ARE HAPPY CUSTOMERS PROFITABLE?

The adage that "a satisfied customer is a happy customer" may be what great media campaigns are made of, but that very sentiment is throwing many bankers off the customer service track-and costing them substantial amounts of time, money, and opportunity. Happiness, you see, has little to do with customer profitability, and herein lies the dilemma.

Certainly, this isn't to say that the call for enhanced customer service is not warranted at banks. Few industry players would argue that, in general, it absolutely is. But giving customers what they want has to make sense from an economic perspective, or banks may end up with twice the challenge they have today: expensive, happy customers-for the moment, anyway.

The lack of customer loyalty in financial services has driven the customer service discussion to near-fever pitch, and marketing efforts are all over the map. Indeed, the challenge for many banks and financial institutions is to achieve operational efficiency without sacrificing customer satisfaction. In all too many cases, the customers lose. Ironically, only a handful of banks have figured out that customer service is a senior management issue that can, given the proper business drivers, facilitate stronger relationship management. Technology is a secondary issue, albeit a vital one.

Many industry experts contend that technology is currently outpacing the business case for customer service initiatives at banks. Rather than focusing on customer satisfaction, bankers should be targeting market share growth and the retention of profitable customers-from a strategic point of view, not a tactical one.

The trick to customer service is that one needs to drive revenue while managing costs through technology. This means that sustainable competitive advantage compels financial institutions to offer low-cost product that is differentiated in the marketplace, says Leonard A. Schlesinger, a professor at Harvard University Graduate School of Business Administration. In other words, he says, bankers and financial services providers must build economic logic into what they are doing with service.

Schlesinger says that retail delivery and service quality are top priorities for bankers. Achieving optimal customer service levels requires them to consider the following in doing so: do rigorous customer selection; use customer P&Ls to structure customer retention efforts; deploy technology as the cornerstone of your business drivers; bear in mind that marketing is the toughest challenge, not technology. Understand that customer service winners focus primarily on context with real-time interactivity, versus merely content and infrastructure; and, in the electronic world, market space is different from marketplace.

The bottom line is that customer service is not a technology problem; it's an economic problem that needs to be addressed at the senior management level. In a commodity business, all service adds to cost. The challenge is to simultaneously increase the perception of service and lower costs.