes in providing insurance and diversified financial services to military personnel and their families, secured the highest rating for the fourth consecutive year, earning a score of 88 percent, a sizeable year-over-year jump of 20 percentage points. Rounding out the top 10:

2. Independent financial advisors...76 percent

3. A.G. Edwards............................66 percent

(tie) Credit unions...........................66 percent

5. Independent insurance agents....64 percent

6. GEICO.......................................60 percent

7. Edward Jones............................59 percent

(tie) AAA.......................................59 percent

9. State Farm................................57 percent

10. Ameriprise................................56 percent

Brokerage firms realized notable gains as well. A.G. Edwards, Ameriprise, and Edward Jones--as well as Merrill Lynch (47 percent) and Smith Barney (45 percent)--each boosted customer advocacy standings by more than 5 percent over last year. The outsized jump in customer advocacy score by USAA proved to be an anomaly, however. Only 13 firms, in fact, showed at least 5 percent year-over-year improvement--and, overall, the FS sector only moved from a 45 percent score last year to 50 percent this year. According to Bill Doyle, the author of the report and vice president and principal analyst at Forrester, it's clear there is still considerable room for improvement. "The old growth strategies aren't working," Doyle told the forum audience. "New products? Easier than ever to copy. Price cuts? That just becomes a race to the bottom. If you want to hold on to the [customers] you've got and get more from them, and if you want to win more customers on today's terms, you have to significantly raise the bar on customer service." Banks and credit card issuers fared quite poorly in Forrester's findings. Four of the five largest U.S. banks--Bank of America (33 percent), Wells Fargo (32 percent), Chase (27 percent), and Citibank (24 percent)--pulled in scores low enough to land in the bottom quartile of the report's scorecard. There were a few bright spots: Wachovia (40 percent) outperformed its big-bank peers, while regional and local banks (48 percent) earned a position in the first half of the rankings. Meanwhile, on average, credit card issuers--included in the survey for the first time, and perhaps a drag on the showing for the overall FS sector--scored lower in the report than any other group of retail FS firms; just one-third of all credit card customers feel their firms put customers' best interests above the firm's bottom line. Higher customer advocacy scores are valuable for more than just bragging rights. Doyle writes in the report that, for FS firms, "demonstrating customer advocacy [is] an effective way to deepen relationships with existing customers," and the report includes data showing that high scores in customer advocacy provide a strong indication of future purchasing intent. Companies can strengthen customer advocacy by embracing experience-based differentiation, which Forrester defines as interacting with target customers in a manner than consistently builds loyalty. That notion was at the core of the keynote presentation delivered Monday by Bruce Temkin, a Forrester vice president and principal analyst, who revealed three key principles to experience-based differentiation. The first principle, obsessing about customer needs, includes knocking down channel, department, and functional silos, and identifying target customer segments. The second, reinforcing the brand with every interaction, relies heavily on defining and communicating the brand internally and translating brand promises into interaction requirements. The final element, treating customer experience as a competence, includes systematically incorporating the voice of the customer (see "Vocal Ease," March 2007) and involving senior executives. "Notice how I didn't say, 'They need to be bought in,' " Temkin stressed for the crowd. " 'Buy-in' doesn't count anymore. We're past 'buy-in.' This is a cultural change." To help FS firms improve customer advocacy, Temkin suggested a few steps companies should take: use Forrester's experience-based differentiation self-test, compare results with peers, and develop plans to improve; consider incorporating a chief customer officer; and start a customer-listening program. "This is the movie that we want you to make," he said. "This is what your production team has to be able to do." Related articles: Vocal Ease Consumers Size Up Financial Services Clicking and Chatting in Financial Services