SCOPE OF THIS ARTICLE

This article does not focus in-depth on customer experience relating to specific types of financial services product or service. Rather, it focuses on issues that tend to occur within the main retail financial sectors, that is, banking, insurance and investment. It does not cover how particular types of product marketing approach (for example, wraps) can resolve experience issues. The focus is on how customers are managed, or manage themselves, and the relevant outcomes.

THE CUSTOMER LIFE CYCLE

Most consumers are used to self-service in buying simple financial services, such as car insurance. However, self-service also comes into its own in what are called ‘life-cycle’ decisions. Today, individuals’ life cycles are complex – frequent house moves, divorce, remarriage, children returning home as adults, return to study, riches and poverty are all part of the norm today. It is very difficult for a financial services provider to anticipate all these changes. Self-service allows customers to manage the relationships as appropriate to their life cycle stage. Customers’ preferred approach to life cycle relationship management may be through a close relationship with suppliers or it may be arms length. Moreover, customers often make mistakes, are often overly optimistic or pessimistic, tie up finances inappropriately and so on. Customers may also choose not to be advised when they really do need advice, because they overestimate their expertise or knowledge. However, if customers can explore options online and consider different cases, their chances of achieving the outcomes they want will be higher.

For many financial decisions, particularly life-cycle ones, regulatory barriers prevent full self-service on the grounds that advisors know better than consumers what the latter need. However, consumers are receiving advice by using third-party sources, including advising each other via social media sites. Led by aggregators, with banks finally joining in, financial services companies are increasingly allowing customers to establish and shape relationships.

In some countries, regulators insist that consumers get advice before buying certain products, even though the advice may not be correct. However, pure self-service carries with it at least as many risks of poor decision making as advised service. These risks can only be reduced through innovative approaches to consumer advice and coaching, which are not always available.

CUSTOMER EXPERIENCE MANAGEMENT – DEFINITION AND DETERMINANTS

What does ‘managing the customer experience’ mean?

As the first article in this series explained, customer experience has attracted the attention of management writers – academic and professional – as well as suppliers of systems and consultancies aimed at enhancing experience. However, there is some lack of clarity on what ‘customer experience’ means. It is sometimes referred to as something that financial services suppliers manage directly, rather than the experience as seen by customers.

This research programme defines customer experience as any customer response to a contact with a company – be it personal, rational, emotional or even spiritual. Experience is created not just by things that financial services suppliers control, such as product, pricing, website, call centre, branch or salesperson, but also by things outside their control such as influence of others – often conveyed through social media, media commentary on financial services and family financial behaviour. It is the total experience, including pre-sale search, purchase, use and after-sale experiences. Naturally, this may involve several channels.

One key determinant of customer experience is expectation, created by factors such as consumers’ previous experience, word of mouth, branding and communications they receive about a supplier or its competitors. Online and off-line events interact, and thus expectations about one may be dictated by their experience of the other. Online experience design is becoming an important discipline, especially in financial services, particularly in areas of financial services such as online stock trading, which accounts for around half of all retail investment transactions in the United States.1 Anticipation, another determinant, involves information processing, exploration, reminiscing, self-justification and the quest for affirmation. The effect is often emotional – satisfying the desire to feel good, excited, guilt-free or accepted. They play a strong part in influencing the buying decision.2

Given that customer experience takes place over a considerable period, and may extend over several decision cycles for several products, and to other members of the family, managing it is a complex affair. It involves understanding how the customer/family wants to work with the supplier over different decisions, channels and products. However, self-service makes this easier, as the customer controls the emphasis, pace, coverage and so on. Nevertheless, just as customers can make more incorrect financial decisions when they are given some education about finance, the same thing can happen when given greater freedom to determine how they want to manage the relationship, through a self-service approach. For example, a customer may need prompting, and may need to consider an issue that is difficult to confront. A self-service approach not only makes it easier to take and implement the wrong financial decisions, but also to avoid difficult issues. Therefore, it can be argued that the self-service approach should be accompanied not just by education, but by coaching.3

Who owns and manages the customer experience?

My discussions with financial services companies undertaken for this article have made it clear that although many companies have appointed a senior manager, usually within the marketing or customer service function, as head of customer experience or a similar title, all but the simplest mono-line companies find it hard to ‘manage the customer experience’. In some cases, the person holding the title has effectively become a ‘measurer of customer experience’, not a ‘manager of customer experience’, usually because the company is at an early stage of learning how to manage this area, and the first step in managing is to define and measure what is to be managed. However, in many cases, this work is carried out in isolation from the more general question of how the company wants to manage customers overall, that is, via which channels and technologies and with what distribution of effort between company and customer.

In most companies, there are tensions caused by differences between the requirements of the main functions involved in handling customers – sales, marketing, customer service and credit control/customer administration. These requirements tend to be in conflict more at times of difficulty/stress, for example, insurance claim, denied credit, investment collapse, bankruptcy and so on. These tensions may be exacerbated by the self-service approach. For example, if all the interactions between company and customer are company-initiated and with a higher person-to-person component, then when the customer gets into financial trouble, the company can take action more easily than in a self-service environment, with a strong Internet focus, when the customer may effectively ignore the problems and not respond to communication. For this reason, in financial services, the tensions will never be fully resolved. Financial services companies’ exposure to ‘bad customers’ is much greater than, say, product retailers, where the most the company can lose is the cost of goods for several products. In financial services companies, exposure can be very high, even for a single customer.

The problem of decision making in silos

One of the most serious barriers to achieving an involving, engaging brand is decision making, in silos, particularly in larger companies, where those responsible for different products, channels, operations, risk and other aspects of the business – usually for their bottom lines – do not work together early enough in the business planning and implementation process to produce the desired outcome of customer involvement and engagement. This usually results in severe limitations to what customers can do before they hit a barrier imposed by one or more different parts of the business. In the motor insurance sector, the most common example of this used to be the impossibility of covering a mix of different vehicles and different drivers in one policy, while gaining the economies of having one policy. This was usually caused by the underwriting (risk management) function not having worked out the risks associated with particular combinations.

This problem has now been resolved in most companies, but the same issue is visible when consumers approach banks with particular requirements for a package of loans and deposits – the normal response is to ask them to deal with the bank one product at the time (apart from the few banks that offer consolidated accounts). This is a product manager problem. Other examples include imposition of administrative restrictions on customers trying to attune product conditions to their requirements. In one case, a customer who had requested an increased temporary credit card limit for a long trip abroad was refused on the grounds that this would mean that the terms on the credit card had been changed too many times that year.

The self-service proposition and brand versus other propositions

We do not have far to look to find what a best practice self-service proposition looks like. Amazon and eBay are among the leaders not only in allowing consumers to determine what products are offered in general, but also how their sites can be configured to meet individual customer needs, whether in terms of the type of products they are offered, how they are delivered or how they are reviewed. Their fundamental principles are that customer involvement and feedback are central to business success – and their whole proposition is based on this idea.

Of course, analogies are dangerous – these companies’ customer-led approach cannot be applied directly to most areas of financial services, but they are still a benchmark for consumers. Financial services companies that emulate the most important aspects of their approach are more likely to create the deep customer engagement to which they aspire. The hard financial fact is that customers who are more deeply involved and interacting and who configure their relationship with the supplier buy more and stay longer. However, this is more likely to be achieved by companies that start their business process with the aim of achieving engagement and creating a brand that stands for involvement.

Metrics and analysis for the self-service world

In a self-service world, the kind of metrics and indicators that need to be used change from the served world, which tends to focus on response and conversion rates, and in general ratios that have customer value and response as the numerator and company effort as the denominator. Just as, at the beginning of the web revolution, we learnt new terms such as ‘stickiness', which referred to a web site's success in increasing the time spent on it, so we need new metrics for engagement and self-service relationship management. The measures required here are more closely related to brand involvement measures, together with measures of extent of use of interaction methods and amount of information volunteered.

What consumers want

Whether one is arguing for or against improving the customer experience, it is easy to make sweeping generalisations about consumer needs. The situation is complicated, but there are clear trends. Most consumers are attracted by the financial services supplier's core offer, be it policy or account features or pricing. However, for online buyers, satisfaction and trust are important. These influence each other and, in turn, are determined by fulfilment, reliability, website design, security, privacy and customer service. Off-line interactions affect the perception of online performance. Consumers base their purchase decisions not only on website appearance and functionality, but on evaluations of the service offering as a whole, which naturally includes off-line performance. A well-designed user interface reduces customer search time. This leads to greater satisfaction.4 Multi-channel customers have higher expectations of a great customer experience, particularly online. Personal recommendation is very important, particularly for websites.

THE SELF-SERVICE SITUATION IN FINANCIAL SERVICES

How far has self-service penetrated?

The penetration of self-service technology in financial services has been well documented.5 Banks have responded to the opportunities by using it as both a low-cost (and sometimes low-value) transaction channel and increasingly a marketing and sales channel – whether over the conventional Internet, through a mobile interface, in ATMs (including in-branch kiosks) or (just beginning) on social networks.

In the property and casualty/general insurance market, the web has become the main channel for selling commoditised and customised products and services. Not to participate in this way is to risk losing market share and profits. For suppliers, the challenge is to create an enduring and effective relationship with customers, who increasingly expect organisations to deliver instant, integrated access, transactions, service and information in many electronic channels. In some cases, financial services providers have responded by re-engineering or by launching integrated electronic subsidiaries, working in all electronic channels, and using both truly electronic and sometimes human-intermediated real-time analytical, marketing and sales functions. In many markets, comparison websites or aggregators have played a dramatic role in increasing information transparency and improving the ease of obtaining multiple quotes. Initially, there was a strong focus on price, but some aggregators realised that if they just attracted price or rate sensitive customers, they were also likely to be switchers, so that aggregation would be seen as a poor channel by product suppliers. Increasingly, they are using quality indicators and introducing ways for customers to design the level of coverage they require.6

These changes are leading to interesting trends in sales. A recent European Financial Management Association report identified that for almost half of Europe's retail banks, improving integration between branch, Internet and call centre channels is their top strategic priority. One reason for this is that branch sales are falling (from 82 per cent of sales in 2007 to 78 per cent today), whereas Internet sales doubled (to 10 per cent) and are predicted to double again between now and 2013. Similarly, self-service is rising, with teller transactions down 3.5 per cent, whereas self-service has risen by 15 per cent in the last year.7

Expectations about self-service

Some problems banks (and some insurers) face today are a result of the credit crunch. Others are because customer expectations as to how banks should manage them are changing. This is most visible among younger customers. Cisco's survey8 shows that the rise of younger generations will have a big impact on retail banking. It shows that younger customers want banks to address their needs using the tools they and their peers have adopted, including mobile devices, video and social networking – and they are willing to switch to banks that embrace these technologies. This study tested interest in automated advice and high-quality video interactions to provide advice and community-of-interest and social networking venues to offer virtualised, on-demand advice. It estimated that banks could increase revenues by 5–10 per cent through increased cross-sell and deposits by using these approaches. The strong move towards providing fully fledged mobile banking and payment services is clearly taking banks in the right direction.

The importance of staying close to the customer in ‘interesting times’ has increased. This involves several different components that have been talked about for a long time, long before the age of Web 2.0, and belonging in spirit to the world of ‘Successful CRM 1.0’. They include understanding the needs of current and target future customers – not just their needs for products, but also for value and relationships, having a customer-oriented approach that is understood, agreed and managed at board level and having the right mix of propositions that unite the idea of customer and product and which deliver the right portfolio of product profitability and customer profitability.9

Despite the strength of the web-based approach, call centre and branch selling have remained strong, perhaps partly because many consumers prefer to deal with people where money matters are concerned, and perhaps because electronic channels are perceived not to allow consumers to express their needs or discuss things. There are also issues with the reliability of systems, particularly if they have been developed quickly or been subject to extensive modification, which can cause some consumers to prefer face-to-face channels. Where retail branches are concerned, larger companies can invest in branding, and in the technology needed to service customers in branches, and can negotiate the margins or commissions they need from the product suppliers.

Issues of trust and loyalty

Trust is a key determinant of customer behaviour – in choice of supplier, product and channel and in terms of how they relate to the supplier. The decline of trust in financial institutions has been widely documented. Interestingly, comparison websites are not exempt. A study showed that many consumers believe that price comparison websites only include products that would make them the most commission, rather than ones that offered the best deal for the customer. Just 21 per cent of those questioned said they trusted the sites to always find the best price available.10

These problems of trust and satisfaction are not necessarily short term – indeed, the credit crunch has probably just created a short-term acceleration of an existing trend. While property and casualty insurers have been forced by competitive pressure to move very rapidly towards a self-service world, banks have been slower.

SERVICE EXCELLENCE AND FAILURE

Getting service right

Customer service in financial services has two important aspects, as follows:

  • Product selection – how suppliers allow or help customers to choose; and

  • Traditional customer service – whether customers are treated well by the organisation, at any stage of the relationship, especially when problems occur (including when suppliers infringe regulatory requirements) or when a complaint is made.

Service excellence is about being ‘easy to do business with’. We know when we have received it and when we have not. Service, excellent or poor, has a strong emotional impact on customers, creating intense feelings about the organisation, its staff and its services and influencing loyalty to it. Yet many organisations find service excellence hard to deliver.

It is often assumed that delight results from (excellent) service that exceeds expectations, but this creates several problems:

  • Exceeding expectations may be unnecessarily costly. It creates over-quality, which cannot be justified for economic reasons;

  • Customers may see over-quality as exceeding what is needed, which can even create bad word-of-mouth;

  • Over-quality may give the impression that a product or service is overpriced, even if this is not so; and

  • It may also raise customer expectations, and thus what might have been regarded as excellent becomes simply adequate or expected, unless the company continues investing in this spiral of increasing quality and expectations so as to keep exceeding expectations.

Getting service wrong

Poor service organisations are a ‘pain to do business with’. Their staff and systems make it hard for customers to do business with them. They just do not care about the customers or their experiences. Of course, customers understand that when they buy a low-price or no-frills product or service the service proposition may be limited. Customers do not forgive poor service that does not match the proposition.

Around half of customers’ ideas about excellence in customer service come from how companies handle problems, and around two-thirds of views about poor service come from poor experience of problem and complaint handling. Problem handling is a key driver of people's perceptions of excellent or poor service.

Consequences of poor customer experience

Today, poor customer experiences are public events, broadcast over the Internet, particularly via social media. Customers’ willingness to blame financial services companies has probably been increased by the credit crunch, but also by specific examples of where companies acted against the interests of customers, for example, encouraging them to take out too much credit and selling them expensive credit insurance. The damage done by this has resulted partly in the decline in trust cited above, as well the increasingly poor word of mouth and general damage to financial services brands. The situation varies greatly by country, being worst in countries where banks were least discriminating in policies they followed. Regulators have also been closely involved in the diagnosis and treatment of poor customer experience, with specific instructions being given to financial institutions in some countries as to how to compensate customers for poor experiences resulting from failures in compliance, whether these are general failures or ones associated with specific products or policies.

Customer attrition levels are lower than might be expected, given these problems. This may be the result of inertia or the fact that many customers whose creditworthiness has been impaired by recent events actually do not have any other option but to stay with their existing banks. Many banks are not keen to recruit new customers for their core banking products.

CUSTOMER PARTICIPATION AND SELF-SERVICE

Strengths and weaknesses

Most research published about how consumers want to relate to financial services institutions points in the direction of customers wanting more access and more involvement. However, self-service leads to some risks increasing, others reducing. For example, it removes the risk that the advisor does not understand the consumer's need, but increases the risk that the consumer will misdiagnose their own need.

Recent research has confirmed the need to be aware of the changed risk profile. A recent study focused on how customer involvement creates or destroys value.11 It concluded that customer participation can be a double-edged sword. It enhances customers’ economic value attainment and strengthens the relational bond between customers and employees, but it also increases employees’ job stress and hampers their job satisfaction. Other studies have shown how the drive to educate consumers so that they can make better decisions is based on an unwarranted assumption that being more educated leads to more responsible decisions.12

A particularly important study showed that customers using self-service technology become partial employees, but require managing differently, that is, not quite as customers and not quite as employees.13 This means that ‘service organisations need to articulate exactly what knowledge, skills and capabilities their customers require; how they will acquire them, from where or who; and what the associated learning curve will involve. Service organisations will need to factor in the time and costs associated with the learning curve … in the same way that they would have to train and develop their own employees. The learning curve for customers needs to be considered along with customer adoption and diffusion processes and the impact of customer churn’. The study warns that ‘Self-service provision may, in fact, cost some service organisations more than maintaining service employees! where there is high customer churn, where the number of “novice” or new customers, outweigh returning or “expert” customers’. It also identified that ‘While successful self-service transactions are unlikely to involve employees, unsuccessful ones will inevitably involve employees in new roles associated with “self-service recovery” tasks. Successful adoption of self-service technology requires effective management of customers and employees in these new roles’. It concludes that ‘there is a need to gain a better understanding of the … “outcomes” experienced by customers, as well as the full costs of moving away from person to person interaction’.

A study commissioned by the EU suggests a way forward. It states, ‘Simplifying and standardising product information can significantly improve investment decisions. Standardising and reducing the amount of information provided helped subjects identify the optimal choice between similar investments. Providing comparable pre-calculated information on the net expected value of each investment helped subjects identify the optimal choice between dissimilar investments’.14 This points towards websites that compare not only different investments in the same category, but different categories of investment that the consumer could use to achieve their objectives. These results are supported by another study, which confirms that if online channels provide education, they are more likely to succeed.15

Whether customers use innovative information technology in financial services depends on whether they think they will benefit from it. Recent research confirms that customers’ beliefs in this area are critical. In addition, the more effective customers believe they are, the more credible they will perceive online sources to be. However, it also confirms the risk that the more effective they believe they are, the greater the risks they will take.16

Research shows that information quality and system quality influence customer satisfaction, whereas information presentation has little effect on customer satisfaction.17 Getting the right information reliably to the consumer is more important than how it looks. This confirms the critical importance of self-service technologies and the networks that support them. Another study revealed six key e-service quality attributes in financial services – trust, customised communications, ease of use, website content/functionality, reliability and speed of delivery.18 Also important is how far the approach empowers customers, so that they no longer have to wait to be offered financial services (bring principle), but can obtain the services themselves (fetch principle).19

Pure self-service or supported self-service

Where and how consumers obtain good and relevant advice and/or coaching is a key determinant of whether they get what they need. As we have seen in investment markets, both advisors and customers have demonstrably been subject to the same Minsky effect in terms of poor timing of investments (whether financial or property). There is no evidence that being advised by a human on the timing and category of investments is better or worse than using information and advice sites.

Appropriateness of advice is one matter – cost another. Consumers with little money and complex problems cannot generally afford paid advice. New technologies for making human advice available at a distance may provide part of the answer – these might take the form of customer-data entry supported by remote contact centre-based validation and advice/coaching services. The latter may be the best way of providing a safe pair of hands to check what pure self-service systems offer. Well-designed web-sites using expert systems and appropriate analytical techniques should be able to deal with the complexities of most consumers’ financial lives, as well as reviewing the value for money of different suppliers, but contact centre/remote video can provide help, guidance and checking for customers.

The possible role of the virtual agent

An interesting variant on the idea of remote human service is the use of on-line virtual agents – or simulated humans (sometimes described as avatars) – to help customers evaluate new or unfamiliar service offerings, as well as to help companies achieve greater levels of service delivery and financial performance. A recent study showed that virtual agents are becoming more important in managing customer relationships, particularly in improving self-service delivery.20 Some customers even prefer virtual agents to live representatives because they may provide customers with a sense of empowerment and control over the service process, while younger customers may prefer online to human agents. Virtual agents should not function merely as standard FAQ interfaces, only reacting to questions, but should also initiate and maintain customer interactions. A bank's virtual agent is recognised not just as a key source of financial information, but also as a friend, a mentor and an advisor.

In some ways, a virtual agent is better than a real one. With virtual agents, the process of communication and the capture of information to be used in the agent–customer interaction are automated and thus controllable. With real-life agents, even those supported by sophisticated customer relationship management systems, it is hard to reach this level of consistency, because of human error, emotions and moods, and other factors that affect the dynamics and quality of the firm–customer interaction. Online agents can also function within social media.

CONCLUSIONS AND IMPLICATIONS

An uncertain future

This article reveals that financial services self-service is an area of high activity – and uncertainty. There has been a big shift towards self-service, creating much higher levels of customer empowerment. Consumers can investigate and buy products more easily, set up (and terminate) relationships with suppliers more easily, communicate with suppliers more easily, and check what is going on with their products and services more comprehensively. However, there are problems of trust, while studies of how consumers make decisions show that they often make poor choices about where to seek advice, about which sources of advice to use, which advice to take, when to take it, and then when to act upon it – or not. When they have complaints, they are often hard to register, and responses are often inappropriate. The list of problems seems endless.

The solution

Is there a simple solution? No, of course not. However, my industry discussions indicate a fairly strong consensus that the tools to solve the problem either exist or are about to come into existence. In other domains where consumers habitually make complex decisions, there has been rapid penetration of Internet technology and social media to help consumers investigate their options, seek advice, make choices and evaluate them – for example, home furnishings, holiday and travel, telecommunications, utilities and electric/electronic products. Although the situation is not perfect in these areas, consumers are well served by self-service, both in terms of the service they obtain and the results in terms of suitability of products and services they buy. In financial services, this is only true in some areas, for example, general insurance and bank current accounts. In investment products, it is certainly easier to buy and sell, but it is not clear that this has helped consumers improve their asset values. In areas such as pensions, loans and mortgages, the benefits of service improvement have been masked by events in financial markets, which encouraged consumers to make wrong decisions and then punished them severely for doing so.

However, the overall conclusion is that if suppliers focus strongly on analysing the information and advice requirements of customers when they are making (as consumers see it) difficult, non-routine or complex decisions, and on ensuring that customers can access the suppliers’ own and independent information and advice while evaluating options and before making the decision, then the situation will be much improved.

This leads to a scenario in which a consumer, whether considering a decision online, during a call or in a branch, is encouraged to carry out a self-diagnosis (or get help with diagnosis) check advice before wasting the supplier's time in discussing the decision – to avoid the inevitable pressure to close a sale once a human is involved on the supplier's side.

Put simply, we should be moving towards a world where the consumer who is properly connected to relevant sources of advice and information should rarely make the wrong decision.

Central recommendations

My main recommendation is that financial services companies should focus more strongly on:

  • listening to customers, by combining classical CRM approach and Web 2.0;

  • improving retention (and minimising reasons for attrition during customer journey) and value development;

  • creating trust, empathy, engagement and recommendation for customers;

  • engaging staff, particularly in supporting self-service rather than trying to do it all;

  • developing a self-service technology approach of the quality needed by customers;

  • identifying where IT and telecommunications systems and networks create a critical dependence for self-service approaches, and ensuring that the quality of service of these systems and networks is maintained;

  • developing an implementation approach that recognises self-serving customers as partial employees, going through a learning curve to achieve the results they need;

  • creating – at board level – a strategy, the process that creates customer focus, and where appropriate self-service-enabled innovation in both products and services and in go-to market strategies; and

  • ensuring tight governance of the quality, economics and project management of self-service implementation.

Implications for management

The area of self-service is a difficult one for financial services companies, as has been made plain in this article, and therefore improvements cannot be made and problems solved by simplistic processes and solutions. Thus, this section is presented with clear recognition that it can only be a top-level guide.

My view on the key information requirements, actions and decisions is as follows:

  • Understand customer needs and how they are evolving, across all channels and products.

  • Understand the variety and complexity of the decisions that customers want to make, and their information, advice and coaching requirements.

  • Identify, using research, the kinds of perceptions that are likely to cause customers to make the wrong decisions, and identify what education or coaching stands the best chance of helping them avoid mistakes.

  • Determine whether improved deployment of self-service is an area where you can gain competitive advantage (efficiencies, market share, branding and so on) given your products and markets, or whether you should be reactive.

  • Develop a framework for planning and managing self-service strategies, processes and technology and its integration with ‘served service’ across products and channels.

  • Determine what you can do to take customers where they want to go, cost-effectively, by encouraging customers to serve themselves where appropriate (for example, the ‘drive to web’).

  • Develop tests of different approaches, with appropriate use of control groups to measure the true uplift in business performance and customer results/satisfaction.

  • Set your objectives, in terms of what you would like customers to achieve and what results you would like to get from them.

  • Determine the metrics and indicators that you will use as your basis for target-setting and for diagnosis of reasons for achieving/missing targets, especially engagement metrics and indicators.

  • Develop and implement your strategies and plans based on all the above, including your target operating model and processes, that is, how you will in practice manage customers or allow them to manage themselves, in terms of detailed actions and the capabilities required to support them.