Is Richard Bove on to something?
When an anomaly comes along and/or someone questions that which is taken for granted by a community we can either ignore it or we can dive into it, grapple with it, and see what we can learn. This piece by the New York Times about the poor service Richard X. Bove experienced at a Wells Fargo branch caught my attention. And in particular the following statement
“I’m struck by the fact that the service is so bad, and yet the company is so good,” said Mr. Bove, an analyst with Rochdale Securities. “Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought.
Lets be clear on this. Richard Bove has come across unhelpful bank tellers, unexplained monthly fees and fumbled mortgage application. On the other hand, as a securities analyst, he observes that the bank is doing well financially. And on that basis he questions the value of banks being good to their customers as opposed to pushing products and managing risk.
I say great, we should keep an open mind and question the taken for granted. Further, I say that there is no simple relationship between customer service/customer focus and financial performance. What mattered yesterday might not matter today or tomorrow. What did not matter might be critical in the future. In any competitive industry, one has to be mindful of competitors and consumer needs/behaviours.
Is it really possible to treat your customers badly and do well financially?
Why might it be possible for a bank to do well financially despite lacking the customer orientation and not delivering good customer service? The simple answer is that customers keep doing business with the bank – they keep accepting poor service from the tellers, accept/don’t notice unexplained monthly charges and put up with fumbled mortgage applications. So the question becomes: why do customers stick with their existing banks and not move to other banks?
It is fashionable to peddle the view that many customers will take their business elsewhere if their existing supplier treats them badly. I am not convinced that this is actually the case for the majority of customers. I say that customer surveys get access to what customers would like to do (switch after a poor experience) as opposed to accessing what customers actually do. Why the difference? We stick with what is convenient and we accept what works well enough. Furthermore, we get used to being lied to, being hit with unexplained charges, difficult to use/irritating IVRs, company staff that are clueless ….. And we learn to cope. For example, we use online banking as opposed to going to the branches.
My experience, UK experience, suggests that many if not most customers are firmly convinced that one bank is pretty much like any other bank. Furthermore, they are convinced that it is a difficult, time consuming, chore to move banks. Lastly, they are convinced that the process will go wrong and then they will have to expend more time trying to get hold of unhelpful banks and companies to fix what is gone wrong. Given this, it is no surprise (to me) that banks have some of the highest ‘customer loyalty’ levels around. I wonder if some of this also applies to the USA.
At this point you are most likely to be thinking that I am in agreement with Richard Bove: that treating customers right simply doesn’t matter and banks should focus on pushing products and managing risk. Not quite. To get a rounded perspective we have to deal with competition and time. Let’s start with competition.
Lets consider the impact of time and competition
Where each player in the industry works to the same theory of business and thus goes about business the same way customers really have no choice. However, when a new entrant comes along and does things differently then the opportunity for disruption occurs. Think Amazon. Hasn’t Amazon fundamentally changed the book buying and reading experience and in doing so attracted and retained hordes of book readers. Has it not thrown the incumbents to the wolves? Think Apple: how many sleepy/cosy industries has Apple disrupted?
So my key point is that as and when a new entrant shows up in the banking industry and offers a superior value proposition centred on honesty, convenience and customer service in the banking industry it will be interesting to see what happens. In the UK I am watching the progress of Metro Bank with interest. Also, it will also be interesting to see if Richard Branson and the Virgin Group do anything interesting given that they are looking to buy branches from the existing banks.
Time matters. The best way for me to make this real is to share the example of Tesco. For ten years or so Tesco did extremely well financially, it was the company to beat in food retailing in the UK. That is no longer the case as this piece shows. What happened? In the UK Tesco failed to invest in the customer experience. Specifically, Tesco failed to invest in the stores and in the people that served customers. Over time the customer experience became poorer and competitors caught up. Then the recession arrived, customers went to competitors, Tesco lost market share, issued a shock profit warning and the value of the company dropped by £5 billion.
Yet, to get that time matters we do not have to go beyond the financial services industry. Look the banks made a fortune over the last 30 years. More and more deregulation delivered more and more revenues and profits. Then the financial services industry as a whole went bust. Yes, bust. Time caught up with financial services industry – it just took 30 years for the consequences to catch up with behaviour. And we, through our governments, have socialised the losses. It is only because the citizens/taxpayers have taken the hit, a big hit, that the banks continue.
Wells Fargo may be doing well today because it is reaping the fruits of yesterday and/or sacrificing the future. Yes, you can always boost short term revenues and profits by milking lazy, confused, gullible and helpless customers. Put differently, the only way we can know if Wells Fargo can get away with poor service by bank tellers, unexplained monthly charges and fumbled mortgage applications is to see how things play out in the next 10 years or so. If you are tempted to take your customers for granted then I urge you to reflect on: what Amazon did to the book publishing/selling industry; what Apple has done to numerous industries including music, mobile phones, computing; and how the mighty like Tesco, Nokia, RIM have fallen.
Note: This is my first and last post for August. I am taking time out and intend/expect to be back in September. For my part, I wish you well and thank you for taking the time to read what I write and share your views.