Why Banks Can't Compete On Customer Service

@BrettKing’s new book, Bank 3.0, includes the following quote from social media celebrity Gary Vaynerchuk:

“I genuinely believe that any business can create a competitive advantage through giving outstanding customer care.”

My take: In a banking context, this might be true — but, as Ringo Starr would say, “it don’t come easy.”

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There are three forces (or dimensions) that shape the competitive landscape in retail banking:

Customer Experience. I don’t like the term “customer experience” because it’s so indescript, but it’s hard to argue against the notion that whatever it is, it’s important. However customer experience is defined, though, customer service (or support) is just one component of the overall customer experience. Other components include self-service and the use of the product itself.

Value. This is a subjective determination (often sub-conscious, implicit, or qualitative) made by consumers regarding the extent to which the price paid for products/services is worth the benefits received.

Product Features. Bankers may think that financial products are commodities (I disagree), but that doesn’t mean there aren’t distinguishable product features. If the products are commodities, that simply means there is no differentiation in features.

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The consumer research I’ve done has convinced me that there are three groups of banking consumers. Each chooses to do business with a provider that does the best job for them on one of the dimensions, as long as some acceptable level of performance is provided on the other two.

In practice, what this means is that consumers who place the highest emphasis on customer experience are willing to sacrifice — to a certain extent — value and product superiority.

Consumers who consider value to be the most important factor will trade-off (again, to a certain extent) customer experience and product features.

You can figure out for yourself what consumers who put the most emphasis on product features do.

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Experience, value, and product are the external dynamics of the retail banking space. There are internal (to the firm, that is) dynamics as well. Competing and conflicting priorities create challenges in allocating resources and creating capabilities. Successful companies demonstrate three attributes:

  1. Focus. Whatever their chosen strategy, successful firms focus their resources on executing that strategy.
  2. Alignment. Successful firms find a way to align business units and functions around a chosen strategy.
  3. Discipline. Successful firms demonstrate discipline in sustaining focus and alignment over a sufficient period of time.

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So why is it so hard for for banks to pursue a strategy that “creates a competitive advantage through giving outstanding customer care”?

The market isn’t big enough. Only so many consumers choose a financial provider for its “outstanding customer care.”  If you decide to focus on attracting and serving the segment that considers customer experience to be the most important dimension of the three listed above, you might be looking at anywhere from just 10% to 40% of a market as customers/prospects. But we’re talking about customer care here, which is only one component of the customer experience — and might not even be an important element of the experience to some portion of this segment.

The strategy isn’t measurable. Managers need to be able to gauge two things: 1) To what extent is their chosen strategy a smart strategy, and 2) How well are they executing on their chosen strategy. There’s no shortage of financial institutions (especially credit unions) who claim to provide superior customer care — with no ability to measure or prove that claim. Without adequate measurement, focus/alignment/discipline becomes impossible to achieve.

The strategy isn’t specific enough. An FI that chooses to compete by providing “superior customer care” still needs to determine the level of quality it needs to provide regarding value and product quality. I’m not saying this is impossible, but, in practice, focusing on creating an advantage through superior customer care may lead managers to neglect the value and product quality dimensions.  The lack of specificity also means that focus/alignment/discipline will be hard to achieve.

Existing organizational structure is a huge barrier. If you work in a mid-sized to large bank, you know what I mean. If you don’t, go ask someone who does.

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In no way do I want to portray Mr. Vaynerchuk as a YASMM (yet another social media moron). But his statement reeks of the simplistic stuff spewed forth by the real YASMMs.

In the world of retail banking, “creating a competitive advantage through giving outstanding customer care” isn’t likely to happen.

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I’m sure some readers will disagree with that last statement.  That’s OK — I’m open to hearing well-reasoned disagreements.

In fact, I can think of an FI that might prove me wrong: USAA.

USAA could be considered to have created a competitive advantage through outstanding customer care.

But USAA meets my criteria for having been able to provide strong levels of capability on the value and product feature dimensions. And it would appear to have achieved the focus/alignment/discipline requirements.

So, it’s not impossible to create a competitive advantage through outstanding customer care. But I’m betting that you can’t do it.

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For a great article on this topic, see The Financial Brand’s Your Service Is Not What Differentiates You.

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