Increasing competition and changing customer behavior in the German financial services sector
An analysis of market trends and their consequences for the business model of cooperative banks
©2006
Masterarbeit
125 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
Within the last few years, dramatic changes took and still take place in the retail banking business. On the supply-side competition for cooperative banks is increasing due to various reasons. New competitors with different business models have entered the market. There is no doubt that they pose a serious threat to cooperative universal banks (which were the focus of this dissertation) and whose market share is declining constantly. Furthermore, non-banks and near-banks have to be considered in this respect, too, as these entities' business models are increasingly targeting customers of universal banks.
On the demand side, changing customer behavior has accelerated transformation processes in recent years. An increased willingness to change suppliers can be noticed as consumers are placing more and more importance on price. A strong price awareness is changing market conditions in many business sectors in Germany. Decreasing customer loyalty forces universal banks to push sales activities and to intensify their personal relationship with the customer.
The main objectives of this dissertation are the following:
Work out a strategy within todays typical structure as a universal bank. Identify key success factors and evaluate this strategy for its chances for success.
Derive the consequences for the future business model of a cooperative bank. Determine the change steps necessary to strengthen the competitiveness.
Furthermore, the prerequisites of such a change process will have to be worked out.
An inductive approach was chosen to achieve the aims of this thesis (Gill & Johnson). Firstly, an in-depth analysis of existing literature was carried out in order to gain an overview on current developments such as a) customer behaviour, and b) the competitive situation of the financial services sector. The results were to produce not only an explanation for current trends but also allow the prediction of future trends over the course of the next years. The environment in which cooperative banks are operating was described in detail. This approach provides a good basis to identify the relevant factors and to work out the necessary consequences for cooperative banks.
In order to examine possible conclusions, interviews with 12 experts in the field were conducted. The target groups were CEOs of cooperative banks and representatives of cooperative bank associations. It is those people who are confronted with new challenges […]
Within the last few years, dramatic changes took and still take place in the retail banking business. On the supply-side competition for cooperative banks is increasing due to various reasons. New competitors with different business models have entered the market. There is no doubt that they pose a serious threat to cooperative universal banks (which were the focus of this dissertation) and whose market share is declining constantly. Furthermore, non-banks and near-banks have to be considered in this respect, too, as these entities' business models are increasingly targeting customers of universal banks.
On the demand side, changing customer behavior has accelerated transformation processes in recent years. An increased willingness to change suppliers can be noticed as consumers are placing more and more importance on price. A strong price awareness is changing market conditions in many business sectors in Germany. Decreasing customer loyalty forces universal banks to push sales activities and to intensify their personal relationship with the customer.
The main objectives of this dissertation are the following:
Work out a strategy within todays typical structure as a universal bank. Identify key success factors and evaluate this strategy for its chances for success.
Derive the consequences for the future business model of a cooperative bank. Determine the change steps necessary to strengthen the competitiveness.
Furthermore, the prerequisites of such a change process will have to be worked out.
An inductive approach was chosen to achieve the aims of this thesis (Gill & Johnson). Firstly, an in-depth analysis of existing literature was carried out in order to gain an overview on current developments such as a) customer behaviour, and b) the competitive situation of the financial services sector. The results were to produce not only an explanation for current trends but also allow the prediction of future trends over the course of the next years. The environment in which cooperative banks are operating was described in detail. This approach provides a good basis to identify the relevant factors and to work out the necessary consequences for cooperative banks.
In order to examine possible conclusions, interviews with 12 experts in the field were conducted. The target groups were CEOs of cooperative banks and representatives of cooperative bank associations. It is those people who are confronted with new challenges […]
Leseprobe
Ulrich Thaidigsmann
Increasing competition and changing customer behavior in the German financial
services sector
An analysis of market trends and their consequences for the business model of
cooperative banks
ISBN-10: 3-8324-9923-7
ISBN-13: 978-3-8324-9923-5
Druck Diplomica® GmbH, Hamburg, 2006
Zugl. Fachhochschule Ludwigshafen, Ludwigshafen, Deutschland, MA-Thesis / Master,
2006
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Confirmation
I confirm that I have written the dissertation entitled
,,Increasing competition and changing customer behavior
in the German financial services sector
an analysis of market trends and their consequences
for the business model of cooperative banks"
independently and without any unauthorized assistance. All publications
employed in the writing of this dissertation have been cited accordingly as
sources and noted in the bibliography.
__________________________
Stuttgart, may 12
th
, 2006
Ulrich Thaidigsmann
3
Abstract
Within the last few years, dramatic changes took and still take place in the retail
banking business.
On the supply-side competition for cooperative banks is increasing due to
various reasons. New competitors with different business models have entered
the market. There is no doubt that they pose a serious threat to cooperative
universal banks (which were the focus of this dissertation) and whose market
share is declining constantly. Furthermore, "non-banks" and "near-banks" have
to be considered in this respect, too, as these entities' business models are
increasingly targeting customers of universal banks.
On the demand side, changing customer behavior has accelerated
transformation processes in recent years. An increased willingness to change
suppliers can be noticed as consumers are placing more and more importance
on price. A strong price awareness is changing market conditions in many
business sectors in Germany. Decreasing customer loyalty forces universal
banks to push sales activities and to intensify their personal relationship with
the customer.
The main objectives of this dissertation are the following:
·
Work out a strategy within today's typical structure as a universal bank.
Identify key success factors and evaluate this strategy for its chances for
success.
·
Derive the consequences for the future business model of a cooperative
bank. Determine the change steps necessary to strengthen the
competitiveness.
·
Furthermore, the prerequisites of such a change process will have to be
worked out.
4
Conclusions regarding the objectives:
It can be stated (given the current structures) that a clear differentiation into two
business models (price and quality) under one roof would be needed to meet
the customer expectations. But, due to the typical size of the cooperative banks,
it would be difficult to successful (and permanently) implement this. Especially,
it does little to resolve the central problem among cooperative banks, which is
the great complexity. Today's business model is caught in a trap. A completely
different solution has to be found.
The author worked out, that cooperative banks have to go about two major
strategic shifts.
Strategic Shift Number 1:
Cooperative Banks can come closer to the real needs of their customers
through innovative, future oriented service offerings. Therefore it is important to
recognize and systematically convert interesting trends into business. This way,
a small competitor can keep its market position. Perhaps not always in today's
(financial) products and services, which are to a large extent exchangeable in
the industry, but in the subjects of "life management", which truly matter to their
clients.
Strategic Shift Number 2:
In parallel, the value added chain has to be drastically reduced. By means of
super regional product and services centers almost all subjects with the
exception of sales and strategic tasks will be bundled into new units. The newly
developed vessels allow for an increased capacity and lower per-unit costs,
which in turn is the prerequisite of a lasting sales success. The banks can
become competitive again through reducing the complexity of the business
model and cost structures by outsourcing all other functions. In fact, it will lead
to a new business model with a strong focus on the core competence "sales".
Summarizing, the results mean a revolution in the cooperative sector and a
dramatic shift in the structure and self-conception of the small banks. But if the
necessary change process will not be started within the next three to five years,
the cooperative sector would face existential problems.
5
Acknowledgement
- blank page -
6
Table of contents
Acknowledgement ... 5
Index of figures ... 8
Index of shortcuts ... 9
1
Introduction ... 10
1.1
Initial Situation... 10
1.2
Objectives ... 11
1.3
Methodology ... 12
1.4
Limits ... 14
2
The Demand Aspect Customer Behavior Over Time ... 15
2.1
Trends in Customer Behavior Noticeable Development ... 15
2.2
The Customer Why he buys, or doesn't buy ... 21
2.2.1
Crucial factors for purchases from the customer's view... 21
2.2.2
Differentiation for Target Groups ... 27
2.3
Expected Development Tendencies ... 30
2.4
Conclusion ... 32
3
The Supply Side New Competitors with New Strategies and
Business Models... 33
3.1
Definition of "Business Model" ... 33
3.2
Meaning of the Business Model... 36
3.3
Structure of the Financial Services Market in Germany ... 39
3.4
Comparison of the Strategies and Business Models of the Main
Competitors ... 42
3.5
Summary and Conclusion... 53
4
The Challenge for the Cooperative Banks ... 58
4.1
The Cooperative System ... 58
4.1.1
The Roots of the Cooperative System ... 58
4.1.2
Flexibility and Limits of Future Organization based on a
historic/ideological Viewpoint ... 61
4.2
Cooperative Banks Today Detailed Analysis ... 63
4.2.1
Target Group Segmentation and Positioning... 63
4.2.2
Interim Conclusion ... 67
4.2.3
SWOT Analysis of Cooperative Banks ... 68
4.2.4
Is the Business Model Caught in a Trap? ... 70
4.3
Overall Conclusion about Future Survivability of Business Model ... 75
7
5
Future Strategic Positioning as Universal Bank ... 76
5.1
Basic Strategic Orientation of a Cooperative Bank ... 76
5.2
Positioning of Universal Banks in the Price and Quality Competition. 81
5.3
Factors of Success in Price and Quality Competition ... 84
5.3.1
Factors of Success in Price Competition ... 84
5.3.2
Factors of Success in Quality Competition ... 87
5.4
Consequences for the Business Model... 88
5.5
Critical Conclusion ... 92
6
Strategic Escapes from the Positioning and Complexity Traps ... 93
6.1
Conceptual Basis for a Strategic Positioning ... 93
6.2
Uniqueness through Positioning in Profitable Growth Markets
(Innovative Product- and Services Concepts)... 95
6.3
Competitiveness by Concentrating on Sales (New Organization of the
Value Added Structure) ... 100
6.4
Conclusion ... 104
7
The arrangement of change ... 105
7.1
Prerequisites... 105
7.2
Change Management Consider the "soft" factors ... 107
7.3
Integrated Results of Expert Interviews ... 109
8
Final Conclusion ... 111
Attachments ... 113
Bibliography ... 116
8
Index of figures
Figure 1: Approach of the dissertation (own representation)... 12
Figure 2: Proportional Internet use and Online-Banking per Age Group ... 18
Figure 3: Average number of branch attendance per customer ... 20
Figure 4: Preparedness to Change Banks of Customers of "Sparkasse" ... 22
Figure 5: Contribution of each factor on customer satisfaction... 23
Figure 6: Active customer information is important. ... 24
Figure 7: Six criteria crucial to the customer's decision (own representation).. 25
Figure 8: Importance of different purchase crucial criteria for each target group
(own portrayal ... 28
Figure 9: Increasing Popularity of the Phrase "Business Model". Number of
Articles using the phrase "Business Model" in the Data Base ABI/Inform. 33
Figure 10: The Business Model Definition... 34
Figure 11: Questions today and questions in the future ... 37
Figure 12: Supplier structure in the financial services sector (private clients) .. 41
Figure 13: Cooperative Sector Development of Market Shares ... 45
Figure 14: Annual Revenues of MLP AG by Age ... 51
Figure 15: Typical Three-Level Retail Customer Segmentation... 64
Figure 16: Analysis of the customer structure in accordance with frequently
found segmentation criteria... 65
Figure 17: Analysis of the customer structure of total customer volume (OCV) 66
Figure 18: Analysis of the Customer Structure by Age Groups ... 66
Figure 19: Cooperative Banks lose their ground! (own representation) ... 70
Figure 20: Six Business Model Traps... 71
Figure 21: Which Business Model Matches of a Cooperative Bank? (own
representation)... 72
Figure 22: Cooperative Banks between Price and Quality Competition ... 73
Figure 23: An Example of Capacity Distribution in a Medium Sized Cooperative
Bank (own representation) ... 74
Figure 24: Generic Strategies (own representation)... 76
Figure 25: Basic Challenge in Production ... 79
Figure 26: Positioning for Quality and Pricing Competition (own represent.) ... 82
Figure 27: Cost Leadership or Quality Leadership? ... 93
9
Figure 28: Create Uniqueness through Combination of the Strength of the
Cooperative System and Social Mega trends (own representation) ... 96
Figure 29: Demand Focus of Private Banking Services ... 98
Figure 30: Centralization of Production Processes Independent on the Inflow
Channel into a Market Service Center (MSC) ... 100
Figure 31: Smaller depth of the value chain and focused orientation increase
the profitability... 104
Index of shortcuts
BVR
Bundesverband der Volksbanken und
Raiffeisenbanken (German Association of
Volksbanken and Raiffeisenbanken)
CEO
Chief Executive Officer
Coop
short for "Cooperative"
DiBa
DirektanlageBank (direct deposit bank)
CIR
Cost Income Ratio
CRM
Customer Relationship Management
dto.
ditto
e.g.
for example
etc.
et cetera
GGB
Gesellschaft für ganzheitliche Bankberatung GmbH
(Company for integrated Banking Consultancy Ltd)
IAO
Institut für Arbeitswirtschaft und Organisation
(Institute for Industrial Engineering and Organisation)
KWG
Kreditwesengesetz (German bank law)
MLP
Marschollek, Lautenschläger und Partner AG
p.m.
Per month
OCV
Overall Customer Value
RWGV
Rheinisch-Westfälischer-Genossenschaftsverband
VR-Banks
Volksbanken and Raiffeisenbank
10
1 Introduction
1.1 Initial Situation
The financial services sector has gained momentum over recent years.
Traditional banks complain about spiralling costs; they have to cope with
increasing credit risks and below-average yields compared to international
competitors.
On the supply-side of the banking business competition is increasing due to
various reasons. New competitors with different business models have entered
the market. There is no doubt that they pose a serious threat to universal banks
whose market share is declining. Furthermore, "non-banks" and "near-banks"
(e.g. financial branches of automobile companies) have to be considered in this
respect, too, as these entities' business models are increasingly targeting
customers of universal banks. At the same time, a clear positioning either
espousing low fees (e.g. all direct banks such as ING-DiBa) or high quality
service (e.g. MLP, Bonnfinanz) can be observed.
On the demand side, changing customer behavior has accelerated
transformation processes in recent years. An increased willingness to change
suppliers can be noticed as consumers are placing more and more importance
on price. As popular advertising slogans like "Geiz ist geil" ("Stinginess is cool")
demonstrate, a strong price awareness is changing market conditions in many
business sectors in Germany. Decreasing customer loyalty forces universal
banks to push sales activities and to intensify their personal relationship with
the customer. Typically, private individuals do business with more than one
bank.
All in all, the 1,300 cooperative banks in Germany are known as "banks for
everybody" due to their decentralized structure and local rooting. Their business
is apparently split trying to offer both a good and personalized service and low
prices. Obviously, without having a striking profile, they run the risk of being
annihilated.
11
1.2 Objectives
A structured approach needs to bear in mind the following goals:
·
Demand side: achieve transparency regarding trends in consumer behavior
in the financial services sector. Give answers to the question: What does
changing consumer behavior mean for cooperative banks in Germany?
·
Supply side: achieve transparency regarding new and innovative business
models in the financial services sector. Give answers to the question: Is the
market share or even the existence of cooperative banks threatened by
these competitors?
·
Describe a typical contemporary business model of a German cooperative
bank. Give answer to the question: What is the current situation?
Only after addressing those issues and after determining the reasons for the
perceived need to change, the main objective of this dissertation can be
addressed:
·
Work out a strategy within today's typical structure as a universal bank.
Identify key success factors for this strategy and evaluate this strategy
·
Derive the consequences for the future business model of a cooperative
bank. Determine the change steps necessary to strengthen the
competitiveness.
·
Furthermore, the prerequisites of such a change process will have to be
worked out.
Managers of cooperative banks will benefit from the results of this dissertation
as they will get answers to the important questions above.
12
THE DEMAND SIDE
trends in customer
behavior
Criterias crucial to the
customer`s decision
THE SUPPLY SIDE
Comparison of
strategy &
business model of
main competitors
Market development
VR-Bank TODAY
VR-Bank TOMORROW
Strategic Escapes from the Positioning
and Complexity Traps
Future Strategic Positioning
as Universal Bank
1
2
THE DEMAND SIDE
trends in customer
behavior
Criterias crucial to the
customer`s decision
THE SUPPLY SIDE
Comparison of
strategy &
business model of
main competitors
Market development
VR-Bank TODAY
VR-Bank TODAY
VR-Bank TOMORROW
Strategic Escapes from the Positioning
and Complexity Traps
Future Strategic Positioning
as Universal Bank
1
2
1.3 Methodology
An inductive approach was chosen to achieve the aims of this thesis (Gill &
Johnson). Firstly, an in-depth analysis of existing literature was carried out in
order to gain an overview on current developments such as
a) customer behavior;
b) the competitive situation of the financial services sector;
The results were to produce not only an explanation for current trends but also
allow the prediction of future trends over the course of the next years. The
environment in which cooperative banks are operating was described in detail.
Figure 1: Approach of the dissertation (own representation)
This approach provides a good basis to identify the relevant factors and to work
out the necessary consequences for cooperative banks.
13
In order to examine possible conclusions, interviews with 12 experts in the field
were conducted. The target groups were:
·
CEOs of cooperative banks and
·
representatives of cooperative bank associations.
It is those people who are confronted with new challenges by the market on a
daily basis and hence forced to develop an adequate response on behalf of
their bank or their member banks.
The interviews were conducted freely, allowing for open and direct questions.
1
The author prepared them by designing a rough sketch for the conversation
beforehand.
Some alternative methods were not to be applied:
The amount of data to be gathered was deliberately limited to a doable number
of oral interviews. It would have been of course be possible to obtain more data
by using written interviews or questionnaires or holding workshops. This
method is likely to have widened the breadth of views and opinions. However,
the author felt to gain more useful results by focusing on personal, in-depth
interviews with key business leaders and experts. Moreover, in large surveys
respondents often fail to overcome their inhibitions to talk about business
strategy. This effect can be reduced in personal one-to-one interviews as
confidentiality can be guaranteed, hence more openness. This method follows
the "principle of concentration to gain information" developed by Ch.
Niedereichholz
2
and should yield sufficient results.
The weak point of this methodology is that due to the small sample the focus of
the investigation was put on certain aspects of the problem. It has to be noted
as well that perhaps the persons interviewed may have been unwilling to
provide the author with all the information solicited and relevant for this thesis.
1
Niedereichholz, Ch., Unternehmensberatung (Consulting), München, 2003, S.39.
2
dto., S.38
14
1.4 Limits
The scope of this analysis is limited to cooperative banks. Other entities such
as universal, savings or commerce banks have to be ignored here as including
them would mean to examine specific aspects of their business models in
detail. Furthermore, it has to be born in mind that the approaches detailed
below cannot be implemented one-by-one by any cooperative bank,
irrespective of its size, location and structure, all of which often differ from each
other enormously. However, cooperative banks have enough in common to
draw general conclusions and to develop generally applicable guidelines. For
time reasons, it was not possible though to elaborate a detailed implementation
plan for the strategy in the framework if this dissertation.
15
2 The Demand Aspect Customer Behavior
Over Time
2.1 Trends in Customer Behavior Noticeable
Development
Declining Customer Loyalty
Banks often complain about a clearly declining customer loyalty. Although it
was once customary to conduct nearly all transactions through the local bank,
today's modern consumers commonly have multiple finance partners. A
customer uses an average of 17 finance products that he usually maintains with
7 or 8 different competitors
3
. This causes a higher complexity and lower
manageability of the customer's product portfolio, which he, however, seems to
accept for the greater satisfaction of his specific purchase requirements. For the
bidder it brings a lower cross-selling-factor (number of sold products per
customer) and thus lower contribution margins per customer. Particularly, it is
the retail banks with higher fixed costs which encounter difficulties in generating
enough sales per customer to be able to cover the personnel and material
costs.
The situation of declining customer loyalty can also be referred to as "declining
willingness to commit". This phenomenon is not only restricted to the finance
sector, but also occurs in political parties, religious organizations, partnerships,
and so on.
Increasing Requirements
One reason for the erratic buying patterns is the growing requirements of
private customers in finance matters.
The rising social divide gives those with weaker income and proprietary wealth
the challenge to use their available assets and savings as efficiently as
3
Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management
Praxis, figure 49, p.10.
16
possible. Therefore, to give the customer the necessary technical support is not
only obligatory, but would also be ethically important.
The potential yield from such a bank connection, however, often doesn't allow
for an intensive consultation through the provider. The costs resulting from such
consultation would already consume the attainable marginal income before its
generation. At the same time, these lower social classes depend on using the
least expensive offers and will thus behave in a price-conscious manner.
Wealthier customers, on the other hand, rightfully expect an integrated
consulting approach by qualified personnel and demand attractive and
innovative products and concepts that offer high rates of return.
Despite differences in their financial means, the necessity for an adequate
private and company-based pension scheme is important for all people. The
view that the payments to the public pension schemes have developed a
significant gap in healthcare provision has spread widely. This example of the
topic shows that there are increasing customer expectations for a high quality
consultation which forces the banks to continuously further the training of their
advisors.
4
Unawareness of the Population in Financial Matters
The development of customer behavior and demand is exciting, particularly
against the background of the population's increasing unawareness of financial
matters. Accompanying the rising requirements of financial service providers is,
paradoxically, the customer's lack of sufficient knowledge regarding personal
finance questions, product functionalities, and experiences in the handling of
financial offers. A study by Bertelsmann-Foundation from the year 2004 shows
that Germans feel very uncertain regarding financial matters. As a
consequence, they deal with money matters very reluctantly, either giving it no
time or procrastinate with respect to important decisions.
5
4
Franke, D., Was will der Kunde? (What does the customer want?), from ,,die bank", 12/2004,
p.36.
5
Leinert, Johannes, Finanzieller Analphabetismus in Deutschland (financial illiteracy),
Bertelsmann Stiftung, Gütersloh, 2004.
17
Without a doubt, legislators and banks are not entirely innocent of this trend.
6
If
one regards the introduction of the "Riester-Pension" some years ago as an
example, then it shouldn't be a surprise that the complexity of the product and
promotion layout deterred, rather than encouraged, both the customer as well
as the consultant, to include this alternative retirement product into the
consulting discussions. In the meantime, through the discontinuation of the
annual tax exemption form requirement, many improvements have taken place.
Altogether the fact remains that even customers with little potential yield and
little technical knowledge make high demands to the efficiency of their financial
service providers. Banks which are able to master this balancing act in the
customer perception will gain access to a new source of revenue.
Transparency in the market, and changing uses of access ways
The rising self-confidence of the buyer is especially due to the fact that the
consumer can nowadays gain hold of a comprehensive list of services and
prices in the market through the Internet. Specializing in these comparisons are
mediatory portals
7
or provider-tests which allegedly give the buyer the
possibility to examine the quality and price which is suitable for them.
Particularly the simple, easy to use products such as giro accounts, call money,
and debit/credit cards, push for the increasing transparency for market prices
and margins. This coincides with an old proverb between salespersons: "Those
who do what others do must lower the price".
Customers are hardly willing to spend more money on a standard product than
is necessary. This is evident in the success of Direct Banks and the Postbank,
which, over the course of the past few years, focused on simple, low-priced and
self-explanatory products which fulfill the basic customer needs.
The simpler the product is, the more attention the customer pays to the
attractiveness of the price.
8
6
Neske, R., Der Kunde baut die Bank der Zukunft (The customer builds the future bank), from
,,die bank", 9/2005, p.28.
7
Examples of these Financial portals are easy enough to find on www.google.de
(ie. www.buylando.de)
8
Ott, Dr. U., Raus aus der Nische (leave the niche), from ,,die bank", 9/2004, p.33.
18
It is obvious that the Internet, as a medium, has not only changed the business
life and consumer behavior, but also revolutionized the banking world. If one
regards the growth of Internet use, and takes note of the portion of online
banking accounts among the different age groups, it results in the following
proportional distribution:
Figure 2: Proportional Internet use and Online-Banking per Age Group
9
It is amazing how fast the Internet has grown in the past few years. Meanwhile,
young people without Internet connections are increasingly uncommon. Even
two thirds of all people between the ages of 50 and 59 years already use the
Internet. The fastest growing adult groups of Internet users are those over 60
years.
10
Whoever thinks the older generations are not connected to the online
world is very wrong.
12.7 Percent of the population between 14 and 64 years of age admit that they
plan to use the Internet.
11
This value is still higher than it was in the year 2000,
9
Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection
of statistic charts), version 26.4.2005, Berlin, p.24.
10
study "(N)Onliner Atlas 2005" from TNS Infratest
11
Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection
of statistic charts), version 26.4.2005, Berlin, p.14.
Internet use
Online-Banking
Percentage share of the Internet use and
on-line Banking in the age groups
19
despite the fact that 30 percent of the population has already gone on-line since
that time. The massive trend of migrating towards the Internet has not yet
exhausted its potential by far.
Even more remarkable is that 82 percent of all people with university level
graduations use the Internet (the highest value of all graduation categories).
Since this clientele has the highest registered incomes, the meaning of the
Internet for all banks can only be stressed further.
What is interesting is that the Internet was initially used only as a pre-purchase
research tool. In a survey made by the Boston Consulting Group among
Internet surfers, 90% of them confirmed that they inform themselves online first,
before purchasing a product in a retail shop.
12
A similar response was provided, when asked for the main reason for the use of
the Internet: The main purpose here is the possibility to compare prices (said
67% of those asked).
13
A more in-depth review of the portion of all Internet users who use online
banking reveals that in the past 4 years, this proportion has risen from 45
percent to 57 percent.
14
Thus, Internet banking is becoming slowly, but surely,
an everyday occurrence. It is interesting that the customers of Savings & Loan
Banks contribute under-proportionally with 51% compared with the average of
57% (average with cooperative bank clientele: 58 per cent). Customers of the
National Banks already regard on-line banking as nearly natural with 69%.
These numbers show that typical clientele of Savings & Loan Banks, and,
similarly, those of Cooperative Banks are less tech-savvy. This reflects the
strong representation of rural and older customers. The so-called universal
banks have attached great significance to the subject of "Selling and
Communicating via the Internet", since their customers will make up their
tardiness in the general movement towards the Internet.
12
from: www.brutkasten.de/aktuelles/Prognosen.htm
13
Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection
of statistic charts), version 26.4.2005, Berlin, p.21.
14
from: journal ,,Die Bank", Online Banking der Zuwachs ist ungebrochen (the growth is
unbroken), issue 11/2005, p.68.
20
The personalization in the customer service progresses!
Not counting use of automated teller machines:
How often per month do you visit your bank branch?
(average number of the branch attendance)
3,0
3,0
2,6
2,7
3,8
2,3
1,9
2,5
2,0
2,2
Total
21-30 y
51-70 y
< 1500
> 2500
1995
2003
- 23 %
- 37 %
- 42 %
Source: icon Studie 2004
The Internet has serious consequences on the frequency of visits to the
branches of the banks. The number of service contacts at the bank counters
decreases dramatically. For many customers it has been months and in some
cases years since they have been in a bank for service issues. If a bank cannot
manage to get the customers into the bank for consultations, it will be only as
useful as the self-service terminal in the entrance hall.
Figure 3: Average number of branch attendance per customer
For the year 2003 the average number (Figure 3) of branch visits for each
customer per month was determined to be 2.3 times, 23% lower than the values
of 1995. Newer surveys reveal that 60% of all customers use the cashier or
consulting services less than once per month. Because numerous customers
hold multiple bank accounts, it is unlikely for a customer to personally appear at
the branch of each individual competitor bank.
Dramatic Consequences for Bank Branches
It costs a considerable amount of money to lure a customer into a bank for a
consultation, in order to do business. The main challenge consists of adapting
the service capacities (= personnel expenditure) to the frequency of branch
visits and customer qualities. This is difficult in that smaller branches with 2 to 4
workers are often not able to decrease its manpower by 0.2 to 0.5 working
21
years. Even if smaller branches can achieve this through the use of flexible
hours and flexible part-time job contracts, the single branches are often under a
strict audit by upper management. After all, the fixed cost usage of the
branches is enormous. A one-sided reduction of local personnel expenditure
only solves this problem in the short run.
Referring to Figure 3, the 42% decrease of the sales activity numbers of higher
earning customers, like the above-average 37% decrease of younger
customers, makes the pressure for action more evident.
If these interesting and promising target groups apparently use the local
branches ever less, alternative solutions must be found.
One question should have already been asked at this point:
2.2 The Customer Why he buys, or doesn't buy
2.2.1 Crucial factors for purchases from the customer's view
In order to work out which criteria are important for customers of financial
products during purchase, it is worth figuring out the reason for why a customer
would want to change their bank. Once one finds why a customer would search
for a different bank, defining the factors crucial to the purchase is not far off.
This theme is discussed in many studies and dissertations with similar aims, but
in detail they deliver results on different focal points.
As will be detailed in Chapter 3.4, Savings & Loan Bank customers are
particularly comparable with customers of Cooperative Banks. Therefore, the
following analysis over the preparedness to change of customers of
government owned institutions is also suitable for drawing conclusions about
Cooperative Bank customers.
Do we have the correct characteristic of "customer orientation", if we continue
to run expensive, labor intensive services at local branches, that all customers
must pay for indirectly, despite the fact that most customers do not even use it?
22
Figure 4: Preparedness to Change Banks of Customers of "Sparkasse"
15
The study proves that on average 17% of Savings & Loans customers are
vulnerable to change to different banks. Depending on the bank, this figure
varies between 8% and 34%. For each bank to know its own value would surely
be very useful. However, more exciting are the reasons for why those 17% are
so ready to change. In first place with 33%, most customers state high fees and
unfavorable interest rates. Second place with 28% is a result of bad and
unfriendly service. Astonishing is, however, that bad consulting quality follows in
third place with only 12%.
It seems that the price sensitivity, as described in Chapter 2.1, has a strong
impact and cannot be offset just by improving the quality of advice. This is at
least true, if one wants to continue to attract the broad mass of customers.
15
Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management
Praxis, issue 49, p.12, Values come from the Databank of Business and Financial Market
Research.
Preparedness to change banks
of customers of Sparkasse
Would you select the current bank account again?
83%
92%
66%
10%
5%
24%
7%
3%
10%
average
best score
worst score
select again
not select again
does not know yet
Bad interest, expensive current account
33%
Unfriendly service
28%
Unsatisfactory consultation
12%
Change / removal of the local branch office
11%
Other Bank ist more favorable located
6%
Private reasons (marriage etc.)
6%
Difficulty obtaining loans
3%
If not, why:
23
The perception of favorable interest rates
becomes the strategic success factor
Qualified consultation
Friendly service
Trusted customer representative
Favorable interest rates
Reliable/fast job execution
Representative at any time
Pleasant branch atmosphere
Bank comes to customer
Low loan interest rates
Favorable interest rates
Low prices for account processing
Brisk operation
Discretion is always ensured
From position
10 to 4
betw een 1995
and 2003
That customer satisfaction is influenced by multiple factors is definitely not a
new idea. The increasing meaning of the factor "Interest Income" as a symbol
for the so called "Geiz ist geil" - mentality ("Frugal is Cool") of Germans is
shown in the following chart (Figure 5). In it, the criteria for the importance of
customer satisfaction has climbed from position 10 to position 4 in just 8 years.
In the top 3 positions are (continue to be) consultation, service, and the trusted
advisor.
Figure 5: Contribution of each factor on customer satisfaction
16
A different study
17
, mainly discussing the reason for changing accounts to a
different bank, resulted in the following conclusion: Right after "Change of
Location" (21%), the second most important reason was "more favorable
conditions" (20%) of the newly chosen bank account. Further reasons such as
"Service Quality" and "Advice Quality" were of a significantly less importance
with only 10%.
The Direct Bank DiBa states, that among potential direct bank customers, over
66% of the interested parties see favorable conditions as a main argument for a
possible change of accounts. It is interesting that a reason having to do with the
customer's lack of satisfaction with their existing bank could not be found.
18
16
Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management
Praxis, issue 49, p.18
17
Wiskow, Jobst-Hinrich, from journal CAPITAL, 12/2005, p.58
18
Ott, Dr. U., Raus aus der Nische, from journal ,,die bank", 9/2004, p.36.
24
26%
37%
37%
Do employees provide information on their
part?
Never, rarely
Yes, rarely
Yes, regularly
32%
67%
1%
Do you w ant to be addressed more?
Less frequently
Just right
Yes
·
High Earners (3.000 monthly household net income and more.
·
Young adults.
·
Social climbers with qualified training
A survey by the business consulting group Bain & Company
19
, found that only a
few things are really important to customers: first and foremost attractive
pricing, a good complaint management, a reachable hotline and, accordingly, a
representative who will speak and listen to them concerning their expectations.
The fact that a pleasant, active conversation with a representative is sought
after by customers is especially evident in target groups of high earners, young
adults, and those climbing the social ladder with a qualified education (see
Figure 6). This gap has been exploited by independent financial service
providers such as MLP AG, which have taken market share from universal
banks among their focused target customer group of young professionals
(compare 3.4). A study of the business consulting group, Booz Allen Hamilton,
confirmed this outcome by stating that the majority of customers are dissatisfied
by their bank branch and expect more active advice from the advisor.
20
Figure 6: Active customer information is important.
21
Why then, do customers still use their local branch to such a degree if prices or
active advice often are not right?
19
Huber, Dr. J.-A., Wisskirchen, Dr.C., Wichtig ist wenig (less is important), from journal ,,die
bank", 7/2005, p.57
20
company Elaxy: customer magazin, 1/2005. p.4, www.boozallen.de
21
Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management
Praxis, issue 49,, p.15
25
Comfort
Location/
local proximity
Consulting quality
Price
Process quality
defined by
· Interest rates for deposit and loan products
· Fees (e.g. current account)
· Transaction management from home
· Availability of automated teller machines
· Transparency of pricing and services
· Friendly service, known faces
· long-term relationship
· appreciation
· Active complaint management
· Accessibility independently of the input port
· Process and quality of workmanship
· Individual solutions from customers`s viewpoint
· Problem solution ability and decision making aid
· Comprehensive assistance for a life time
Activity
· Proactive approach of the customer by the bank
· Information about innovations, changes etc.
· Inquiry of customer expectations/satisfaction
Criteria
Ahead of everything, the following reasons have been named:
22
·
Easy and comfortable to reach (93%)
·
Fast and simple execution (92%)
·
Competent advice (89%)
Altogether, the following criteria are crucial in the view of the customer:
Figure 7: Six criteria crucial to the customer's decision (own representation)
Purposely not included in the criteria was "brand". The brand can be regarded
as the result of the unique combination of all top criteria in the bank's own
22
Grieffenhagen, D.; Röckemann, Dr. Ch., Mobil näher zum Kunden (mobil closer to the
customer) , from journal ,,die bank", 2/2005, AT Kearney study ,,grow profitable".