branding banks for shareholder value 3.0 customer perceptions

Branding Banks for shareholder value Discussion Draft Section 3.0

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© Geoffrey Johns 25 March 2010

Branding banks for

shareholder value

Section 3.0

How customer perceptions

develop

Planned series of papers

Discussion

Draft Version

Release

Date

Creating shareholder value - an outline 1.0 Mar-10

Knowing customers 2.0 Mar-10

How customer perceptions develop 3.0 Apr-10

Branding banks is vital

TBA

Branding banks is hard

TBA

Measuring customer perceptions

TBA

Gaps analysis

TBA

Bank structure and brand control

TBA

Six Sigma and brand control

TBA

Valuing bank brands

TBA


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Introduction

This is the third in series of discussion drafts in which I attempt to trace the path from

customer perceptions to shareholder value. The first covers shareholder value as a goal

of the system and the analysis framework I use. The second is about knowing

customers through segmenting on key characteristics. This section deals with

understanding how customer perceptions develop. This understanding is crucial if banks

are to have influence over how customers and non-customers think of their brands.

Section 1.0 contains the general introduction to this series of papers.

Personal experience trumps all other

messages

My first and perhaps most important observation about the development of perceptions

in banking is that personal experience is more important than any external influence. I

have interviewed more than one person still fuming about a bounced cheque twenty

years ago.

AdvertisingMediaPeers

The opinions of

trusted advisors,

colleagues, friends

and family are sought.

The media is scanned for

messages that confirm our

beliefs

Advertising communication

is accepted when it aligns

with favourable beliefs

Individual

The perceptions of the

individual largely

shaped by experience


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Banking is not top of mind in most people’s day to day lives. Adverse experiences,

sometimes trivial to those who design bank processes, can sear themselves into people’s

minds. An impression of a bank can settle itself in the heads of customers quite early in

their lives.

People screen out messages that do not gel with their preconception based on their

experience.. They interpret messages that are not screened out to reinforce their

preconceptions. They actively seek confirmation of their preconceptions in the

environment about them.

Own experience

Media comment

Trusted advice

Marketing communications

Contradiction

filtered

Confirmation

sought

Info

rma

tio

n

rein

terp

rete

d

Based on their experience customers construct stories in their heads where the elements

of the stories are self-reinforcing. They are slotted into a pattern of cause and effect in

which the customer justifies what is often a gut-feeling by a logic pattern imposed upon

it.


4


Customers create stories in their heads about their bank. The exhibit below is developed

from some of the attributes that are measured by the TNS Business Finance Monitor in

Australiai. It shows how my qualitative research indicates that people construct stories

that explain their perceptions. Tight knots are formed in people’s minds in this way. ‘My

bank values me as a customer therefore they take the trouble to understand my

business therefore they are (are able to be) helpful and supportive’. Sometimes

researchers are concerned that statistically they are unable to distinguish the relative

importance of such attributes in driving satisfaction. I suspect that this in part caused

by the fact that attributes are rarely mutually independent. They are strung together in

stories.

They value me

as a business

customer

Understands my

business

Responsive and

flexible

Helpful and

supportive

Helps

businesses

achieve their

business goals

Primary

causality

Positive

feedback

The knot tightens until an experience is powerful enough to cut through it cuts through it.


5


The process of disaffection is discontinuous

The following set of exhibits is taken from my qualitative research of the deterioration of

customer commitment in business banking. It illustrates the process of adverse

experience cutting the Gordian Knot of inertia.

I can’t rely on you

You don’t

value my business

You don’t

know me

I don’t trust

you

You are

exploiting me

You are a

danger to my business

Six steps to disaffection


6


Each step requires its own impetus. At any stage it is possible with the right actions to arrest

decline. But it takes an enormous management effort to put the process into reverse; there is

a ratchet effect at work. To do this requires inculcating a whole new thinking framework into

the minds of customers. You have to reach beyond responses to new experiences to attitudes

and beyond attitudes to beliefs. It seems that we cannot easily retrace our steps. By contrast

each step prepares the customer for the next one. In the story the customer is telling in his or

her head the logic builds as each step is taken. „You don‟t value my business because you

don‟t know me‟.

On one occasion I was told, on joining a bank, that management consultants had estimated a

net defection rate among business customers of 9% pa. I believe that what arrested this in the

short run was mandating visits to customers by senior management to assure them their

business was valued. However, improvement in measured satisfaction took two years of

effort including integrated rebranding.

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I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Mutual lack of contact

Just being an account number

Untailored communications

„You don‟t know me‟ is a common early warning sign that that the situation is prone to

adverse surprises just around the corner


7


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I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Lack of access to senior bankers

Seemingly arbitrary account management decisions

No proactive solutions

Indifferent service

Inflexible application of rules

„How can you value me if you don‟t know me?‟ Business people, at work are at the centre of

their world. Do they feel that they are peripheral at best to the world of their bank?

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I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Bank mistakes

Inconsistent policies

Poor processes

Gaps in product/service offerings

Bank actions hard to predict

Poor dispute resolution

Changes to management team

Inconvenient access

Not keeping up with the market

These things relate more

to poor management than

bad intentions Lack of banking skills


8


It is important to understand that right up to this point the bank need not have done too much

wrong. In a later paper, I shall discuss the importance to brand of relationship managers. For

now I will say that a relationship can have reached this point without being revealed in any

Key Performance Indicators.

I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Decisions based on bank

not customer needsThis is driven by a build up of

the previous three. If you don’t

know me and you don’t value

my business and I can’t rely on

you, then I don’t trust you.

Unprofessional

Media scandals

Bankers lacking

understanding of business

Poor performance vs. competitors

At this point, the bank is on the customer‟s „watch list‟. The bank, however, still might not

realise this. In terms of commitment, which I described in the last paper, the search for

alternatives is beginning.

I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Aggressive pricing

This perception is

more easily triggered

if the four previous

perceptions are in

place.

Cost cutting

Reduced functionality

No support


9


In the case uppermost in my mind is the case of Westpac Banking Corporation. In 1992

it came close to insolvency on the back of perhaps a dozen large property loan

delinquencies. Westpac’s management of its SME customers in the years leading into

the crisis had been among the best of banks. But at this point, increased pricing,

reduced lending, greater security demands, more rigid terms, conditions and covenants

were imposed on them. Sometimes relationship managers apologised to customers

explaining it was because of corporate lending gone bad. The key thing felt by

customers was that their account was being managed with no reference to or

understanding of their own business. They felt completely out of control of events vital

to them. On the spectrum of customer perceptions this is as bad as it gets.

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I can’t rely on

you

You don’t

know me

You don’t

value my business

I don’t trust

you

You are a


You are

exploiting me

Arbitrary, irrational and

aggressive credit decisions

Major disruptions to business

processes

Fear of being at a significant

disadvantage to competitors that

have a better bank

The existence of the earlier perceptions

will mean that these issues are nearly impossible to resolve.

Many customers will have defected or at least moved some of their business before this

point is reached. One of the most common reasons I have heard for switching banks by

business customers is not so much that that the reality of the situation was a rock

bottom. It was more like they felt they ‘couldn’t live with themselves’ if they continued

to let their bank treat them this way.

Obviously, these same six steps don’t happen to every customer and some customers

are more or less tolerant. Nevertheless it is a fair take out from my qualitative research


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over many years. At each step the process becomes harder and less certain to reverse.

This is because the bank begins to be seen in the mind of the customer as ‘Well they

would do that, wouldn’t they, because that’s the people they are?’ In short it is a brand

killer.

Resistance to changing our minds

There are lags too in how we change our minds. I am not a psychologist but I offer the

exhibit below as a representation of how I think people test their perceptions in the

world of experience.

Beliefs

Attitudes(Reusable decisions)

Experience (feedback)

Choices

Outcomes

Contextualisationfeedback

Needs

Reframing feedback

Expectations

Realignmentfeedback

The key seems to me to be expectations. Up to a point outcomes will be evaluated to

confirm expectations rather than refute them. It is only when there is a rupture that a

process of accommodation to new experience begins. Changes in expectations can lead

to attitudes changing to contextualise the new experience. At this occurs before the

walls of belief can be breached. But then sometimes something that matters to the


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person happens so out of line with expectations that the result can be a sudden

reframing that is all the more powerful.

The Conversion Model explaining discontinuity

Let’s turn again to the Conversion model™ which I described in Section 2 of this series.

The process of which the Conversion model takes a snapshot in time is in fact dynamic

and ongoing.

As dissatisfaction grows the customer’s search for alternatives intensifies. At the same

time the customer’s perceived importance of the choice of bank is likely to grow. This is

generally considered to be a stable characteristic; some people innately think this is

more important than others. But it is also something that people rarely focus on. When

they need to think about who they bank with the importance of the decision tends to

increase.

As the customer evaluates alternatives to their bank and these are seen positively

dissatisfaction with the bank tends to increase. It may even be that the test alternatives

Dissatisfaction

Enhanced

perception of

alternativesIncreased

ambivalence

Increased

importance of

choice of bank

Lag

Lag

Lag

Adverse

experiences

Need for new

product /serviceLoss of

business

Lag


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to the extent of actually having dealings with them. They are likely to meet with other

bankers and to consult friends and business associatesii. The resulting increase in

disposition to alternatives and increasing dissatisfaction with their bank heightens their

level of ambivalence. Usually, what is then needed for the next step to be taken is a

new banking need. People relatively rarely switch banks altogether. There is more a

seepage as new needs arise.

The picture tends to be one of rising disaffection leading to a mental break with the bank

that may not be immediately apparent. The bank may not become aware until value

shifts. Even then, if value shifts on a new product the bank may still be unaware of the

relationship breakdown.

Customer inertia in banking

Much is said about customer inertia in banking. People tend to rarely move from one

bank to another. In Australian business banking the ‘churn’ is less than 5% a year and

of these, I guess that perhaps one and a half percentage points are pushed for reasons

of risk or under-pricing for riskiii. In personal and business banking value seeps rather

than switches. This usually happens when a new product is required or some life event

(e.g. moving to another employer or town) occurs. There are several reasons for inertia.

People have more important things to think about than banking. They tell themselves

that all banks are the same. They think that if their bank compares unfavourably in

some area (e.g. online banking) it will soon catch up. They tell themselves ‘if it isn’t

broke don’t fix it’. They have life routines they are reluctant to change. They have got

used to their bank and can predict how it will deal with them. There are lots of reasons

for inertia and some of them are based on good sense. In a later paper in this series I

shall offer a dollar quantification of its value to a bank. But strong as these ties are they

can mask, until it is too late deep underlying reasons for change.

The following exhibits draw some causal connections from a few qualitative studies I

have done that touch on inertia. There has been an event that cast some light on

inertia. As I say in Section 1.0 of this series there tend to be few breakthrough products

in banking. However online banking was an instance where the breakthrough in

customer needs was significant and where banks did not move simultaneously or with

equal competence. The key events were roughly these. Banks offered some form of


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electronic banking first to corporate customers and then to the SME market. This was

because the customers were valuable and had a strong need. Next, online banking was

offered to the personal market. There were economies of scale in development and

reduced transaction costs. Development activity was channelled into the personal

market. Meanwhile business online banking increasingly seemed out of date and clunky

as customers compared it to their personal banking experience. Also business

customers had often experience of dealing with more than one bank online and could

make comparisons. Banks therefore began to reassign ICT resources to the business

market but they were not all able to do this immediately. The illustration below

describes the logic of inertia.

Business customers are reluctant to change their

banking arrangements

The service element of a new product is difficult

to evaluate in advance of purchase

Often any changes are hard to reverse if they don’t work

outThere can be a

high opportunity cost in diverting effort from the

core business to banking issues

‘If it aint broke don’t fix it’ -

people learn to live with minor defects and work around

There is a belief among businesses that all banks are

the same

There are cogent reasons why customers are reluctant to change banks as shown in the

exhibit above. Especially customers are reluctant to shift their transaction accounts as

illustrated in the exhibit below.


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Transaction accounts are important to

business people and very sticky to shift

Day to day cash flow management is the life blood of

business

Often cash flows are unpredictable

and volatile – many businesses are living on the

edge

An overdraft facility is highly

prized by businesses but

tightly controlled by banks. Without

one, cash flow control is of vital

importance

Transaction accounts are

complicated and messy to switch

from bank to bank

Transaction accounts carry

with them risks of fraud and default

A window of opportunity opened and then closed again as laggard banks caught up but

not before some loss of value.

Business customers are

reluctant to change their banking arrangements

It takes a seismic shift to create opportunity to

switch customers to new products

On-line / internet banking has

irresistible appeal to many

businesses

A window of opportunity

opened

The window of opportunity closed again

as inertia reasserted

itself

First movers have many advantages

even with less than perfect products


15


I see this as an example of a situation favouring customer inertia suddenly becoming

more liquid but then refreezing. What loosening of inertia we can expect to see in

banking is most likely to come from ICT developments or from financial crises. I see

these as always being temporary followed by the reassertion of inertia.

Kano analysis and its implications for

measurement

Around 1980, Noriaki Kanoiv threw a sizeable spanner into the works of measuring

satisfaction. In doing so he adds another layer of complexity to my analysis.

22Actual needs fulfilment

Perc

eiv

ed

satisfa

ction

Neither satisfied nor dissatisfied

Kano distinguished between the varied ways in which different aspects of a product or

service cause our satisfaction level to respond in different ways. In the exhibit above

the green line shows satisfaction to rise in line with the extent to which we perceive our


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needs to be met. This can be considered the norm. The more you meet customer needs

the happier they are.

Actual needs fufilment

Perc

eiv

ed

satisfa

ction

But in other aspects of the product or service there are some things (the orange line in

the exhibit above) that are expected. Customers are not satisfied when they are well

performed but become angry when they fail. A while back I worked with a firm that

provided pension funds with administrative service such as filing financial statements

and also high level tax and investment advice. Failure to lodge financial statements with

the supervisory authorities on time could result in fines for the fund trustees. These

expected parts of the service if they were unfulfilled would leave their clients highly

dissatisfied. Correspondingly those parts of the service that were intended to add value

the supported funds and which could have delighted their clients would never get off the

ground in their clients’ perceptions.

Kano analysis also identifies elements of the product or service that delight customers.

They are not expected and are all the more powerful in their effect. As an example

there is the relationship manager I knew who drove out to the airport at night to

personally deliver a replacement MasterCard to a client about to board a plane.


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There are some important implications for measuring satisfaction. The first is that you

cannot simply add up or average the ratings of a number of attributes where some are

expected, some are normal and some ‘delight’, in Kano’s termsv. They are different and

in a sense exist on different scales measuring quite different things. Moreover, they are

connected. Failure in an expected part of the product or service can lead to a completely

different view of performance in a ‘delight’ factor. In effect this means that a group of

customers that were distinct in that a bank had failed them on the expected factors

when compared to a group of customers where this was not so would have given

different ratings to the delight factors. The implication of this is that, for example, to

derive customer ratings of attribute importance statistically as opposed to customer

stated importance can be misleadingvi.

An experimental retro-fit of Kano analysis

Sadly, I have never been asked by a client to conduct a Kano analysis. Were I to do this

it should ascertain the Kano classification of attributes by a qualitative study, ideally

supported by a quantitative study before the main study. However, Gary Lembit

(already recognised in Section 2.0 of this series) and I did attempt to assess how Kano

analysis might reinterpret an analysis of the business banking sector. I am aware that

such a retro-fit after the event is, in multiple ways unsatisfactory but, nevertheless, i

found the results interesting and will share them with you here.

The attributes listed below are similar to but not identical with those used in the TNS

Business Finance Monitor cited in Section 2.0. We then classified them according to

Kano analysis as sown in the table below. We used a separate classification for price

because, candidly, we didn’t know where to put it.


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Pricing Expected Satisfiers Delighters

a Understands my future needs

b Flexible solutions

c Recognition for my business

d Provides ideas on financial management

e Understands my business and history

f Outcome adds value to my business

g Responds quickly

h Knowledge and expertise

i Offers sound advice

j Helps me avoid risks

k Comprehensive product range

l Value for money

m Prepared to negotiate

n Accurate

o Access to specialists

p Efficient branch network

q Latest electronic services

r Easy to use systems

s Competitive pricing

Next, using the results of the work already completed. We created a matrix of scores

given for each attribute against statistically derived importance. Note here my earlier

caveat concerning statistically derived importance. Here we had no option, of course.

The matrix below shows the outcomes. The data points are cloud coded:

Pricing

Expected

Satisfiers

Delighters

Pricing as might be expected fall into the low performance quadrant but it is also the low

importance quadrant. Customers didn’t like it but it did not matter to them that muchvii.

The high performance / low importance quadrant contain nearly all the ‘expected’ (the

satisfier) attributes. As Kano would predict, they were done well but this was not seen

as important. Kano would also predict that they would become important if they were

done badly but our data didn’t give us a data point to verify this with.


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a. Understands my future needs

b. Flexible solutions

c. Recognition for my business

d. Provides ideas on f inancial management

e. Understands my business and history

f. Outcome adds value to my business

g. Responds quickly

h. Knowledge and expertise

i. Offers sound advice

j. Helps me avoid risks

k. Comprehensive product range

l. Value for money

m. Prepared to negotiate

n. Accurate

o. Access to specialists

p. Eff icient branch network

q. Latest electronic services

r. Easy to use systems

s. Competitive pricing

LOW PERFORMANCE

LOW IMPORTANCE

HIGH PERFORMANCE

LOW IMPORTANCE

LOW PERFORMANCE

HIGH IMPORTANCE

HIGH PERFORMANCE

HIGH IMPORTANCE

o

j ih

f edc

ba

s

m l

rqp n

k

g

In the low performance / high importance quadrant we find most of the ‘delighters’ they

unexpected features that come as a nice surprise to the customer. Customers are

responding to the survey with – ‘yeah that would be good – I don’t get it though’.

Finally, the ‘satisfiers’ the routine things that are part of the expected service fall in the

high performance / high importance quadrant. This is doing well at getting the basics

right.

Overall, while I am fully aware this is by no means a definitive study on the application

of Kano, I do believe that it offers a strong suggestion that Kano analysis does have

something important to say. It should be deployed more often in banking studies.


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Lags in management response

I have talked about lags in terms of the how people respond to their experiences. Lagsviii

also occur in how banks respond to customer disaffection. Chief Executives in banking

talk often about it being like changing course on an ocean liner.

2006 2010

2007 2008 2009

2006

Recognise problem

2007

decide what to do

2007

prepare inplementation

2008

Implement

2008

New regime operating

2009

most clients experience improvement

2009

all clients experience improvement

2010

results noticeable in surveys

2006

Problem occurs

The exhibit above is based on my experience of major change programmes in a couple

of banks. It is of course illustrative. If anything I think it understates the time lag. It

also assumes that the change is successful. This isn’t always the case.

Measurable client responsiveness to improvement in the business system lags for several

reasons. First, even improvements can have adverse short term consequences. From

about 2003 all Australian banks began to improve the incidence of relationship

management. Generally smaller portfolios lead to greater customer satisfaction and

eventually commitment. However, in the short term several adverse consequences

arise:

Some customers must be moved to the portfolios of new managers. If the

average portfolio size is being reduced from 100 to 80 this means 20% of them.

Qualitative research shows customers rarely like this and the results can be

expected to show in surveys.


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Some relationship managers are promoted prematurely and find trouble finding

their feet. Some customers can be expected to perceive deterioration in service

because of this.

Some managers are new hires from outside the bank and they take time to learn

how the system works. Some of them may not be good recruitments anyway.

The management style among the next tier of managers has to change this

transition if quite difficult as senior managers have to become more hands onix.

Times of change often involve new initiatives coming at front line managers from

different directions. For example if the Chief Risk Officer wants portfolios cleaned

up at the same time as the sort of initiative I have described above the difficult of

change management is compounded. Similarly, new front line ICT systems may

be introduced.

Customers can interpret good intentions unkindly, especially if they tend already

to disaffection. Increased intensity of account management meant to strengthen

relationships can easily be seen a intended to promote tighter risk control.

Going beyond the unintended adverse consequences of improvement there are other

reason why change seems slow to achieve results:

Customers take a while to become aware that a change has occurred. Customer

reviews are often infrequentx.

New customer needs are often infrequent so the satisfaction experience by a

product / service need being well handled takes a while to come through as does

the financial measurement of the sale.

Let me conclude this discussion with a vignette from my own experiencexi that illustrates

a couple of the point made above.

At one time I was closely involved in a major switch towards relationship

management. I ensured through direct mail that each customer knew who

their relationship manager was, how to contact them and what their role

was i.e. to solve customer problem. Meanwhile the branch network was

also undergoing change as part of the same overriding initiative. One

outcome intended or otherwise was that the branch network was shifting

its focus away from small business towards home mortgage lending. It’s

amazing what changing objectives and rewards can do in a well-disciplined


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work force. So newly appointed relationship managers were inundated

with complaints, questions and problems connected with branch service

over which they had no control. I was inundated by complaints from

relationship managers! All of this was pretty much unforeseen and all of it

was completely unavoidable within the commonly accepted world view of

the organisation.

So lags, discontinuity and volatility are natural to the system and we have a new system

element to consider. I illustrate this below.

Management tampers with the system

The system displays unpredicted lags and volatility

LagLag

I am fairly certain that I witnessed more than one purposeful management change that

would have succeeded had the corporate suite shown more patience and wisdom. In the

words of one top executive I have known.

If they (divisional heads) can’t do it we’ll find someone (management

consultants) to help them and if they still can’t do we’ll find someone who

can!

Well good luck! I should say. Because that process takes about three years in my

experience and that’s time you never have.


23


The word ‘tampering’ in the exhibit above, I have taken from Edwards Demingxii. To

quote him at greater length:

We may now formulate two sources of loss from confusion of special causes

with common causes of variation:

1. Ascribe a variation or a mistake to a special cause when in fact the

cause belongs to the system (common cause);

2. Ascribe a variation or a mistake to the system (common causes)

when in fact the cause was special.

Over-adjustment is a common example of mistake No. 1. Never doing

anything to find a special cause is a common example of mistake No. 2.

To my mind this is one of the most profound statements on the subject of management

that has ever been made. I have, in this paper described a number of sources of

variation in the development of customer perceptions of a bank. How management

respond to these in business system design can bring the system under control or can

exacerbate the volatility. In responding to perceptual feedback to management change

making the wrong choices great damage can be done to brands as I shall discuss in the

forthcoming section on brands and bank structures.

The exhibit below outlines some of the connections between the models I have used in

this paper.

Business and personal customers

Most of my illustrations above have been taken from business rather than personal

banking. That is where the majority of experience has been. I should say that my view

is that personal banking displays much the same behaviour except that it is more muted.

I can tell you that almost exactly two thirds of business customers (from a Business

Finance Monitor sample of over 10,000 respondents) rated the importance of the

banking relationship as a 1 or 2 on a scale of 1to 5 where 1 means very important. I


24


don’t know what the figure for personal banking is but I’d guess slightly lower. The

comments I have made above I think would also be true for personal bank customers

but perhaps somewhat muted.

Where should we look for signs of sea change?

I have argued that management failure to detect improvement in response to

investment can lead to vacillation. What then can be done? First measuring process at

a detailed level helps. Also it helps to measure activity and responses rather than only

financial outcomes.

For the Conversion Model I should look at three key transitions illustrated below.

Entrenched

committed

Average

committedShallow Convertible Available Ambivalent

Weakly

unavailable

Strongly

unavailable

Committed Uncommitted Open Unavailable

Customers Non- customers

1 2

3

I would expect to see early signs coming in roughly the sequence shown. It doesn’t

have to be in that order. But you do need to dig for signs quite deep in the detail of

whatever data you have.

Next I should look at the attitudinal group we identified in section 2.0 that we then called

leaders. Their perceptions of change may be more acute than the mass of customers.

Therefore you might see changes in their commitment presaging that of customers as a

whole. This follows a line of thinking that I was introduce to by Eric von Hippelxiii In

Appendix 1, I reproduce my 2006 outline of how to deploy von Hippel’s ideas in research

for innovation. They apply as much to understanding response to brand.


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The role of brand

What then is the role of brand in customer perceptions?

A major theme of this paper has been that perceptions are strongly based on personal

experience. Marketing communications are seen as have a weaker role. I shall discuss

how such communication can be made effective later in this series of papers.

Customer expectations

Customer perception of

the experience

The objective quality of the experience

BRAND

I want to conclude this present section, however, by suggesting that a key role of

banking brands is to modify the customer’s interpretation of experience. This is

achieved by a cyclical process through which expectations themselves are modified.

The secret of life is honesty and fair dealing; if you can fake that, you've

got it made. Groucho Marx

But, alas, contrary to the view of Mr Marx, it can’t be faked.


26


A tentative overview of this section

Own experience

Media comment

Trusted advice

Marketing communications

Contradiction

filtered

Confirmation sought

Info

rma

tion

rein

terp

rete

d

They value me as a business

customer

Understands my

business

Responsive and

flexible

Helpful and

supportive

Helps businesses

achieve their

business goals

Primary

causality

Positive feedback

I can’t rely on you

You don’t

value my business

You don’t

know me

I don’t trust

you

You are

exploiting me

You are a


Six steps to disaffection

Beliefs

Attitudes(Reusable decisions)

Experience (feedback)

Choices

Outcomes

Contextualisationfeedback

Needs

Reframing feedback

Expectations

Realignmentfeedback

Business customers

are reluctant to change

their

banking arrangement

s

The service element of a new

product is difficult to evaluate in advance of purchase

Often any changes are hard to reverse if they don’t work out

There can be a high opportunity cost in diverting effort from the

core business to banking issues

‘If it aint broke don’t fix it’ -

people learn to live with minor

defects and work around

There is a belief among

businesses that all banks are the

same

Actual needs fufilment

Perc

eiv

ed

satisf

act

ion

2006 2010

2007 2008 2009

2006

Recognise problem

2007

decide what to do

2007

prepare inplementation

2008

Implement

2008

New regime operating

2009

most clients experience improvement

2009

all clients experience improvement

2010

results noticeable in surveys

2006

Problem occurs

Management tampers with the system

The system displays unpredicted lags and volatility

LagLag

Entrenched

committed

Average

committedShallow Convertible Available Ambivalent

Weakly

unavailable

Strongly

unavailable

Committed Uncommitted Open Unavailable

Customers Non- customers

1 2

3

Customer expectations

Customer perception of

the experience

The objective quality of the experience

BRAND

People create logic to justify the outcome of experience

It takes powerful experiences to change beliefs

There are cogent reason for inertia

There are hurdles to changing beliefs

Inertia is overcome

Minds are changed

The bank responds

Measurement is hard

But evidence can be inconclusive

Leading to floundering

A brand that conditions experience.....

Could reinforce good and mitigate bad experience

Summary and conclusions

A main theme of this series of papers is that branding banks can only be attempted

through a consistent pattern of decisions taken throughout the organisation at a process

level of detail. In the first paper in this series I argued that:

shareholder value should be the goal of the system;

process design should take into account measurement of how changes in

customer perception affect shareholder value; and

this can occur through disciplined process design in a systems context.


27


In the second paper, I argued that:

customer’s should be managed as ‘segments of one’;

customer behaviour, commitment and value should be independently measured

by systematic but flexible segmentation strategies;

commitment, as defined by the Conversion Model™, is the primary measure of

customer satisfaction that should be used by a bank;

In this paper, I describe how:

personal experience if the main driver of perception of a bank;

customer banking behaviour is affected by discontinuities in their perceptions that

are sometimes difficult to understand, measure and predict; and

these discontinuities are caused by breaking inertia in the mindsets of customers.

management response can easily allow the natural variation in perceptions of the

brand;

My conclusion is that this kind of issue is inevitably part of the nature of banking

unless deeply held mental models are changed. Part of the purpose of this series of

papers is to contribute towards that change.

In the next paper in this series I shall focus on brand itself and why effective

branding is essential for banks.


28


Appendix 1

Research for Innovation Geoffrey Johns January 2003

"Business has only two basic functions: marketing and innovation.

Marketing and innovation produce results. All the rest are costs."

Peter Drucker

Does Market Research have a Part to Play in Innovation?

We often hear of successful product innovations that took place without any market

research. Akio Morita, The Chairman of Sony, is quoted as saying that the Walkman

would never have been launched had they relied on market research. Probably, this

would go for many other product innovations from fax machines to mobile 'phones.

Nobody saw the need until they were out there in the market.

The magazine "Fast Company" tells the stories of many firms with "skunk works" or

"chief ideas officers". Mostly, they work towards innovation from an understanding of

the developing capabilities of technology. Firms try to generate as many viable projects

as possible while limiting the role of users in development to the sifting and evaluation

technology process. Indeed this is how the market research is traditionally seen in the

product development cycle.

The exhibit below sets out a traditional view of the product development cycle. Users

are traditionally involved in the testing stage. Once a prototype has been developed,

potential users evaluate it. This has some sense to it. It is difficult, in many cases, for

existing users to predict how they will react to circumstances that are barely on the

radar screen. For example, 1970s users of landline telephones would not readily have

predicted text messaging.

OPPORTUNITY

IDENTIFICATION

Market definition

Idea generation

DESIGN

Consumer

measurement

Perceptual

mapping

Product positioning

Forecast sales

Marketing mix

INTRODUCTION

Launch planning

Tracking the launch

TESTING

Advertising and

product testing

Pretest market

forecasting

Test marketing

PROFIT

MANAGEMENT

Decision support

system

Market response

analysis

Innovation at

maturity

Profit portfolio

Management

The product development

cycle(Source: Urban and Hauser)

Traditional

customer

involvement

Innovative

customer

involvement

Innovative

customer

involvement

Professor Eric Von Hippel‟s

commentary


29


How then can market research help managers in the innovation process? The answer, or

part of the answer, lies in lead user research.

Lead User Research

Lead users (sometimes called "lead steers" because they are the people who both

predict and guide the movement of the "herd lead the followers towards new concepts

and ways of meeting their needs. Lead User research was pioneered by Eric von Hippel,

Professor of Technology at the MIT Sloan School of Management in 1986. I have

developed this work for use as a market research tool that offers a systematic approach

to innovation.

This is not the only approach for every business. Some businesses will launch many

products and invest in developing the ones that work. Others will watch the success of

smaller and nimbler competitors and buy the ones that succeed. Still others will bet the

business on a single bright idea. Having said that, the approach we describe in this

paper should be considered by many businesses. This is especially of businesses that

have a powerful brand that must be nurtured. They have less scope for constant

experimentation. It is also true of complex, multifaceted businesses where the

management functions of control and coordination make a freewheeling corporate

culture harder to integrate.

Who are lead users and why do they matter?

The Exhibit below is based on Everett Rogers' conceptual illustration of the diffusion of

an innovation in the marketplace (Diffusion of Innovations 1995). To Rogers' diffusion

segments I have added Von Hippel's concept of Lead Users. It is important to

understand that Lead Users differ from Early Adopters in important ways. An Early

Adopted will see an innovation and think "Yes, that's for me!" A lead User, however, has

already begun to develop the product in his or her own mind. Indeed often they will

have developed a prototype or perhaps a "work around" solution to their needs. The key

fact about a Lead User is that their need for a solution is so great that they have already

begun to imagine solutions. They have "one foot in the future" already. Note: it is the

need that matters more than they specific solution. But it should be a need that can be

articulated so strongly that the passage towards the solution becomes almost seamless.


30


Lead users matter for two reasons:

What they want today Early Adopters may want tomorrow and the Mass Market the

day after; and

They can help us build a viable solution.

Often we can survey the traditional market broadly and find that a big majority are quite

happy with what they have now. The trick is to home in on those that demand

something more.

Why not ask all users what they need?

Most importantly because they don't know. They great majority of people cannot

imagine the products and services that they will require in the future. In research

studies, people will mostly try to be helpful. However, they will think within the box of

what they get now. If they articulate requirements at all it is along the lines of - the

same but faster, cheaper, better. That road leads to commoditisation and trench

warfare against competitors trying their hardest to do pretty much the same.

Shortly, we will describe how to discover Lead Users and deploy their skill and

understanding. Before this, however, we must introduce the concept of "commitment"

based on TNS's proprietary methodology The Conversion Model™.

Time

Adoption

Lead

users

Early

adopters

Mass

market

(followers)Laggards


31


Introducing Commitment Segments into the Innovation Research Model

Do Lead Users tell the whole story? No, not if we want to understand the rate of take up

of the new offering. Understanding the needs of Lead Users can help us design a

product. However, financial evaluation requires that we make some estimate of the

spread from the small number of Lead Users to Early Adopters and from them to the

Mass Market. The rate of take up is crucial. Rogers' stylised adoption curve shown

above is only a generalisation of the experience of some typical markets. In any given

case we know little about how take up might spread from Lead Users to Early Adopters

and from them to the Mass Market. We need to understand the responses of committed

and uncommitted customers to measure and manage take up.

Commitment is a concept used in the TNS Conversion Model. This is a methodology

used to measure the shift in customers between alternative brands and products. In this

model a committed customer is one that:

is satisfied with the brand they use at present;

does not rate alternative brands highly;

show no ambivalence between brands; and

is involved in the decision, in that it matters to them which brand to choose.

The exhibit below illustrates the segments into which we group a brand's customers and

non-customers according to their commitment. While we usually focus on brands we

have also analysed other aspects of a category, for example, various distribution

channels. Two questions are relevant here.

If users want the innovation, do they want it from your brand? And

How quickly will take up spread from more to less committed customers.

Committed -

entenched

Committed -

average

Uncommitted -

shallow

Uncommitted

convertible

Strongly

unavailable

Weakly

unavailableAmbivalentAvailable

Customers

Non customers


32


A committed customer is more likely to:

stay with the brand longer;

be less price sensitive;

buy more of the brand's product / service set; and

be more aware of and give more consideration to the brands marketing

communications.

For our present purpose, a committed customer is more likely to accept an innovative

product.

In the present context, therefore committed customers are more likely to accept the new

product offering. Moreover, they are more likely to accept the new product offering

under the brand under consideration. We need to include both high committed and

uncommitted customers in our focus groups. Committed customers are likely to be early

adopters of the proposed products but may be unrepresentative of other customers. By

using the Conversion Model to segment existing and potential customers by their level of

commitment, we can better predict rates of take up.

Committed followers will

be influenced by

commited leaders. The

rate of penetration will

depend on the leaders'

span of influence

If this group accepts the

concept they will be the

earliest adopters

Uncommitted followers

are likely to be laggards

Acceptance by

committed leaders will

allow some penetration

of uncommitted leaders.

The rate of penetration

will depend on the

strength of the offering

LeadersFollowers

Un

co

mm

itte

dC

om

mitte

d


33


Each of the groups illustrated above will have a different rate of "take up". Each will be

influenced by the others. To get a better view of the rate of take up, we need to

understand the unique perceptions and behaviour of each.

Digging deeper into rates of take-up

I have developed a conceptual model to help us organise research information about the

commitment segments. The framework is shown in the exhibit below.

Attractors are factors that draw users towards an innovation. They can include, for

example:

Superiority over existing offerings.

Fit with lifestyle, aspirations, self-image.

Repellers are factors that drive users away from an offering. They can include, for

example:

Perceived risk.

Switching costs, including time, money and perceptions of sunk costs.

Triggers are factors that can prompt adoption. They can include for example, for

example:

Opportunities to trial.

Behaviour

Attractors

Repellers

Triggers Enablers


34


Opportunities to observe successful users.

Enablers are things that must be available to the potential user for them to adopt the

innovation. For, example, in the case of on-line banking, these include ready access to

an Internet connected PC.

Research into this adoption model fleshes out the drivers behind the commitment

segments and allows take up rates to be modelled more effectively. The forces we

describe above are not necessarily objective reality. We are concerned only with the

users perception of them.

The search for Lead Users

How do we select the sample? There is no one answer for every study. We need to

redefine the selection criteria a little differently each time. As a guide, however, Lead

Users meet the following criteria. They are:

Successful.

Respected by their peers.

Opinion formers.

Good networkers.

Sophisticated users of products in the category in question.

Early adopters of new products.

able to think outside the square.

people who seem to have one foot in the future already.

demanding and driving clients.

And, for business users. also

highly in touch with the needs of their own clients (where they are businesses).

committed to their own success and the growth of their businesses.

people who are building an organisation rather than just running a business.

But, above all else, what we are truly seeking are users who:

Have needs that foreshadow general demand - that is to say they are pushing the

envelope of what the existing products offer them.

Expect to get high benefit from solving those needs so they are inclined to invest

their time, energy and money in innovative solutions.

“It was something I needed at my work” Tim Berners-Lee


35


We don't have to find too many of them. A dozen or so is often enough to work with in

the design stage. But we do have to find the dozen that best meet the above criteria.

True Lead Users are different from early adopters. Early Adopters see something on

offer and want it sooner than the bulk of the market. Lead Users want something they

cannot yet see, taste or feel. They only know that they have an unfulfilled need. We

may not always be able to identify people who match this description in every market.

However, our methodology is designed to get us as close as we can.

How do we find Lead Users within a client's customer database?

Where there is a detailed customer database or a good relationship management system

we can often work with our clients' front-line staff to identify Lead Users. This process

requires highly disciplined management. However, with a small amount of training and

good communications material and check-lists, this approach can work well.

Among the criteria for being a Lead User are not things like being friendly and easy to

get on with. As a matter of fact Lead Users are more likely to complain a lot and make

nuisances of themselves. Being a pain to deal with is almost a key requisite.

Often relationship managers will be asked to nominate some of their least liked clients.

How do we find lead users where users / potential users are hard to identify?

There are several approaches to the problem of finding lead users where individual users

are hard to identify. This occurs, for example in situations such as fast moving

consumer goods or communications media.

Approaches can include:

Getting Lead Users to self-select, for example by responding to a competition.

Selecting from certain groups likely to contain potential lead users of the innovation.

For example, this might include the audiences of art-house cinemas for developing

an avant-garde magazine.

Using large samples for initial screening.

Selecting from among access panels of people who have been engaged in other

research projects relating to the category.

Telephone screening

However the initial group are selected, the next stage is telephone screening. We

generally only need to ask a few questions like:

What do you see as the two or three main forces that will affect your business over

the next few years?

What do you see as the two or three main forces affecting the employee relations

over the next few years?

What do you see as the two or three main forces affecting the economy over the next

few years?


36


However, the actual questions we do ask will differ from assignment to assignment.

Designing these questions is a critical success factor.

The focus groups

The next stage is to hold focus groups, perhaps more accurately described as

"workshops" to design the innovation.

The focus groups should not be too large. If we have the right participants we have to

ensure they get enough "elbow room" to have their say. Four people is perhaps the

ideal number but three is enough, providing the selection process is rigorous. Five is

getting close to too many.

We would advise holding several such focus groups. It is easy to go off on a tangent

unless the direction is confirmed. Ideally, there will also be control groups of people who

do not meet the criteria of being Lead Users. This serves to highlight the unique

perspective of the Lead User groups.

The focus group methodology

It is important that the workshops are more than just a brainstorming or discussion. We

need the discipline of a pre-designed methodology.

One that works well is derived from the Quality Management Technique known as

"Quality Functional Deployment" (QFD) (in a somewhat clumsy translation from the

original Japanese) or "the House of Quality" after the shape of the diagram often

associated with it. Note: we are not advocating a full implementation of QFD. Even if

that were the main focus, it would be necessary to adapt the methodology to the unique

needs of the situation. However, it is not the main focus. The focus is to elicit the needs

of Lead Users who foreshadow the needs of the broader market. However, we need to

ensure that the methodological disciple is in place from the outset to ensure there is a

path in place towards business model design.

QFD is designed to closely relate product features - conceived by the organisation - to

product benefits sought by customers.

Its key strengths are:

It provides a direct and explicit link between market research and business decisions.

It allows assumptions about the market to be surfaced and tested.

It allows people with different functional specialisations, such as marketing and

technical teams, to work together within a common framework.

It can be layered to provide detailed design, for example of information systems, to

be "nested" within broader design parameters.

It supports concurrent development and hence fast-tracks innovation.

The diagram below illustrates the assembly of matrices used in QFD.

OPPORTUNITY

IDENTIFICATION

Market definition

Idea generation

DESIGN

Consumer

measurement

Perceptual

mapping

Product positioning

Forecast sales

Marketing mix

INTRODUCTION

Launch planning

Tracking the launch

TESTING

Advertising and

product testing

Pretest market

forecasting

Test marketing

PROFIT

MANAGEMENT

Decision support

system

Market response

analysis

Innovation at

maturity

Profit portfolio

Management

The product developmentcycle

(Source: Urban and Hauser)

Traditional

customer

involvement

Innovative

customer

involvement

Innovative

customer

involvement

Dr Eric Von Hippel‟s commentary


37


How is the QFD methodology applied?

The process itself is straightforward but facilitation is demanding.

1. The focus groups are used to elicit and measure the benefits sought by users. Note

that the market research should be specifically designed with its use for QFD in mind.

2. The planning matrix is used to weight the benefits to be offered with particular

reference to competing offerings.

3. The business response comprises the array of product features conceived by the

organisation in response to the benefits sought by customers.

4. The impact analysis evaluates each product service feature in terms of its effect on

delivering customer benefits.

5. The response priorities quantify the importance of each feature of the design.

6. Finally, the response correlations evaluate any cross-impacts, desirable or

undesirable among the product features.

Customer

benefits

Planning

matrix

Business

response

Impact

analysis

Response

correlations

Response

priorities


38


The same technique can be used to go into more detail. If this is required, the response

priorities of the first exercise become the customer benefits of the next and so on.

QFD is best carried out as interplay between research, "backroom" analysis and

workshops among the organisational stakeholders. If the right customer research is

carried out all of this can be done within the organisation. However, some organisations

have benefited by directly involving customers in the process.

The methodology can be painstakingly detailed or broad brush. Generally in the

Research for Innovation context we err on the side of keeping things short and simple

when working with Lead Users. However, the approach in any situation has to be

dependent on the circumstances. To some extent the methodology has to be

reinvented for every application. TNS work with client sponsors to determine the right

solution for them.

Involving the "Home Team"

By "Home Team" we mean the client staff who will be responsible for designing and

selling the innovation. Ideally, the "home team" will work jointly with Lead Users at

some stage during the workshops. They will be able to suggest some organisational

responses to the benefits customers seek and test with the participating customers

directly the extent to which these might meet their needs.

Note: the "home team" generally requires preparatory work before involvement in

workshops. Part of this training is concerned with the QFD workshop. However, just as

important is the development of the Home Teams' understanding of the strategic

context.

The "out of the box team"

The "home team" is there to respond to Lead User needs and test that response with the

Lead Users. While they will be responding to customers with leading edge needs, it is

rare that their responses will be of themselves innovative. It is more likely that they will

be extensions of or rearrangements to what has gone before.

An organisation seeking innovative solutions must do more. One solution is a separate

"out of the box" team. This team will observe the interaction between the "home team"

and customers and develop challenges to the solutions reached. These challenges can

be used later in management forums to test for truly innovative solutions. The "out of

the box" team should be chosen for a broad management perspective and independence

from traditional organisation streams and products.

We mention above the need for the "Home Team" do approach the issue with a prior

understanding of strategic context. This is even more important for the "Out of the Box

Team". In the final section, we will discuss an approach to this.


39


Creating the strategic Context

In the case of an innovation that is relatively minor in the context of an organisation's

overall activities this may be unnecessary of may just involve dusting off an existing

strategic plan.. however, when the innovation is at the level of the business model, it is

vital.

There are a number of possible approaches. Which is best depends on the issue at hand

and the culture and capability of the organisation. The approach we describe below is

based on Future Scenario Planning. We find it to be a well-documented methodology

that meets most needs.

Future Scenario Planning

Future Scenario Planning meets our purpose precisely because it is not an attempt to

predict the future. Rather is intended to open the minds of the participants to several,

equally plausible scenarios. These may not cover every possible outcome. There is no

need for that. The chief benefit and one that fully meets the needs of Research for

Innovation is to prepare the organisation to be fully receptive of and alert to the needs

of Lead Users. The outcome that matter is in the innovation design not in the scenarios.

These are merely stepping stones towards the goal.

In this context, the approach is over one or more workshops. Both the "Home Team"

and the "Out of the Box Team" should participate although it is somewhat more relevant

to the latter group. Ideally, it should be held about a week before the QFD sessions.

The content of the workshop(s) is, typically:

QFD

Lead Users Home Team

Needs Capability

“Out of the Box” Team

Strategic Context


40


Identify the key drivers of change affecting the brand and category. These include

social, eco-systemic, political and regulatory, technological, economic and industry

trends.

Group these by common root causes and common high level impacts into

manageable "packages".

Assign ratings to each package by importance and uncertainty.

Work on the highly uncertain drivers (those for which the outcome is a "spin of a

coin") to create several different scenarios. Four is a good number of scenarios with

which to work.

Tell the stories of the scenarios from the first pebbles to the avalanche through the

process of change to the outcomes.

Set the innovation plan in the context of the scenarios. Ask what elements might

work or fail under each scenario.

The organisation should now be ready to make the best use of its Lead Users to outpace

its competitors.


41


Notes to Section 3.0

i Described in Section 2.0

ii All the evidence we have leads me to think accountants have a crucial role in this. I

shall discuss this further when I look at brand audiences in more detail.

iii I have put this to several bankers without having any dispute but I expect few people

know for sure.

iv Kano, Noriaki (ed.) (1996). Guide to TQM in Service Industries. Tokyo: Asian

Productivity Organization. ISBN 978-9283311300.

v Actually I understand there are no completely satisfactory translations the terms Kano

uses. Expected, delight, satisfiers, dissatisfiers are fairly commonly used and seem ok to

me.

vi This is related to and compounded by my assertion, earlier in this paper that

attributes are not mutually exclusive because customers link them together in mental

stories.

vii Low importance attributed by customers to pricing is a theme that runs through

banking that i shall discuss in a later paper

viii Lags are one of the key features of systems including business systems. The other

main features are feedback loops. Together these lead to the adverse consequences of

the management decisions happening someplace else, some time else to someone else.

(I don’t know who said that originally).


42


ix For reasons I shall explain in detail in a later section

x I have frequently interviewed customers who were unaware that they had a

relationship manager. Also I have interviewed customers who thought they had one but

did not.

xi Here from a while ago is a record of my personal experience. The measure is a

amalgamation of business customers perception of bank competence, trustworthiness

and support. The new business model was introduced around January 1993. There was

a decline for three years before the improvements were recognised by customers. The

rise thereafter was swift to overtake National Australia as the leading bank on this

measure. Source: Financial Products Review Group

xii .Out of Crisis’, W. Edwards Deming, 1980 Cambridge University Press, ISBN 0-521-

30553-5

xiii Toolkits for User Innovation: Eric von Hippel, Lead User, Configuration System,

Creativity Techniques, Open Innovation by Lambert M. Surhone, Miriam T. Timpledon,

and Susan F. Marseken

-20

-15

-10

-5

0

5

10

15

20

25

30

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

WBC ANZ CBA NAB

branding banks for shareholder value 3.0 customer perceptions

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