Experiential Innovation for Bankers

By Michael Ruckman

Shorter article was published in BAI Banking Strategies on September 24, 2012

Does a Good Customer Experience Guarantee a Strong Customer Relationship?

Unfortunately, it does not!  In fact, the strength of customer relationships depends much more on the consistency of experiences and their correlation with the expectations of the customer.  As well, the strength of customer relationships tends to be based much more on the emotional side of customer contacts than the rational.  Because of this, we spent the last couple of years adding some structure to the connection between individual customer experiences and the resulting relationships that may or may not evolve from those individual contacts.

To start with, we studied everything we could find on the topics of customer experience, customer relationships, and loyalty: books, articles, white papers, research findings, blogs, and thought leadership pieces from various authors, consultancies, and research firms.  We studied up on service quality, sales force effectiveness, operational excellence, segmentation, innovation, customer experience, loyalty, etc. and everyone seems to agree that the relationship with the customer will be of the utmost importance for the future of any bank.   In fact, Mc Kinsey & Company states in their publication, The Future of Retail Banking, that the successful banks of the future will “excel at building and leveraging customer relationships”.[1]  The report from Deloitte titled Rebuilding the Relationship Bank states that banks “need to build stronger customer relationships”.[2]  Bain & Company, Inc. states in a recent report that based on the regulatory difficulties that banks face, “the best way forward will be organic growth rooted in strong customer relationships”.[3]  Ernst & Young states that “it is more critical than ever that institutions maintain strong relationships with their customers”[4] in the 2011 release of their Global Consumer Banking Survey.

This is not a new trend.  The buzz around customer relationships has been going on for years.  We even found a book written by Stefan Kaminsky and published Michael Lafferty in 1989, Beyond Retail Banking: How to Keep Your Customers Happy and Loyal – Forever!, that outlines the need for a closer relationship with customers and the importance of value added activities such as giving people sound financial advice.  It seems that not many would disagree that the relationship between bank and customer is important; however, Mc Kinsey & Company also states in their report, specifically in the section entitled “Back to the Future: Rebuilding the Relationship Bank” that only a few banks “have taken initial steps toward developing a full customer relationship view – let alone incorporated it into their sales, service, and risk strategies.”[5]

The problem seems to be that no one has really agreed on what the relationship is or can be outside of selling and servicing (or from the customer’s point of view:  purchasing and using), which doesn’t necessarily fulfill the dynamic of a healthy relationship (as outlined in the article: The Relationship-Centric Bank).  Possibly, the problem is the result of the type of innovation in banking over the past decade, which has mainly been focused on technologies that enhance the products a bank offers or technologies that create easier (lower cost) methods for customers to access the functionality of those banking products.  Considering these innovations, some brought incremental improvements while others brought radical changes.  Those more radical changes (internet banking, mobile banking, etc.) were, in essence, market-changing technologies for the banking industry.

All the way back in 1995 in their paper Disruptive Technologies: Catching the Wave, Clayton Christensen and Joseph Bower outlined the concept of disruptive technologies as market-changing technologies that have the potential to revolutionize an industry.[6]  There have been a few of those in banking over the past decade, but most have been either related to the functionality or characteristics of products that banks offer or the channels through which customers access those products.  And much of the focus for these innovations was an effort to increase efficiency by improving operational throughput, improving risk management or lowering the cost of contacts with customers.

These innovations may have accomplished the task of higher efficiency and lower cost, but because a significant portion of these innovations fall into the category of self-service and remote self-service channels, in effect, they made the relationship with the banks more distant.  In response, a wave of innovation started related to the softer side of banking in an effort to “re-connect” with customers.  We refer to this as Experiential Innovation which is related to the more emotional and sensory side of the relationship.

If we take a look at these two types of innovation, the Product and Channel innovation, for the most part, represents the rational aspects of the customer relationship:  What a customer receives in exchange for payment (how they access the products they own, what functionality exists in those products, and how easy it is to use the products).  Whereas, the emotional side exists in Experiential Innovation:  how the customers feel about the relationship and what it means to them.

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