Banks are facing a serious tension between costs and service, but you cannot save yourself into prosperity. You have to grow the top line and your margins.

Even in this marketplace, small investments in the right aspect of enhanced service will allow you to increase margins and decrease service and marketing costs.

Where can you get the most leverage? In research for over 40 of the Fortune 100 companies, including four of the top 10 banking companies, our firm has found several proven tactics to help you succeed.

The overall strategy is to provide your customers an experience that they "think you're worth it" and spread positive word of mouth. Your customers then become your strongest marketing asset while safeguarding your margins.

Think about successful companies with stellar loyalty and low marketing expenses, like USAA, the top-rated financial service company. More than 70% of its new customers were obtained by word-of-mouth referrals; they let their customers do the selling.

Our research with nationwide banking markets, as well as in the New York and Sun Belt markets, reveals that if customers have not had any recent problems, only about 10% are price sensitive.

If they have had one recent problem, sensitivity to price doubles. If they've had two or more, sensitivity to price reaches almost 50%.

In one study, customers who had a positive loan experience told a median of four other potential customers about their experience, but successful resolution of a retail banking service problem fostered word of mouth to a median of six people.

Across several recent studies, we have found that between a fourth and a tenth of customers hearing referrals actually approach the company about a product.

In one recent study, 12% of customers reported their experience on a buddy list on the Web (we call this word of mouse), which had an average of 67 people. If the comment is positive, this one Web comment can produce several potential customers.

Here are four actions you can take tomorrow to improve customer experience and promote word-of-mouth referrals.

  • Reduce frustration with phone trees. Print at least the first level of the phone tree options menu wherever you print your 800 number. This eliminates having to listen and decide on the fly, reducing misdirected calls and opt-outs by at least 20%.
  • Make your staff successful in problem resolution by giving them flexibility and clear explanations for policies. We help a major Sun Belt banking company in improving its handling of nonsufficient funds (bounced check) charges, which were the most difficult and expensive to handle. They created a special team empowered to implement four different strategies, depending on who the customer was and how the overdraft had occurred.Further, they were well trained in diffusing anger and offering clear, believable explanations for each potential outcome. Satisfaction and productivity rose by more than 15%, while fee income increased.

    The speed of answering phone calls is nowhere near as important as the explanations and empathy given after the phone is answered. Also, we find that clear, believable explanations are often more effective (and less expensive) than refunds in retaining customers.

  • Deliver information before the customer has to call. Think about your last interaction with Amazon.com or Netflix. They immediately acknowledged your order and sent you an e-mail telling you the status of your order before you could call to ask. This is what I call Psychic Pizza — the guy rings your doorbell and says, "Here is the pizza you were about to order." A major banking company sends customers e-mails and texts reminding them of payment dates to avoid late charges. Hewlett-Packard printers notify you that you are almost out of ink, and then they provide the link to HP's Web site to order replacements. These companies prevent a problem while generating additional revenue. If you have an e-mail address or even a phone number (for an automated notification), you can provide interim notifications, thereby avoiding calls and expensive investigations.
  • Educating the customer on how to avoid problems can produce delight and foster positive word of mouth. If you use heroic efforts to please customers (one bank spent 12 hours helping a new widow balance checkbooks), you can spend a lot of money and not necessarily get a big payoff. My company has found that targeted two- or three-minute actions can lead to 25% increases in word-of-mouth recommendations.

Take the time to educate a customer about how to avoid unpleasant surprises with a particular product. One finance company had a page in the welcome package with the heading "We know you don't like unpleasant surprises!" This page explained late charges and adjustable interest rates. The title at the top ensured that many people would read that page, resulting in significantly reduced problems.When the branch or phone center is not busy, encourage your staff to have a friendly two-minute conversation with customers to humanize the bank.
This will build rapport and trust and deepen the relationship between the business and the customer. When you include the impact on loyalty, margins and word of mouth, the revenue implications of better service are 10 to 20 times the cost implications. Small, targeted investments can provide big returns.

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