Bankers have entered the new “Post-Recession Reality” and reality is indeed setting in. In light of all the external pressures within the industry, bottomline profitability will be even more elusive to attain in the months and years ahead. Increased regulatory pressures, fee restrictions, diminutive margins, soft loan demand coupled with ongoing credit risks, and increasing customer attrition all combine to leave many banks with one remaining option for bolstering net profits: cost containment.
For bankers who were around in the late 1980s and early 1990s, waves of expense management, staff reductions and branch closures portend unhappy customers. But does that have to be the case? Findings from J.D. Power’s 2012 Retail Banking Satisfaction Study imply that with careful planning and ongoing measurement, customer mutiny does not have to be the foregone conclusion when trying to increase efficiency and profitability.
Bankers often focus on three common areas first when needing to achieve some quick hits for containing costs and they include reductions in:
- Branch hours
- Physical branches through closures and consolidations
- Branch staff
Any one of these can clearly cause banks to lose many of their best customers while putting the bank at a competitive disadvantage for acquiring new households in local markets. So what steps can the bank take to mitigate dissatisfaction?
There are 3 action items that banks can focus on in advance of radical change
1. Provide customers at least one option for branch hours
Banks are often at a loss with figuring out what hours are most critical for satisfying customers. This is understandable because even in studies like the Retail Banking Study customer satisfaction is highest when customers are offered as many options as possible. But this is seldom cost effective or even realistic. So the question most often posed is: which alternative(s) are important to consider when expense reduction forces tough decisions?
The good news is that about two-thirds of customers report high levels of satisfaction when offered any one of three alternatives (ie, extended weekday hours, Saturdays or Sundays). The only option that only garners high satisfaction in a third of the customers is when there are no options available beyond standard banking hours. Which alternative is best, therefore, is a matter of specific market analysis, looking at both the needs of the customers and the hours offered by competitors. The least cost efficient strategy, therefore, is a blanket change, such as making all branches open on Saturdays. The effort to analyze local market needs is a time consuming but critical step in ensuring the bank both saves money and satisfies localized market needs and expectations.
2. Offset reductions in branches by ensuring remaining offices are superior
Branch convenience is a major driver of customer acquisition as well as a key cause of defection (J.D. Power and Associates 2012 Bank Customer Switching and Acquisition Study). As a result, any significant decline in the number of branches near a customer’s home or place of work can mean lost business. For customers citing two or less branches, satisfaction averages almost 40 index points lower than those who indicate three or more. However, banks that give customers compelling reasons to drive past those competitors’ branches to seek out the one or two remaining bank branches are rewarded. In addition to strong service delivery, the other elements that are critical to have in the surviving branches are:
- Stellar branch appearance: This means clean interior and exterior, with good lighting and easy access making the branch feel safe and secure.
- Non-standard hours: As described previously, this is at least one type of extended access, such as late night weekdays, Saturdays or Sundays.
- ATM reliability: Customers are depending on ATMs more and more as next generation technology has incented more customers than ever before to use the machines for deposits as well as withdrawals and balances.
3. Balance impacts from staff reductions with personal touch
Reductions in workforce are a necessary fact of life for many banks, in light of the fact that staffing expense is the largest non-interest expense encountered by most banks. Cost containment strategies, therefore, seldom avoid the hard decisions associated with cutting staff or eliminating open requisitions. As a result, the main impact customers often experience from these actions is a longer lobby wait time. Since a longer queue is generally unavoidable with less staff, what can the bank do?
The answer lies in providing customers with a more personal experience when they enter the branch and interact with the remaining staff. When the customer is greeted or acknowledged upon arrival, along with key elements of interaction, satisfaction is actually 28 index points higher for customers who wait over six minutes than for customers with zero wait but who do not experience this level of high-touch service.
The key elements in addition to greeting include calling the customer by name, offering additional assistance and thanking them for their business. All very simple yet impactful actions.
By proactively planning before embarking on cost reduction tasks, bankers can actually realize what appears to be a quizzical paradox…how to actually raise customer satisfaction while reducing costs simultaneously!