Not All Service Attributes Are Equal: Retail Bank Transaction Drivers of Loyalty

Research has determined the business attribute with the highest correlation to profitability is customer loyalty.  Customer loyalty lowers sales and acquisition costs per customer by amortizing these costs across a longer lifetime – leading to some extraordinary financial results.  In one study of the retail banking industry, a 5% increase in customer loyalty translated into an 85% increase in profits.[1]

Customer loyalty is driven by the entire relationship with bank.  Image, positioning, products, price and service all mix together in the customer’s’ value equation as customers make a continual decision to remain loyal.

What customer service attributes drive customer loyalty?

This article summarizes research into specific transaction service attributes with the intent of identifying which transaction attributes drive customer loyalty, and provides an analytical tool to help managers determine which attributes will yield the highest potential for ROI in terms of improving customer loyalty.

In order to determine transaction attributes which drive customer loyalty, Kinesis surveyed bank customers who had recently conducted a transaction at a branch.

With respect to the transaction, customers were asked to rate the following service attributes:

  • Professional dress
  • Branch cleanliness
  • Prompt greeting
  • Greeting made customer feel welcome
  • Dependable and accurate
  • Prompt service
  • Willingness to help
  • Job knowledge
  • Interest in helping
  • Best interests in mind
  • Actively listened to needs
  • Ability of bank personnel to help achieve financial needs
  • Desire of bank personnel to help customers achieve financial goals
  • Commitment to community

The next step in the research is to capture a measurement of loyalty against which to compare these attributes.

Measuring customer loyalty in the context of a survey is difficult.   Surveys best measure attitudes and perceptions. Loyalty is a behavior based on rational decisions customers make continually through the lifecycle of their relationship with the bank.  Survey researchers therefore need to find a proxy measurement to determine customer loyalty.  A researcher might measure customer tenure under the assumption that length of relationship predicts loyalty.  However, customer tenure is a poor proxy.  A customer with a long tenure may leave the bank, or a new customer may be very satisfied and highly loyal.

Measuring customer loyalty in the context of a survey is difficult.   Surveys best measure attitudes and perceptions. Loyalty is a behavior based on rational decisions customers make continually through the lifecycle of their relationship with the bank.  Survey researchers therefore need to find a proxy measurement to determine customer loyalty.  A researcher might measure customer tenure under the assumption that length of relationship predicts loyalty.  However, customer tenure is a poor proxy.  A customer with a long tenure may leave the bank, or a new customer may be very satisfied and highly loyal.

Kinesis proposes a model for estimating customer loyalty based on two measurements: likelihood of referral and customer advocacy.  Likelihood of referral captures a measurement of the customer’s likelihood to refer the bank to friend, relative or colleague.  It stands to reason, if one is going to refer others to the bank, they will remain loyal as well.  Because customers who are promoters of the bank are putting their reputational risk on the line, this willingness to put their reputational risk on the line is founded on a feeling of loyalty and trust.  This concept of trust is perhaps more evident in the second measurement,: customer advocacy.  Customer advocacy is captured by measuring agreement with the following statement: “My bank cares about me, not just the bottom line.”  Customers who agree with this statement trust the bank to do right by them, and not subjugate their best interests to profits.  Customers who trust their bank to do the right thing are more likely to remain loyal.

Kinesis uses likelihood of referral, hereafter labeled “Promoter,” and customer advocacy, hereafter labeled “Trust,” to calculate an estimate of the customer’s loyalty.  Imagine a plot where each customer’s Promoter score is plotted along one axis and the Trust score plotted along the other.  Using this plot we can calculate the linear distance between the perfect state of the highest possible Trust and Promoter ratings.  This distance yields a loyalty estimate for each customer, where the lower the value, the higher the estimate of loyalty – low values are good.[i]

Trust Promoter Plot

See Using Promoter and Trust Measurements to Calculate a Customer Loyalty Index for a complete description of this methodology.

Calculating a loyalty index has value, but limited utility.  A loyalty index alone does not give management much direction upon which to take action.  One strategy to increase the actionably of the research is to use this index as a means to identify the service attributes that drive customer loyalty.  Not all service attributes are equal; some play a larger role than others in driving customer loyalty.

So…how does the research determine an attribute’s role or relationship to customer loyalty?  One tool is to capture satisfaction ratings of specific service attributes and determine their correlation to the loyalty statistic.  The Pearson correlation coefficient is a measure of the strength of a linear association between two variables.

Comparing the correlation of the above service attributes to this loyalty estimate yields the following Pearson Correlation for each attribute:

Pearson Coefficient

Want to help me achieve financial goals

-0.69

Commitment to community

-0.66

Ability to help achieve financial goals

-0.64

Best interests in mind

-0.60

Greeting made customer feel welcome

-0.56

Interested in helping

-0.56

Willing to help

-0.55

Prompt service

-0.51

Actively listened to needs

-0.50

Prompt greeting

-0.49

Dependable and accurate

-0.45

Professional dress

-0.42

Knew job Job knowledge

-0.41

Branch attractive

-0.39

Branch clean

-0.37

Note the Pearson values are negative; the loyalty estimate is an inverse, where lower values indicate a stronger estimate of loyalty.  As a result the stronger negative correlation translates into a correlation to our estimate of loyalty.

The four attributes with the highest correlation to loyalty are:

  1. Want to help me achieve financial goals,
  2. Commitment to community,
  3. Ability to help achieve financial goals, and
  4. Having my best interests in mind.

Two common themes in the top-four attributes are empathy and competence.  Bank customers value relationships with banks that care about their needs and have the ability to satisfy those needs.  Again, customer loyalty is driven by the entire relationship with bank.  However, in terms of transactional service, customers clearly value empathy and competency and will reward banks who deliver on these two attributes with loyalty.


[i] The mathematical equation for this distance is as follows:

Loyalty Index Equation

Where:

T = Trust rating

P = Promoter rating

ST = Number of points on the Trust scale

SP = Number of points on the Promoter scale

 


[1] Heskett, Sasser, and Schlesinger The Service Profit Chain, 1997, New York: The Free Press, p 21


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About Eric Larse

Eric Larse is co-founder of Seattle-based Kinesis CEM, LLC, which helps clients plan and execute their customer experience strategies through the intelligent use of customer satisfaction surveys and mystery shopping, linked with training and incentive programs. Visit Kinesis at: www.kinesis-cem.com

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