Branding Banks For Shareholder Value 6.0 Brand Measurement

Branding Banks for shareholder value Discussion Draft Section 6.0

Branding banks
for shareholder
value
Section 6.0

Measuring
bank brands
July 2010

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© Geoffrey Johns 25 July 2010


Delivered and planned series of papers

Discussion Draft Release Date
Order.Version
Creating shareholder value - an outline 1.0 Mar-10
Knowing customers 2.0 Mar-10
How customer perceptions develop 3.0 Apr-10
Why brand banks? 4.0 Apr-10
Why can't banks brand? 5.0 May-10
Measuring bank brands 6.0 TBA
Measuring relationship value 7.0 TBA
Gaps diagnosis 8.0 TBA
Bank structure and brand control 9.0 TBA
Process level brand control 10.0 TBA
Building the brand story 11.0 TBA
Communicating bank brands 12.0 TBA
Valuing bank brands 13.0 TBA
Brands and the future of banking 14.0 TBA
Competitive bank branding strategies 15.0 TBA

Introduction

My purpose, in this series of papers is to define the path from bank branding and
customer perception to shareholder value. How does investment in brand and
perceptions generate value? The exhibit below illustrates my starting point in making
this connection.

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Perception of
Customer
price
perceptions

Perception of Bank Business unit
specification efficiency performance
fit to needs Shareholder
value
Perceptions Bank
W
Corporate
of service financial centre
experience structure performance
Weakens
Mix of
Perceptions
businesses
of brand

improves Investment in
brand

Investment in brand strengthens customer perceptions but reduces bank efficiency by
necessarily increasing expenses. Most banks make this trade-off based on experience
and judgement. While I doubt that this type of decision can be reduced to any simple
equation, I do believe that better frameworks‟ for thinking about it are available.

I also argue that successful branding is vital to banks but that it is at the extreme end of
difficulty on the spectrum of all brands. The normal ways of thinking about corporate
brands do not work well for banks. Creating and managing a bank brand is so difficult in
fact that the corporate competence in surmounting the challenges is a source of
sustainable competitive advantage. This advantage can only be achieved by an
understanding of the issues and their implications. There must be a particularly
disciplined set of decisions within a well designed policy framework. In some aspects
this goes to the heart of and challenges conventional management thought.

I am serialising this series of discussion drafts on LinkedIn and slideshare and welcome
any comments. The papers are work in progress towards a book I intend to write one
day. I am recording my own journey over many years trying to come to grips with these
issues. My approach is mainly founded on practical experience but I have been dutiful in
trying to make best use of theory and whatever data I could access. I am happy to be
connected to anyone on LinkedIn who shares my interest in fiancé sector marketing.

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I developed much of my thinking on this subject working with the Finance & Business
Services team of TNS Australiai. I am grateful for their input and support. However any
opinions I express are mine alone. In developing my thoughts I have drawn on the work
of others. Attribution is always recorded. Should anyone reading this be concerned that
their ideas have been misrepresented or used inappropriately I should be happy to
amend or withdraw them.

Measuring perceptions of brand

In this sixth section of branding banks for shareholder value I want to discuss the
measurement of brand perceptions. If we are to make a connection between
perceptions of brand and shareholder value it is necessary to measure both.

In this section, I want to cover:

 the relationship between customer satisfaction and customers‟ perceptions of
brand;
 measuring customer satisfaction;
 perceptions of customer satisfaction as it has been measured in three academic
studies of personal finance markets;
 my findings about what customer perceptions seem to make a difference to
satisfaction and brand image in business markets;
 the issue of multiple brand audiences;
 The way forward, as I see it, in getting a better handle on how bank brands are
perceived.

The relationship between brand
perception and satisfaction
Brand as a store of satisfaction

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Is measuring customer satisfaction is enough to get a fix on the power of the brand?
Does satisfaction = brand?

To return to the definition of brand that I asserted in Section 4, the first part of which
(shown in blue) I accept from John Grant as axiomatic for my purposes:

“A brand is a cluster of strategic cultural ideas” that inculcates and modifies
our expectations of the way the world works. The addition in green is mine.

I have used this diagram to illustrate how I see the role of brand in modifying
experience.

BRAND

Customer expectations

The objective Customer
quality of the perception of
experience the experience

In the context of bankingii, brands modify the perceptions of experience as I illustrate
here. Experience modifies first, immediate expectations, and then the attitudes that
give rise to expectations and finally the deeper held beliefs which are articulated in the
real world through attitudesiii. Our expectations are generated through brand perception
in ways I shall discuss in more depth in a subsequent section.

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Beliefs

Reframing feedback

Attitudes
(Reusable decisions)

Contextualisation
feedback
Needs

Expectations

Choices
Realignment
feedback

Interpretation

Experience (feedback)

Outcomes

Expectations influence both the outcome and our interpretation of the outcome. The
exhibit below amplifies this a little. A customer with a favourable brand impression is
more likely to do two things. The first is to have, at the outset, a higher commitment to
the success of an interaction with the bank. By interaction I mean anything from
telephoning to make a complaint to calling into a branch to make an inquiry about
refinancing a mortgage. Banking products and services are among those that depend on
collaboration between the suppler and the customer for successful outcomes.

For example, a customer with a complaint who has a poor perception of the brand goes
into the interaction with an adversarial rather than solution seeking game plan. During
the interaction they are likely to induce a negative reaction from the bank staff members
and this, of course, can easily spiral. Similarly if the customer goes in expecting a bad
outcome the interaction is more likely to lead to one. The interaction meanders towards
the conclusion predicted in the customer‟s mind. Finally, brand influences the
interpretation of the outcome.

‘They fixed my problem just like they always do.’

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Favourable
Perception
of brand

Customer Favourable
commitment to expectations of
the interaction the interaction

Favourable
interpretation of
the outcome
Good bank
performance Favourable
outcome

Effective bank
processes and
resources

And there is one further feedback loop to add. Once observed, the commitment of bank
resources is reinforced, confirming the loop. The difficulty for the bank lies in the
observation of the process which is more difficult to measure than you might think.
Many banks give up on a course of action just before benefits become apparent because
their antennae are insufficiently well attuned.

Favourable
Perception
of brand

Customer Favourable
commitment to expectations of
the interaction the interaction

Favourable
interpretation of
the outcome
Good bank
performance Favourable
outcome

Effective bank
processes and reinvestment
resources

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As I discussed in Section 4, there is a self reinforcing loop in the development of
customer perceptions as experience of the event interacts with accumulated brand
experience. Where brand experience and event experience conflict there is a clear
management issue at hand. But where they reinforce each other, either up or down,
there is momentum. It is true that banking momentum can appear almost glacial in its
pace. Deciding of the right things to do and consistently doing them over a long period
is a big part of the answer.

Tourist: How do you get these lawns looking so beautiful?

Gardener: We just keep watering them, mowing them, rolling them.

Tourist: That doesn’t sound difficult, how long does it take?

Gardener: About 400 years.

And while I have my old joke book out, I shall also fail to resist:

Man in sports car to wayside yokel: What’s the fastest road to London?

Yokel: Well, if I were you I wouldn’t be starting from here.

Bank brands tend not to be starting from the right place. A few decades ago might have
been better.

I used the diagram below in Section 4 – „Why brand banks?‟ to illustrate the momentum
imparted when brand experience and event experience reinforce each other.

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Why then doesn’t a successful bank just maintain this momentum ever onwards and upwards,
while the unsuccessful ones go down? I suspect this is largely due the cyclical and structural
factors I outlined in Section 5 and the interactions between them. The playing surface never
stays smooth and level for long enough. But also it is caused by flagging in management
resolve. Too often things happen too slowly or in ways undiscerned and management
support for a strategy is withdrawn. These things are hard to observe and measure. To do
so is an important management discipline.

To sum up, when we measure satisfaction, we are measuring the impression left by a series of
experiences modified by brand and changing brand perceptions. Favourable brand perception
has dimensions that satisfaction alone does not.

What does a favourable brand perception do that
satisfaction alone does not?

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Is favourable perception of the brand the same as customer satisfaction? I think not.
Perceptions of brand allow you enter the realms where experience has less power. This
happens in two ways:

 First satisfaction with what is experienced can be transferred to things not yet
experienced; and
 Secondly satisfaction can be transferred from the concrete particular to the
abstract universal.

I shall elaborate below. In the meantime, I don‟t want to imply here that there is a
simple path from repeated event satisfaction to favourable brand perceptions. This
repeated event satisfaction creates the opportunity for branding not the branding itself.
There needs to be a vehicle of mental pathways and associations to do that. As John
Grant says there has to be „a cluster of strategic cultural ideas’ acting as a conveyer. I
shall pursue this line of thought in Section 11 – „Building the brand story’.

Close to hand and heart

By „close to hand and heart‟ I mean those products and services that the customer needs
and uses now. Typically, bank customers are rarely satisfied in a way that transcends
the here and now. Too much is simply expected to go right. If an interaction with the
bank goes well today that‟s enough. Brands, I believe can extend that a little, however,
when they are well managed.

I want here to use a familiar marketing matrix in a different way to how it is usually
deployed. The customer‟s satisfaction with the „here and now‟ can be extended to
products, services and distribution channels:

 offered under the brand that exist but that they don‟t yet use;
 that they use now as they respond to their future needs; and
 that the bank may introduce in the future.

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This last point is important to, for example, the future development of online banking.
Imagine being offered a new online banking service by a bank that consistently makes
mistakes in your paper statements.

Products, services, markets, distribution
channels

Existing New

Perception of
events as
Perceptions of
Present

modified by
brand
perceptions of
Time perspective

brand

Perceptions of Perceptions of
Future

brand brand

Brand here fills in parts of the matrix that satisfaction alone does not fully reach into.
The reason is that bank satisfaction tends to be passive and reactive. It does not extend
unless in some way articulated. A good brand requires customer satisfaction as a base
but it requires other things as well.

More distant but more lasting

Another set of dimensions are those shown in the exhibit which follows. They appear
less immediate but because they require a greater stretch on imagination, beyond the
self and the self‟s immediate needs can create a deeper impression. Perceptions once
extended into new territory are I believe likely to be sustained. The breakthrough into

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new territories of thought is hard to retreat from. It tends to stick in people‟s minds
because it is newly created territory in their mental map.

Focus

Me Others

Perception of
events as
Pragmatic

Perceptions of
modified by
brand
perceptions of
brand
Outlook

Perceptions of Perceptions of
Ideal

brand brand

I see this branding effect as having two dimensions:

First, it extends satisfaction beyond „me‟ to „us‟. „If I’m satisfied with this service so will
others be’. This inevitably carries with in people‟s mind the connotation of „us‟ as „me
and my tribe‟ or „me and the tribe I want to be in‟. The effect can be powerful. It
extends to ‘I am one of the group of people experiencing satisfaction with this brand’.

Secondly, it can go from the pragmatic to the ideal. That is to say, from the strictly
utilitarian to something socio culturally valuable independently of the user. It becomes
the right way to do things.

All the things above that I have tried to designate as „brand‟ rather than satisfaction
have one further capability. Satisfaction can be better than that of a rival bank. But it
cannot be a different kind of thing. Competition takes place along a single continuum in

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this regard. Brand opens competition to many dimensions creating, as it does so, more
opportunities for differentiation.

The foundation for brand is personal experiences but brands build bridges from personal
experiences to broader perspectives, aspirations and concerns.

Having said this, for customers, the foundation of favourable brand perception is indeed
satisfaction. It is to the measurement of satisfaction that I shall turn next. We also
need to consider the development of brand perception in the minds of non-customers
with no experience of the product or service. I shall return to this later in this section.

For now I want to conclude that favourable brands stretch customer satisfaction into
dimensions other than the individual customer‟s here and now. More than this a good
brand shifts the customer‟s mental focus from the concrete particular to the abstract
universal. For this to happen the customer must believe that the benefit that they
derive from the interaction with their bank results from some core value or institutional
capability that resides deep within the bank and is nurtured there.

Measuring satisfaction

A (very) short history of customer satisfaction
measures in banking

Of course it has always been a good idea to keep customers happy. The „customer is
always right‟ has been with us for a while. I suspect, however, that systematic research
into bank customer satisfaction is relatively recent. Around 1990 I asked to see all the
customer research for Westpac‟s commercial banking unit and was directly to a rickety
but large wooden cupboard. Out fell a few dozen or so large, dusty, ring bound books of
research. They were all issue specific (this or that product or campaign) rather than
systematic tracking. Clearly each had be read once or twice, nodded wisely over and
chucked into the cupboard. It took a couple of decades to get to where we are now in
measuring satisfaction.

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There were two things that gave impetus to measuring satisfaction. One that appealed
to the thinkers in banks was ultimately caused by Edwards Deming‟s quality
management concept. Banks came late to quality management (many came not at all).
It did make sense, though, that measuring the quality of process depended on some
guide to the quality of output that customers required. Now this isn‟t easy in banking.
Compare it to, say, manufacturing a part to go into a larger assembly. If the
specification of the ball bearing is 14.25 millimetres diameter that‟s the target, no
question. Obviously, banking is harder to get that level of „hard and fast‟. Thereby
hangs a thought that I shall pursue later in another section. For now though the need to
measure satisfaction in some way or another became more important.

By contrast, the road to measuring satisfaction for the „doers‟ among bank executives
came with a realisation, which seemed to dawn on the whole world all at once during the
Nineties. We discovered that retaining customers costs a lot less than winning new
ones. By year 2000 at least two bank CEOs in Australia had satisfaction measures as
part of the KPIs agreed with them by their Boards (and probably all of them).

But then, after a few years, people began to question whether satisfaction was enough.
Criticism came mainly from two sources. First satisfaction alone did not appear to be a
good predictor of customer behaviour. Secondly, for some people, measurement of
satisfaction seemed to make life too easy for the people being measured. The bar had
not been set high enough.

To take the first point, satisfaction seemed not a good guide to customer defection or to
their value to the bank. Indeed some very satisfied customers were underpriced for risk,
so no wonder. Other dissatisfied customers were so because their bank, quite correctly,
was trying to manage credit default. But even so it was found that some satisfied
customers that a bank wanted to keep were defecting.

Some studies purported to show that satisfaction only predicts behaviour when
satisfaction scores are very high. I think the reason for this is less that there is a sudden
kink in the satisfaction / behaviour curve. I think it because a hidden dimension comes
into play. We see this at work in the Conversion Model, which I discuss later.

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The second point goes to the heart of bank management and I shall more to say about it
later in this series of papers. For now though consider the exhibit below. It shows the
result of a survey of about 23,000 relationship managed business customers. There was
a response rate of roughly half. The waves were carried out in the years 1995 to 1997,
inclusive. It was approximately two years after a major restructure and the relationship
managers and their support teams were getting good scores for customer satisfaction.
About 70% of customers were being giving scores of 8 or better. But in the minds of
some people at their head office that wasn‟t supposed to happen. It looked all too easy.
But then how do you raise the bar to 8 out 10, especially when many respondents don‟t
give 10s on principle. ‘It leaves no room for improvement’, they say.

Overall Rating of Relationship Manager
Service and Support
Wave 1 Wave 2 Wave 3
Avg Response 7.23 Avg Response 7.98 Avg Response 8.05

1 1 1

2 2 2

3 3 3

4 4 4

5 5 5

6 6 6

7 7 7

8 8 8

9 9 9

10 10 10

NA NA NA
0 5 10 15 20 25 0 5 10 15 20 25 30 0 5 10 15 20 25 30
Percentage of respondents Percentage of respondents Percentage of respondents
Source - CTS

It was generally decided; (by those not being measured) that something more
demanding was needediv.

As well as these things, banks, in my experience, are not good at linking satisfaction
measures to process management or design. Measuring satisfaction is seen as just a
way of keeping score rather taking decisions. As far as I can see, this is not a
widespread concern among others. It is, however, a central theme of this book.

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Satisfaction and the TNS Australia Business Finance
Monitor

The TNS Australia Business Finance Monitorv is a sophisticated survey of the banking
behaviour and perceptions of businesses with turnovers of up to AUD 100,000 vi. For
general references to TNS and the Kantar Group, of which it is now a part, see the
endnote. I reiterate that while I am grateful for having worked with TNS Australia for
nearly a decade any views I express are mine alone and do not necessarily reflect TNS
thinking. In making reference to the BFM I use no indicators for any individual client and
only show data that is already in the public domain.

In its design the BFM survey had to do two things of special relevance to this series of
papers. One was to incorporate some measures that were a given because they were
used by one or more of the subscribing banks as part of their internal processes. For
example satisfaction measures are included in some in the Key performance indicators of
the CEOs of some banks. This means that it is vitally important to the client that the
underlying question does not change so the time series is maintained.

Secondly, the questionnaire design involved input from a group of highly experienced
and competent market research expertsvii. Naturally there was not total agreement
either on what elements to include and how to word the questionnaire. The end result
was a compromise but not, in my view, a bad one. As I progress through this section I
shall comment where my views were or have come to be at variance with the
questionnaire as it is presented here. Hindsight is of course easier than foresight and I
learned a lot during the course of my involvement.

As a result of the situation I have described, the BFM include questions from more than
one approach to measuring satisfaction:

 Two different versions of a straight satisfaction question with, as far as I know,
no particular source.
 The satisfaction question as it is incorporated into Jan Hofmeyr‟s Conversion
Model™;

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 A version of the Net Promoter Score (NPS) question, developed by Fred
Reichheld; and
 A version of the Customer Value Added question, developed by Ray Kordulpleski.

In the exhibit below I set out the text of the questions side by side. I‟m going to refer to
such questions as focal questions because they act as a bridge between understanding a
lot of detail about the customer‟s perceptions and situation and making predictions about
the customer‟s behaviour. Put simply for now.

Beliefs

Reframing feedback

Attitudes
( Reusable decision)
s

Contextualisation
feedback
Needs

Expectations

Choices
Realignment
feedback

Interpretation

Experience feedback
( )

Outcomes

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Standard Conversion Model NPS / Advocacy CVA satisfaction Standard satisfaction
satisfaction question satisfaction question question question question (2)

Overall, how Overall, on a scale Using a scale of 1 to Taking everything And thinking about
satisfied or from 1 to 10, where 10 where 1 is into consideration - all of your business
dissatisfied are you 10 means 'perfect in 'definitely would not the products, the accounts, loans,
with your every way' and 1 recommend' and 10 service you receive investments and
relationship with means 'completely is 'definitely would and the fees and service dealings with
[main bank] on a unsatisfactory', how recommend', how charges that you [main bank], how
scale of 1 to 5, would you rate your likely would you be to have to pay - how would you rate their
where 5 is as experience with [name recommend [main would you rate [main overall
satisfied as you of provider] for bank] to your bank] overall for the performance? Is it
could be, and 1 is as business banking? business associates value they offer your excellent…?
dissatisfied as you for their business business? Would you
could be. Are you…? banking needs? say they give you
excellent value for
money…?

BFM Q 8-5 BFM Q 10-2 BFM Q11-6 BFM Q11-2 BFM Q11-3

Note that the Conversion Model™ satisfaction question only operates in conjunction with
the other question that combine with is to assess customer commitment. These
questions are.

Conversion Model Conversion Model Conversion Model Conversion Model
satisfaction question perception of importance of choice / perception of
alternatives question involvement question alternatives question
question

Overall, on a scale from 1 to I'd now like to ask you how Thinking about the selection I‟m now going to read three
10, where 10 means 'perfect you feel about different of a bank or other financial statements about business
in every way' and 1 means institutions with regard to institution for your business, banking institutions. Thinking
'completely unsatisfactory', business banking. Please on a scale of 1 to 5 where 5 about your business banking
how would you rate your indicate your feelings about is not important at all and 1 with each bank , please tell
experience with [name of each institution by giving a is extremely important, how me which statement best
provider] for business score between 1 and 7. If important to you is the describes how you feel about
banking? you have a very negative decision about which provider this institution.
attitude towards a particular to go to? Is it? 1 There are many good
institution then you should reasons to continue dealing
give it a score of 1. On the [Extremely important1;Very with [BANK] and no good
other hand, if you have an important2;Moderately reasons to change.
exceptionally positive important3;Slightly 2There are many good
attitude towards it, you important4;Not important at reasons to continue dealing
should give it a score of 7. all5 with [BANK] but there are
also many good reasons to
change.
3There are few good reasons
to continue dealing with
[BANK] and many good
reasons to change.

BFM Q 10-2 BFM Q 10-1 Q10-3 Q10-4

I might be uniquely positioned to talk about these several ways of getting to the
measurement of customer commitment. Surprising there seemed relatively little client

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interest in making comparisons between the focal question approaches so my data is not
as rich as it might be.

The Net Promoter Score™ (NPS)

NPS / Advocacy
question
Undoubtedly, NPS has taken the market research world by storm. „It
would be difficult to overstate the impact of Net Promoter on
Using a scale of 1 to
10 where 1 is management‟viii The BFM Advisory council of client representatives asked
'definitely would not
recommend' and 10
is 'definitely would
for it to be included in the questionnaire from July 2007 as a replacement
recommend', how
likely would you be to for the advocacy question it had included, hitherto ix.
recommend [main
bank] to your
business associates
for their business
banking needs?

Net Promoter is a customer loyalty metric developed by Fred Reichheld and
BFM Q11-6 Bain & Company, It was introduced by Reichheld in his 2003 Harvard
Business Review article "The One Number You Need to Grow". It is controversial in its
claim to be ‘the one number you need to grow’. Studies such as that of Timothy L.
Keiningham et al (op cit) cast doubt over claims that NPS is a superior measure. For reasons
I’ll deal with below it probably isn’t all that inferior either. For my immediate purposes,
however, it is a measure that looks beyond the respondent’s satisfaction to look a little more
broadly at how the customer sees the brand. It asks customers to interpret their experience of
the brand in the context of their relationship with other people. I think it the question is most
useful as a guide to word of mouth but it is serviceable as a satisfaction focal question
providing you don’t get carried away by its claims to unassailable superiority.

The question itself presents a problem that seems not to have been picked up by the
various critics of NPS that I have read. Two things are, conflated: the first is the
customer‟s satisfaction with the product or service. This is saying, „I, the customer, am
so satisfied that I would take the (unusual) extra step of recommending this to others‟.
In a sense that can be expressed as „I will associate my brand with your brand‟.

The second thing is the customer‟s intention to talk about the product or service at all.
This raises questions such as does the product or service appeal especially to people who
like talking about products. Does this matter in real life? I think it can do. Are, for
example Apple computers the product of choice of the „chattering classes? I think they

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are and that this has a positive impact on the Apple brand. My main point here is that
any attempt to modify the focus question in a satisfaction survey will raise complicating
issues of interpretation. This matters more when the focal question is used for deep
analysis as opposed to merely keeping score.

We have seen that the BFM asks the NPS question as well as other satisfaction related
questions. I don‟t see why this shouldn‟t be done. In point of fact, I‟d ask the word of
mouth question, ideally, a little differently. But given its apparent popularity with senior
executives I see no real harm in adopting the Reichheld wording. I should prefer to ask
other questions though concerning the frequency with which and circumstances in which
people seek and offer opinions about banksx.

A bigger question in my mind is how is that this form of satisfaction question became so
popular so quickly, a point to which I shall return xi as I believe the underlying causes are
central to my argument.

The exhibit below compares, the NPS with commitment s measured by the Conversion
Model. The data is for Australian business banks and customers up to AUD 5 million
turnover. NPS is measured as the aggregate of scores 9 and 10 on a ten point scale
minus the aggregate of scores 1 – 6. The conversion model rating is measured by the
percentage of committed customers to all customers. I am not revealing the names of
specific banks in these papers. But it does seem useful to distinguish here between
small (S) and big (B) banks.

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Comparison of Commitment and Net Promoter Score

50%

R² = 0.7141 S
40%

S
30%

20%
Net Promoter Score

S
10% S
S

0% S
S
S
-10%
B

-20% B
B

-30%
B

-40%
40% 50% 60% 70% 80% 90% 100%
Commitment

You‟ll have to take my word for it that I can explain the outlying among the smaller
banks. The difference shown between the big and smaller banks is interesting, however.
Big banks seem to score less well on the NPS than measured by commitment. I think
there are a couple of reasons:

 First, the smaller banks tend to have come from a background of personal
banking (mainly home loans) and are growing into their business banking
footprints attracting initially firms that are especially attracted to their business
models. I suspect that these firms tend to have a something of an evangelical
relationship with their banks;
 Secondly, the smaller banks tend to have a larger proportion of customers
outside the main cities of Sydney and Melbourne in smaller towns and rural areas
where there is greater community spirit and supportiveness;
 Thirdly, the smaller banks tend to have stayed closer to businesses managed-at-
the-branch model which means that there is a greater sense of community in
dealing with the bank.

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To the extent that these things are true, the NPS does pick up on intention to promote
as opposed to being merely an expression of extreme customer alignment with the bank.
This may support my view that the NPS is more useful as a measure of word of mouth
than it is of satisfaction per se.

Customer Value Analysis™ (CVA)

Ray Kordupleski, author of Mastering Customer Value Management: The Art and Science
of Creating Competitive Advantage introduced CVA and, among clients I know, it
achieved nearly the same popularity as NPS. One bank I have dealt with, Suncorp is one
of the main examples given in Kordulpleski‟s book. CVA is based on the idea that
satisfaction should be related closely to perceptions of value for money.

With candour (almost defying belief), Kordulpleaski states in the introduction to his book
CVA satisfaction that he chose the name CVA because it resonated with the Stern,
question
Stewart term Economic Value Added (EVA), which lent it credence as a
Taking everything
into consideration -
business. Actually, customer value measurement is vital and I shall turn
the products, the
service you receive to it in the next section in this series of papers. CVA has nothing to do
and the fees and
charges that you
have to pay - how
with this and is simply another way of adjusting the basic satisfaction
would you rate [main
bank] overall for the question to get a supposedly better result. The basic thought is
value they offer your
business? Would you
say they give you customers can be satisfied with a product or service but don‟t think its
excellent value for
money…? value for money. This assumes that when asked about satisfaction they

BFM Q11-2
won‟t, in their assessment, take account of what it costs them. It also
directs attention towards cost away from the other three elements
recognised by Croxford et al, in the work I cite in Section 1 of this series of papers and
adapt in the exhibit below.

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+
Perception of
price

Customer
perceptions
+
Perception of
specification
fit to needs

+
+
Perceptions
of service
experience

Perceptions
of brand

It is quite difficult to get survey respondents to think about all four elements at once. As
with all surveys the part of the totality that their mind snaps to in the instant they have
to respond will depend on factors including:

 the sort of person they are (refer back to Section 2, where I introduce
segmentation by attitudes to finances);
 their situation at the time they respond (for example people‟s first reactions can
change depending on whether they are at home or a work);
 their most recent salient experience with the product / service;
 the positioning of the question in the survey questionnaire.

As far as possible I prefer the question to be as simple as possible to avoid any leading
of the respondent.

23


Correlation of Commitment with CVA
80%

S
70%
S

60% S
CVA score

50% S
S

S S
40% S
B
B
30% B
B

20%
40% 50% 60% 70% 80% 90% 100%
Commitment

The exhibit above shows a rather similar position to what we saw for the comparison
between the Conversion Model and the NPS but for different reasons I believe. I believe
it is indeed more likely that the customers of larger banks are more fully priced. Larger
banks tend to be more attuned to shareholder expectations of return. Moreover, they
can rely less on a growth premium in their share price than can smaller banks. In
addition to this their greater share of customers in urban centres may indicate a greater
focus by these customers on the cost of banking.

How the Conversion Model works

I have already introduced the Conversion Model in Section 3 of this series of papers. It
is a psychological measure developed by Jan Hofmeyr that segments customers into
eight groups as illustrated below.

24


Total market

Customers Non- customers

Committed Uncommitted Open Unavailable

Entrenched Average Weakly Strongly
Shallow Convertible Available Ambivalent
committed committed unavailable unavailable

I have only worked with a slightly older version of the Conversion Model than the one
currently used. This is the one I discuss here. I understand that the version to which
TNS has proprietary rights has been simplified somewhat in application without any loss
of information content. I also understand that Jan Hofmeyr has developed a similar
model to which Synovate, a market research company, has a proprietary right. I have
no knowledge of this model.

The central satisfaction measure in the BFM is commitment derived from the Conversion
Model. In the version with which i am familiar it derives from four elements:

 Satisfaction / needs fit;
 Importance of the purchase decision to the customer;
 Perception of alternatives;
 Ambivalence.

It is a key feature of the Conversion Model that all studies which use it enter data into a
central database from which norms are generated that place the results within the
context of the country and industry. There are approximately 7,000 such studies at
present.

Satisfaction / needs fit

The Conversion Model does not abolish satisfaction. In fact satisfaction is the „active
ingredient in commitment. The other factors in commitment are primarily influenced by
satisfaction but also to some extent by intrinsic factors. I shall explain this below. The
exhibit here emphasises the dynamic nature of the development of commitment of which
the Conversion Model takes a snapshot in time.

25


Conversion Model
satisfaction question

Overall, on a scale from
1 to 10, where 10 Leads to
means 'perfect in every
way' and 1 means
'completely
unsatisfactory', how Need for new
would you rate your
experience with [name product / service
of provider] for business
banking? Loss of business

Leads to Leads to Enhanced
perception of
BFM Q 10-2 alternatives
More negative
ambivalence Leads to
Leads to

Leads to

Increased
Leads to
importance of
choice of bank
dissatisfaction

Leads to

Leads to
Adverse
experiences

Importance

The Conversion Model view of the world is that customers cannot be committed to a
product or service that is unimportant to them. Choosing a bank is more important than
choosing the office cleaners. To which a sceptic might respond – but for any category
the importance of the buying decision is of much the importance across all users.
However, this is not the case. In my research, among Australian SMEs with turnover up
to AUD 5 million, two thirds of them rated importance in the top two categories in a 5
point scale and one third in the bottom 3 categories. This confirms what many bankers
believe about the market. There are two fairly distinct groups. In the words of Alan
xii
Price „the customer you win on price today you’ll lose on price tomorrow’. In
Conversion Model terms the transition paths of ‘low importance’ customers are indicated
by the red arrows and those of „high importance’ customer by the blue arrows.

26


Customers Non- customers

Committed Uncommitted Open Unavailable

Entrenched Average Weakly Strongly
Shallow Convertible Available Ambivalent
committed committed unavailable unavailable

When we talk of satisfied customers who still defect, it seems likely to me that some of
them do so simply because a relationship with any bank is simply not that important to
them. They can be tempted on price or relaxed lending conditions.

Leads to

Need for new
product / service
Loss of business

Leads to Leads to
Search for
alternatives
More negative
Leads to
Can lead to Changes in intrinsic
Leads to
customer
Increased management beliefs
Leads to
importance of
choice of bank
dissatisfaction

Leads to Leads to Deterioration of
economic
Leads to conditions
Adverse
experiences

Perception of alternatives

27


The Conversion Model also takes into account customer‟s perception of alternatives. A
satisfied customer may defect simply because they might be even more satisfied with a
rival bank. This process is illustrated below.

Leads to

Need for new
product / service
Loss of business

perception of
alternatives
More negative
Leads to

Leads to

Increased
Leads to
importance of
choice of bank
dissatisfaction

Leads to

Leads to
Adverse
experiences

Ambivalence

The Conversion Model‟s variable it describes as „ambivalence‟ is very like an intention to
switch question common in many surveys. In a sense a poor rating on this measure is a
culmination of a series of events adverse to the bank. Dissatisfaction leads to an
intensified search for alternatives weakening the position of the incumbent bank as
shown in the exhibit below.

28


Leads to

Need for new
product / service
Loss of business

perception of
alternatives
More negative
Leads to

Leads to

Increased
Leads to
importance of
choice of bank
dissatisfaction

Leads to

Leads to
Adverse
experiences

Dissecting the Conversion Model

None of the questions that constitute the Conversion Model are unusual. Each for them
could easily appear in any survey questionnaire. For example, the ambivalence question
is just a version of an „intention to switch‟ question. What is special about the
Conversion Model is the way in which it brings the four elements together into
commitment, based on statistically derived norms.

The following exhibits are taken from a study I did of the Australian farm sector some
years ago. From the exhibit below you can see that among farmers, frequently reported
in the Australian media as hating their banks, few fall into the South West quadrant of
the matrix. That is the quadrant where respondents don‟t like their bank but there is
inertia because they think that all banks are the same. The majority are in the quadrant
where they quite like their bank but are also open to at least one other bank.

29


Satisfaction / Needs fit
1 2 3 4 5 6 7 8 9 10

Attitude towards alternatives
7

6 5% 62%
5
29%
4

3

2 1% 3%
1

Looking more closely, I next introduce the ambivalence question. Of the 5% of the
market less satisfied with their bank there are still relatively few (37%) who say they
believe there are few good reasons to stay and many to change. This is where we see
the inertia in the market. It is not caused by the „all banks are bastards‟ mindset.

Satisfaction / Needs fit
1 2 3 4 5 6 7 8 9 10
Attitude towards alternatives

7 20% 5 74% 62
6 43% 23%
5 37% 3%
4

3 0% 1 77% 3
2 43% 19%
1 57% 4%

I offer this glimpse to make the point that the dynamics of the commitment over time
should be understood to see how the situation is unfurling. As a group, these farmers
have reached the point where they are open to alternatives but see no compelling
reason to change at this point.

30


Conversion model weaknesses

The primary problem clients seem to have with the Conversion Model is its black box
effect. Four questions are asked xiii and these are brought together in a proprietary
algorithm into a classification in to one of eight commitment segments. This has the
beneficial effect of maintain some central control over the use of the Conversion Model
that I don‟t think applies to the same extent to NPS and CVA where researchers can just
incorporate the question into a survey. They do not necessarily have a comparative
database to work with.

This is obviously an advantage for the Conversion model in normalising outputs by
industry and country. But it does have a serious downside. A great issue that client side
market researchers have is this. Consider when they are being questioned by segment
managers as to why, say, the commitment measure (on which their performances might
be measured) has fallen. How well does it go down, do you think, when they have to
say they don‟t know what happens when the responses to the four questions goes into
the black box?

Now this doesn‟t much worry me. I don‟t see why, for performance measurement,
banks don‟t just use the satisfaction / needs fit part of the Conversion model measure.
Nothing is lost from what they would have anyway. The reply then seems to be, “ah but
people might measure me by commitment anyway. It is part of a wider problem in
using research data. It is one I shall return to after a brief discussion of some related
issues.

General issues with measuring satisfaction

Statistical validity

31


Users of satisfaction scores no matter how they are derived seem to spend a lot of time
considering the „statistical validity‟ of the results. Well I can sort this out for everyone
straight away. There is none: well, none worth speaking of – not in a scientific sense..
The first rule of sampling is that every member of the population has an equal chance of
being selected. With customers, this never happens, ever. It doesn‟t even happen with
a staff survey over which you have more control.

I‟ve never seen good evidence about who responds to surveys but, like pretty much
everyone else, my experience suggests to me that it is people towards the high end of
satisfaction and the dissatisfied. Mind you, I haven‟t really seen the twin peaked
distributions that you‟d expect if this were true.

With panels you get people who want to be on panels. With incentives you get people
for whom the incentive means something. But whatever you get is not going to be
statistically valid.

Let me offer two anecdotes and you can make a judgement about how rare you think
these instances might be.

An elderly woman I know took pity on a cold wet door-to-door research woman one
Yorkshire Sunday. She answered some door step questions and accepted £5 to fill out a
„phone directory sized questionnaire. But as she was frail and tired my partner and I
took on the task of completing the questionnaire on her behalf. Much of it didn‟t apply,
for example cosmetics, overseas travel and theatre going. It still took us, taking turns,
on and off the best part of a week. We did do our best though to reflect what we
thought he lady‟s thoughts would be.

I once had dinner with a half a dozen Barossa Valley winemakers and their accountant –
himself a winemaker. They were all customers of my bank. When I asked about the
client survey I had used recently, the accountant told me that all the others gave him
the questionnaire to complete for them. He told me he did try to reflect the individual
experiences of each of them.

32


Well, did you expect every bit of market research to come to you in dust free laboratory
condition?

Sample sizes

Sample sizes are rarely what we should like them to be. In my experience we
sometimes say that around thirtyish is enough. It is, sometimes. But that is in limited
circumstances where the dimensions we are sampling for are few (well one actually). So
in predicting the proportion of red billiard balls in a bag of red and white ones it might be
ok. But in ascertaining the loan balances of a sample of customers it is less so. I expect
it‟s always hard to satisfy statistical standards. In my practical experience it‟s best to be
nervous with any sample shy of 100 or so.

Incomplete population data

What actually is the population that is being sampled? This is not as straightforward as
it sounds. Take the segment, often used in Australia of SMEs with turnover less than
AUD 5 million. From memory there are an very large uncounted number not captured
by government Goods and Services Tax returns alone. These returns are the main basis
for keeping count od Australian businesses.

What is being measured, actually?

In my experience this is often a poorly understood issue, even among market research
specialists. In banking what to you want to measure? Is it something about the
customers themselves or something about their value to shareholders? For example,
supposing you discover that the proportion of customers with turnover < AUD 5 million
committed to their bank is 50% by number. It could easily be the proportion of their
(say) loans from the bank held by committed customers is 70% a big difference. So
what do you want to measure? In most cases i would want to know the characteristics
of my balance sheet rather than of my customers. But most bank research doesn‟t tell
you that.

33


Measurement scales

A variety of scales are used. Sometimes people get very hung up on this. I tend to use
1 -10 because respondents are most used to it and it presents as little barrier as possible
between them and the script. But even discrete data can be deceptive. The gap
between 1 and two rating, for example is 100%. The gap between 9 and 10 is 10%.

Valid responses

Having met the cost of getting through to a valid respondent, naturally you want to ask
as much as you can. My best information is that there is deterioration in response and
an increase in the dropout rate if an interview goes much longer than 20 minutes.
Telephone seems to work best as far as I can see but is expensive and increasingly will
run counter to privacy regulation. Panels will become important but while a panel can
tell you a lot about the voice of the market it is less useful for the voice of the customer.
It is hard to find a panel that can be made representative of a defined customer base.

The auto pilot response to ratings

My experience of people answering any form of satisfaction question on the telephone is
that they immediately get what the questioner is on about and translate that in their
minds directly to he / she wants to know how much I like it. This actually mostly gives
you the right answer but doesn‟t add much for the case for subtly worded questions.
Respondents screen out the subtlety because they get what you mean almost before you
say it.

Also, people have some tendency to get into a rut when answering a series of questions.

 ‘How responsive are they?.... 6
 How consistent are they? ....6
 How well do they support the community?...6
 What’s your favourite colour?...6’

34


Questionnaire design issues

There is never a perfect design but be aware of this. Introducing a satisfaction question
in the wake of a series of questions about face to face service will almost certainly
condition the respondent to answering about their satisfaction with face to face service.
If you wanted to know about their satisfaction with the bank as a whole, including,
products and other distribution channels, you are not likely to get it.

So what is the big problem I was talking about earlier?

All these little problems come together as one very big problem when mixed with one
important fact of banking. Some people have a vested interest in looking hard for and
imperfections in the data. As we have seen these are inevitable so a hard look need not
take that long. These people are really anyone in a management position who is being
measured by satisfaction scores and for whom the numbers come up wrong. I am
reasonably certain that I know of specific cases where senior management have adopted
market research policies designed to disguise their failure.

This is a really big problem with using satisfaction research for measuring performance
as opposed for to taking marketing decisions. And some clients, perhaps most clients
see performance measurement as the main or sole purpose of satisfaction surveys. In
these circumstances there will also be a tendency for clients to try to discredit the
research. Market research is always a bit like holding an X-ray up to the light and
wondering if the patient really did swallow a hammer. If it suits a senior manager to
render the research process toothless is usually possible to do so. But it isn‟t something
that can be turned on and off. There are banks that are opportunistic and banks aren‟t.
I‟m going to hold off for a bit before I decide on the right work for them. But in the
meantime I will say that a bank can‟t have it both ways. Or at least they can only fool
some of the people some of the time. Handling market research well is a demanding
organisational skill. It takes a certain kind of maturity. This must be based on a realistic
understanding of what research can achieve coupled with profound understanding of the
industry context.

The relationship between quantitative and qualitative research

35


Qualitative research never measures anything. This shouldn‟t need saying but I‟ve
heard clients drawing conclusions about what the market thinks from a couple of focus
groups too often to know that it does.

Qualitative
research

Interpret
Design

Quantitative
research

„We’ll run it past a couple of focus groups’ is one of those marketing phases that give a
pretty good clue that not a lot of thinking is going on.

Qualitative research can be very useful indentifying things like:

 The way customers related to the product or service;
 The language and terminology they use to talk about it;
 How they use it;
 What they see as benefits;
 How they compare providers;
 How central it is to their lives.

But it tells you next to nothing about how much the respondent‟s views are shared by
others. These things though do help in formulating quantitative surveys and interpreting
results. But is only the quantitative survey that is in any way helpful to the
measurement of brand.

36


Why the obsession with asking just one question?

Would CEOs be happy if the CFO said he or she could tell them all they needed to know
about the business with just one line of the profit and loss statement?

Too much emphasis gets put on the focal satisfaction question. It is never the only
question you need to ask. It is next to useless if you can‟t go backwards from it to
comprehend the underlying reasons. Also you need to be able to identify the
characteristics of respondents in terms of their underlying characteristics and their
banking behaviour. Without this, measuring satisfaction no matter what question you
prefer is unattainable. It is just keeping score.

The exhibit below outlines the overall research framework that needs to be established.
I have heard managers saying that their approach, say, CVA is best and then go on to
describe the framework of questions and analyses that interprets the CVA question in
terms of the framework below and predictions of its outcome. They believe that all of
this is integral to CVA. It is important to realise that these are common to all focal
satisfaction questions. The overall framework is the same whatever the focal question.
The framework can vary a lot depending on the industry and sometimes the individual
organisation. These difference must not be attributed, however to the satisfaction
question being used be it CVA, NPS, Conversion Model or anything else.

37


Affluence

Age Facts about the
respondent
Attitude to finances

Products held, which
bank(s)? Facts about the
respondent‟s banking
Distribution channels behaviour
used, frequency Predictions about the
respondent‟s behaviour

Satisfaction with bank A
Facts about the
Customer defined respondent‟s
perception criteria perceptions of specific
Perception of brand A banks

Alternatives
Customer defined
switching, seeping
criteria Action threshhold

Projected
stimuli

Some concluding thoughts on measuring satisfaction

I have tried to outline the satisfaction measurement approaches with which i am
familiar. There are surely others of which I am unaware. Those i have described,
however, are all used extensively in banking and other industries. I hope they are at
least representativexiv.

Here is my verdict. I would prefer, given a blank sheet, to use the Conversion Model
rather than any other approach I know of. I like it because while it contains a simple
unadorned and uncontaminated satisfaction it has, in the concept of commitment, more
predictive power.

It is a segmentation tool that is calibrated to a large number of studies even though the
mechanism by which this is achieved is opaque.

38


However, I do understand that it hard for bank to move away from an existing approach.
The break has to be for a significant and demonstrable improvement. Otherwise the
disruption to management thinking and the loss of historic data is hard to justify. For
these reasons, approaches such as CVA and NPS are not far inferior (though they are
not, in my view in any sense, superior) to the Conversion Model PROVIDING:

All respondent ratings of other institutions that they deal with or know of are maintained
AT THE RSPONDENT RECORD LEVEL. That is to say that an approach that gives, say, a
CVA score of 40% to one bank and 55% to another based on their customers is inferior if
we do not know how each is rated by each respondent. This is possible with the
Conversion Model but not intrinsically, unless specified, with any other methodology.

Three academic studies in personal
finance
I want to turn to exploring some of the drivers of customer satisfaction in personal
banking. Fiordelisi and Molyneux (op. cit.) refer to three academic studies of customer
satisfaction in relevant fields. Not being an academic and not have access to the
necessary search tools, I don‟t know if these are comprehensive. I expect that they
might be, Fiordelisi and Molyneux are thorough, I‟d say, and know their way round
academic research. But even if they are not, they are, in my experience, representative.
In any event, these studies are a good starting point. The exhibit below shows indicates
where we are in analysis of satisfaction. We are attempting to uncover the descriptive
criteria attributes in which customers think about what makes them satisfied by a bank‟s
services.

39


Affluence

Age Facts about the
respondent
Attitude to finances

Products held, which
bank(s)? Facts about the
respondent‟s banking
Distribution channels behaviour
used, frequency Predictions about the
respondent‟s behaviour

Satisfaction with bank A
Facts about the
Customer defined respondent‟s
perception criteria perceptions of specific
Perception of brand A banks

Alternatives
Customer defined
switching, seeping
criteria Action threshhold

Projected
stimuli

My purpose here is to begin to work towards a useful taxonomy of perceived benefits
that is valid across all banking markets and across all brand audiences. This might not
equate exactly to the design of a survey questionnaire but at some level of aggregation
it is desirable to express a total brand view. An element, say „responsiveness‟ may
require different wording in the personal banking market than for rating agencies. But
the broad concept should remain the same. In this case, that concept is the banks
willingness to interact with an external group with a willingness to interact and respond
to their needs. In my experience of deterioration of bank brands a failing in this area at
the branch level is mirrored in a failing at the top floor of the head office.

Conceptual Model of Service Quality (Parasuraman et alxv)

This study focused on service firms in general. They identified ten dimensions of
customer satisfaction. These were reduced to five as the elements shown below showed
a high rate of correlation. They were brought together under the term „empathy‟.

40


access

courtesy

communication

empathy
credibility

security

understanding /
knowing the
customer

I‟m wary of this. I am indeed wary of letting statistical analysis over-ride business
judgement rather than acting as a pointer to something interesting. The above elements
may all correlate but that doesn‟t make them much the same from a customer‟s
perspective. Moreover, I doubt if a high level of correlation would be found in personal
banking. Access would not be seen as much the same as understanding / knowing the
customer, for example. It is quite easy to experience courtesy from a banker who quite
evidently has no understanding of your financial situation. In business banking, where I
have deeper experience, „understanding my business‟ is a key discriminator between
banks from a customer‟s experience.

In general, however, I don‟t doubt that empathy does matter. Key elements, I believe,
include:

 Knowing me and my situation;
 Knowing how I like to communicate and deal with people; and
 Engaging with my values and aspirations.

However, to go along with Parasuruman et al, the dimensions we are left with are now:

 Reliability (the consistency of performance and dependability eg the company
performs the service right first time and honours any promises);
 Responsiveness (the willingness or readiness of employees to provide services);

41


 Assurance (the knowledge and courtesy of employees and their ability to inspire
trust and confidence);
 Empathy (the care and individual attention that a company provides its
customers);
 Tangibles (the physical evidence of the service).

These are close to my own understanding of what matters in the market.

The determinants of Service Quality: Satisfiers and
Dissatisfiers” R Johnstonxvi

This study identifies these drivers of satisfaction.

 reliability
 commitment
 ability to answer customer‟s need
 flexibility
 integrity
 competence
 functionality
 access
 aesthetics
 courtesy
 care / attention
 friendliness
 communication
 tidiness
 comfort
 safety

Johnson distinguishes between hygienic factors – those that do not create satisfaction if
well managed but create dissatisfaction if poorly managed – and those that create
satisfaction, more or less in proportion to how well they are managed. This is related to
Kano Analysis, which is discussed in detail elsewhere in this series of papers. The
elements in italic font above are seen as hygiene factors.

42


Also Johnson contains elements that parallel some that Parusuraman groups under
„empathy‟. I show the correspondences below.

Parusuraman Johnston

access access

courtesy courtesy friendliness Care, attention

communication communication

ability to answer
credibility competence integrity
customers‟ needs

security safety

understanding /
knowing the
customer

Not comparable aesthetics commitment functionality comfort

reliability tidiness flexibilty

Of these, it seems to me access matters too much to be grouped under empathy.
Access is not easy to define. It is about providing customers with ease to access to the
bank, in branches and offices, though Point of Sale machines and Automatic Teller
Machines; through „phone and online. More importantly it is about integrating these.
Most of the studies I discuss here were made at a time when this integration was not so
important.

Courtesy, friendliness are certainly important. They matter because much of banking
is a commodity so a smile does make a difference. They also matter because banking of
anything is a a little stressful for customers. They could come under the heading
empathy but I wonder if perhaps they should be there in their own right and, in the
questionnaire at least not masked by an abstract term.

43

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