The Commonwealth Banks recent variable rate increase that was almost double the Reserve Bank’s official increase with the ensuing media coverage, political scrutiny and obvious brand damage made me ponder.  Why does this happen? Add to this the massive profit announcement made by the 4 major Australian banks recently.

Are organisations not aware of the damage caused when you make big profit announcements and in the next breath increasing interest rates way above the Federal Reserve rate increase.

We conducted a major consumer loyalty and recommendation study in Australia recently focused on the Banking sector. The objective was to understand how engaged customers are to their banking institutions. All respondents were existing customers of their respective financial institutions. Almost 1900 respondents were surveyed.

We utilized the Net Promoter® Score as the key measure. A company’s Net Promoter Score or NPS®  is based on customers’ likelihood to recommend the company’s product or service on a zero-to-ten point scale. NPS is calculated as the percentage of customers who are Promoters, rating the company 9 or 10, minus the percentage who are Detractors, rating 6 or lower.  The important aspect is the relativity between brand NPS Scores.

When you look at the scores by key categories they are interesting but no surprise.

The NPS scores by category are:

  • Building Societies = +49%
  • Credit Unions = +37%
  • Second Tier Banks (Bank of Queensland, Bendigo Bank, Suncorp, St George & Bankwest) = +12 %
  • The 4 majors (NAB, ANZ, CBA & Westpac) = – 21%

Note: The above analysis is based on brands not ownership. Bankwest is owned by Commonwealth Bank, and St George is owned by Westpac.

The full benchmarking report is available here – NPS Benchmarks 2010

So coming back to my original question why does this happen? Don’t  banks understand the long term benefits of customer engagement?

In my view the reasons are:

  • Smaller organizations typically have happier staff. Happy staff make happy customers.
  • Smaller organizations also have internal cultures that are more strongly customer focused
  • Layers of management mean key executive are too far removed from the customer in larger organisations.
  • Smaller institutions focus on the customer first. Larger organizations typically focus on shareholder returns first
  • A lack of understanding of full customer economics that include lifetime value based on loyalty, cost to serve, propensity to purchase other lines and finally word of mouth.

Point 4 above may be a bit controversial after all shouldn’t all businesses focus on shareholders first?

As everyone knows 3 most important stakeholders an organization has are its customers, staff and shareholders.  The key is to look at each relationship as an exchange of value in terms of what you get VS what you invest.

Most importantly a business should not focus or favor one stakeholder at the EXPENSE of the other. A disproportionate focus on shareholders can cost long term damage to customers and staff.

As an example with the current situation a lot of bank staff will have to deal with irate customers even though they are doing their best to serve their clients.  At a time when families are struggling and Christmas around the corner customers will not quickly forget.

Innovative brands such as Southwest and Virgin focus on employees first, then customers and then shareholders.  The logic is simple if you look after employees they look after customers and that takes care of shareholder returns.  At the end of the day customers decide to buy from you, be loyal to you, buy additional lines and recommend you to others.

Net Promoter and NPS Net Promoter Score are registered trademarks of Satmetrix Systems Inc., Bain & Company and Fred Reichheld