3 big ideas
What made us think
Our point of view
Why it matters
How it applies in the real world
My father has been a loyal customer with one of the ‘Big 4’ banks for over 25 years. He has been with them since his very first paycheck, to when he took out a mortgage for our family home and saved up for my sister’s masters. He used to rave about the money he had saved with them and service he would receive until one day about 3 years ago when they lost his trust.
What did the bank do so wrong?
Actually, not that much. Dad had $1000 fraudulently taken out of his account, an unfortunately common occurrence. Instead of reimbursing him straight away, the bank conducted an investigation which was frustrating - he’d been a loyal customer of this bank for 20 years, so why were they treating him like the fraud?
The bank’s reaction to my Dad’s experience is actually pretty standard practice. Fraudulent transactions cost the banking industry in Australia around $560 million per year, and Banks therefore conduct incredibly thorough (and sometimes traumatising) investigations into claims.
However, if the bank had tracked how my dad’s behaviour changed over the following years they would have noticed the short term and long term risks he posed to their revenue stream. He stopped using online banking altogether, never opened another account and became a brand detractor, costing the bank far more than the $1000 originally taken.
Unhappy customers are expensive
So let’s break down Dad’s journey in the eyes of a banker, and understand how his behaviour change cost the bank more in the following weeks and years.
Cost to serve increased
During the 6 week investigation Dad called the bank 7 times to complain and set up additional security measures. He stopped using online banking altogether and now does all his transactions over the counter.
Customer Lifetime value decreased
Dad hasn’t set up any new accounts with them since. In fact he consciously excluded the bank from his research when looking to open a term deposit the following year. His logic is 'if they can't look after $1000 how can I trust them with my retirement?'.
Brand advocacy decreased
Dad’s words of praise have been replaced by lengthy tangents of complaints - this story is one of his favourite dinner party anecdotes. And like all good anecdotes, the truth is stretched - each time it’s told the sum of money becomes greater and the investigation period longer.
Dad’s story shows us how dissatisfied customers can become the “patient zero” of revenue loss. His experience hasn’t only cost the bank an increase in customer service time but, through reputational damage, posed a risk to the customer lifetime value of other existing and potential customers.
If the bank stands to lose this much, why aren’t the doing something to avoid these costs?
There is a fundamental structural barrier preventing Dad’s bank, and most companies, from tracking the deferred and long term costs of negative customer experiences. They don’t look at both sides of the “customer balance sheet” when making internal policy decisions. Put simply, the fraud team is not geared to think about customer retention or dad’s level of brand advocacy and the customer service team is not geared to think about why Dad, all of a sudden, started transacting over the counter.
Implementing a broader view of how costs are deferred within the business will indicate whether issues have truly been resolved in the eyes of the customer. This mechanism of feedback will improve handling procedures and ultimately minimise the risk of future costs incurred.
What can we learn from my Dad’s experience?
Dad’s experience isn’t uncommon, in fact almost everyone he spoke to has had a similar experience. Whether it be an unjust fee or having to give information multiple times, these experiences stick to customers.
Brands must consider the reputational and economic consequences when making decisions and consider the deferred cost of negative customer experiences over time. If you would like to know how you can use data to drive better long term decision making in your organisation, get in touch with us below.
Service Design & Research
Understanding and designing for customers