Article

Winning with customer loyalty

Service industries across the Asia Pacific region - from banking to retailing to telecommunications...

By Jayne Hrdlicka, Bruno Lannes. Gary Turner, Yeon-Hee Kim and Shintaro Hori

First published on enero 01, 2007
min read


Service industries across the Asia-Pacific region-from banking to retailing to telecommunications—have profited from Asia's economic rise. But they've often prospered at their customers' expense. Unlike manufacturers, many service companies have been sheltered from competition by regulatory barriers. Serving customers' needs is acknowledged and talked about but rarely the point of focus. Now that is all starting to change. Thanks to trade liberalization in services, deregulation, cross-border mergers and the emergence of China and India, consumers—fed up with unwarranted fees and convoluted pricing structures—will now have unprecedented choices and will insist on doing business on their terms. This sea change will have profound consequences. Research conducted by Bain & Company over the past decade has found that a passionate commitment to building and sustaining customer advocacy is vital for any company that aims to achieve lasting revenue growth and profitability. This holds true in all major markets in the world. But our recent surveys of consumers in markets across the region reveal that service businesses have a deep-rooted problem with customer loyalty—one that they're just beginning to recognize. Indeed, we asked customers in these industries, on a scale of zero to 10, "How likely are you to recommend this company to a friend or colleague?" Customers giving top scores of 9 or 10 we classified as promoters; they are a company's biggest fans. Those answering with a 7 or 8 we categorized as passives; they're lukewarm at best to the customer experience they're receiving. Those giving a score of 6 or less are detractors; this group is dissatisfied, vocal about it, and driving away potential new customers. Subtracting the percentage of detractors from the percentage of promoters yields a company's Net Promoter® Score (NPSSM)—a metric that Bain's analysis has found correlates closely with a company's growth. The sobering verdict: With few exceptions, companies in the services sector elicited scores that were negative—often very negative. Turning those numbers around won't be easy, but the gains from doing so are great. In industry after industry, companies motivated to deliver the right customer experience in everything they do have consistently outperformed their peers. Those all-too-rare companies understand that passionate customer advocates not only are less likely to shop for a better deal from competitors but purchase more of their products and services. And promoters bring in new business, enthusiastically talking them up to their friends with an effectiveness that no marketing campaign can replicate. The rewards of customer advocacy show up most dramatically at this personal level. Our studies indicate that each advocate will praise their favored company to three other people, on average. A detractor, by contrast, warns off nine other potential buyers. Interestingly, the biggest payoff comes from recovering a customer who's had a bad service experience. Companies can do this by empowering their employees to go to extra lengths to resolve the customer's problem immediately, transforming an angry malcontent into a delighted fan. On average, a convert will tell a dozen people about his or her positive experience. Bain's Net Promoter Score surveys also make clear that customers' expectations vary dramatically across Asia Pacific. Yet, in every industry and in every market surveyed, the high scorer outperforms its peers financially. Here's what it takes to become an Asia-Pacific loyalty leader sector by sector: Financial services: Invest in retaining customers, not just acquiring them. Though financial services is arguably the region's most dynamic and promising sector, it's one with some of the least loyal customers. Banks, brokers, credit card issuers and insurance underwriters posted low Net Promoter Scores in most markets. The core problem: To win over the large and increasingly affluent middle class emerging across the region, financial services companies have spent heavily to build branch networks and other infrastructure. But they're investing little in customer retention. With banking laws that kept out foreign competitors and inhibited local institutions from poaching each other's customers, domestic firms once counted on holding customers captive. But in mature markets like Australia, Japan and Singapore, spending to sign up new customers is reaching a point of diminishing returns. And in emerging markets, like China and India, where banks are investing heavily to lure service-hungry consumers with modern retail financial products, firms that also focus on building customer advocacy early on will be able to minimize costly customer turnover down the road. Retail banking: The easiest profits have a big cost. Few industries are more attuned to measures of financial performance than banks. Ironically, retail banks routinely undermine their long-term performance by alienating customers. Succumbing to the allure of easy profits, banks pile on fees for routine services like ATM use, impose hair-trigger penalties for minor infractions like a rare overdraft, or scrimp on customer service. Those profits all come out of customers' hides and turn them into detractors. Many banks become addicted to these "bad profits" and are blind to the harm they can cause. Yet account holders do not stew in silence, even if they are locked in by mortgages or other long-term contracts that prevent them from switching banks. Detractors are far more likely than promoters to warn off other potential customers. That pattern repeated itself across the region. Among customers of Japanese retail banks, promoters provide more than 10 times as many new customer referrals as detractors and buy over a third more products. But it's hard to find promoters: Net Promoter Scores averaged negative 57%. With a positive NPS of 7%, Shinsei Bank stands out from its peers for its customer service. Shinsei's customers praise its no-fee account maintenance, free interbank transfers over the Internet, and extensive network of ATMs available 24/7 in Tokyo metro stations, convenience stores and post offices throughout Japan. It's little surprise, given its departure from banking as usual, that Shinsei leads the industry with a 10% compound annual revenue growth rate from 2003 to 2005. The average revenues of Shinsei's six principal competitors, by contrast, actually shrank 2% over the same period. Retail banking in Singapore has long been dominated by large local banks. But as the Monetary Authority of Singapore has opened up the market in recent years, foreign players such as Citibank are shaking up the industry with creative new approaches. Citibank has opened new types of branch offices in strategic locations close to carefully targeted customer segments, rolled out new products and strengthened customer service. Customers are taking note. Citi is steadily gaining market share and earned the highest NPS in the retail banking sector. On the whole, the Australian retail banks have lifted their Net Promoter Scores modestly. The average NPS of the 14 banks in the most recent survey was 5%, as two banks from our 2003 survey—ANZ and St. George Bank—climbed into positive territory, garnering scores of 16% and 9%, respectively. Both organizations have invested heavily over the last few years to identify the right customer segments, tailor service propositions that suit their target customers, and empower local branch employees to solve customers' problems. As a result, both banks have broken away from the pack and their competitors are now scrambling to catch up. In China, which is opening its markets to international banks under World Trade Organization rules, international banks are lining up local partners, spending on infrastructure and buying market share. But both domestic and foreign competitors ignore the need to cultivate customer advocacy at their peril. Our survey of nearly 7,500 customers of 20 state-owned and publicly traded joint-stock banks in 8 major cities found that Chinese consumers are up for grabs—affluent consumers foremost among them. Giving banks an average Net Promoter Score of just +4%, China's consumers are delivering a declaration of dissatisfaction to the financial services industry. A few forward-looking organizations are beginning to infuse a customer focus into their businesses. China Merchants Bank, one of the new breed of joint stock banks, is one. China Merchants has set out to distinguish itself as a full-service national retail bank. Among other customer-friendly innovations over the past three years, the bank became one of the first to offer fixed-rate mortgages, giving prospective home buyers the lowest borrowing rates in the industry. The formula is working: In the Bain NPS survey, China Merchants emerged as the top-ranked bank having national reach, with a score of +19%. Insurance: Customers care about quick settlements and underwriting. Bain's surveys reveal that Asia-Pacific insurance underwriters are only slowly beginning to recognize the importance of customer advocacy. In Singapore, customers of all life insurers complained about agents who were indifferent to their needs and claims settlement processes that were slow and inconvenient. Overall, the industry averaged an NPS of minus 33%. In Japan, policyholders complained about high premiums, unhelpful sales agents, poor after-sale service, and a lack of trust in the companies. Customers of Japanese auto insurance companies also gave negative ratings, grousing about high costs and poor handling of accident claims. In both markets, and for both life and auto insurers, the value of promoters could not be clearer. Promoters referred a friend or a colleague to their insurer 11 to 14 times more than detractors did. Steady improvement in building customer advocacy takes persistence, systematic effort, and a clear vision that permeates the organization. Just how precarious a reputation for customer advocacy can be is evident in the Net Promoter Scores from customers of Korean life insurance companies, surveyed in 2004 and again in 2006. While Prudential narrowly remained the sector leader the overall industry average was little changed, at about minus 26%, the rankings of individual companies varied considerably. For example, Samsung Life Insurance raised its NPS by 32 percentage points, emerging from the middle of the pack in 2004 to grab one of the top spots in the latest survey. Samsung Life had tackled the problem customers had identified as the principal irritant-poor service provided by the company's sales agents. The company stepped up the training to strengthen sales rep's personal relationships with customers. By 2006, Samsung's scores for customer service had jumped to near the top of the industry. Retail: Customer advocacy follows price and localization Tools like NPS can help retailers monitor customer trends as the shape of retail changes across the region. In developed markets like Australia, Singapore, and Japan, discount chains are challenging traditional department stores. Meanwhile, in the newly emerging economies, much of the population outside the biggest cities still buys from traditional markets or directly from producers. In this fluid environment, customer advocacy appears to be following price and local offerings. In South Korea, for example, Wal-Mart and Carrefour failed to gain a sufficient following and withdrew as home-grown E-Mart, Home Plus, and other discount chains with a better understanding of what customers wanted and a deep network of Chaebol connections sprang up after the government relaxed rules that protected small shopkeepers. In Japan, where regulatory barriers protect retailers, detractors far outnumber promoters among department store, supermarket and convenience-store customers, who complain about poor product offerings, high prices and unfriendly sales staff. In Australia, Aldi, part of the German-headquartered discount supermarket chain, is the pre-eminent favorite of shoppers. Aldi garnered a superb Net Promoter Score of 65%, based largely on its execution of the original owners' "spend a little, live a lot" philosophy of offering rock-bottom prices and wide selection of high-quality private-label goods in a no-frills setting. In Singapore, the local favorite, NTUC FairPrice, enjoys a slight NPS edge over Carrefour, the French discounter. The challenge for retailers across the region will be to remain relentlessly focused on their target customers and not succumb to the temptation to simply add merchandise in a bid to keep same-store sales rising. Rather that trying to serve everyone, they should concentrate instead on fine-tuning their insights into what precisely defined target customers are looking for. Telecommunications: Customers want short waits and flexible plans Across the Asia-Pacific region, providers of broadband, fixed-line phone service and mobile communications are all getting static from customers. In all three, markets are becoming saturated, and state-of-the-art technology, offering reliable, low-cost, voice and data transmission, is merely the price of entry. Broadband customers in Japan, for example, cited low fees and a secure, fast and reliable network as the key reasons for promoting their Internet access providers. But what also won the hearts of promoters was good customer service, an established brand image, and access bundled with free Internet phone calls. Likewise in Singapore, where StarHub earned the top NPS, customers wanted a reliable network and low rates. And they were quick to complain when providers didn't reward longstanding customers with incentives to stay. Providers of mobile telephony face a particular challenge: The rapid spread and quick adoption of new 3G mobile technology—which delivers everything from video calls to music downloads and live news—is increasing the use of wireless services for entertainment, storing personal information, and even making everyday purchases. But the technical wizardry appears to be generating lower margins and higher customer churn, as subscribers defect for flashier services at lower prices. In South Korea, for example, customers of SK Telecom, the country's biggest wireless provider, can subscribe to a Global Positioning System locator service that allows subscribers to the service to locate each other. But dazzling as the new capabilities may be, Korea's wireless providers are not ringing bells with customers. All three of Korea's big mobile companies—SK Telecom, KTF and LGT-are battling to achieve profitable growth in a saturated market that's becoming costlier to serve. Achieving lasting growth is an even bigger challenge for mobile telcos in Japan. There, the race to offer feature- and fashion-rich handsets has ramped up both customer acquisition costs and turnover. The companies that pull ahead will look for ways to enhance offerings by giving customers service options they want. NTT DoCoMo, for example, is pushing hard to lure customers with flexible family-calling plans that allow subscribers to consolidate their phones and services on a single bill. DoCoMo also allows customers free backup of their electronic phonebooks on the company's network and a hotline for customers who lose their phone and want to have their data locked. Through such manoeuvres, DoCoMo hopes to win as many as five million subscribers away from its rivals. As competition, new technologies, and deregulation continue to pry open markets for consumer services across Asia in coming years, companies will have to remain relentlessly focused on the big strategic picture. At the center of this picture must be a deep understanding of customers—who they are, which ones are most important to you, what matters to them and, crucially, what you must do to deliver a complete customer experience. Customers will want more, expect more, and demand more, and they will reward companies that deliver on their promises.

Service industries across the Asia-Pacific region-from banking to retailing to telecommunications—have profited from Asia's economic rise. But they've often prospered at their customers' expense. Unlike manufacturers, many service companies have been sheltered from competition by regulatory barriers. Serving customers' needs is acknowledged and talked about but rarely the point of focus.

Now that is all starting to change. Thanks to trade liberalization in services, deregulation, cross-border mergers and the emergence of China and India, consumers—fed up with unwarranted fees and convoluted pricing structures—will now have unprecedented choices and will insist on doing business on their terms.

This sea change will have profound consequences. Research conducted by Bain & Company over the past decade has found that a passionate commitment to building and sustaining customer advocacy is vital for any company that aims to achieve lasting revenue growth and profitability. This holds true in all major markets in the world. But our recent surveys of consumers in markets across the region reveal that service businesses have a deep-rooted problem with customer loyalty—one that they're just beginning to recognize.

Indeed, we asked customers in these industries, on a scale of zero to 10, "How likely are you to recommend this company to a friend or colleague?" Customers giving top scores of 9 or 10 we classified as promoters; they are a company's biggest fans. Those answering with a 7 or 8 we categorized as passives; they're lukewarm at best to the customer experience they're receiving. Those giving a score of 6 or less are detractors; this group is dissatisfied, vocal about it, and driving away potential new customers. Subtracting the percentage of detractors from the percentage of promoters yields a company's Net Promoter® Score (NPSSM)—a metric that Bain's analysis has found correlates closely with a company's growth. The sobering verdict: With few exceptions, companies in the services sector elicited scores that were negative—often very negative.

Turning those numbers around won't be easy, but the gains from doing so are great. In industry after industry, companies motivated to deliver the right customer experience in everything they do have consistently outperformed their peers. Those all-too-rare companies understand that passionate customer advocates not only are less likely to shop for a better deal from competitors but purchase more of their products and services. And promoters bring in new business, enthusiastically talking them up to their friends with an effectiveness that no marketing campaign can replicate.

The rewards of customer advocacy show up most dramatically at this personal level. Our studies indicate that each advocate will praise their favored company to three other people, on average. A detractor, by contrast, warns off nine other potential buyers. Interestingly, the biggest payoff comes from recovering a customer who's had a bad service experience. Companies can do this by empowering their employees to go to extra lengths to resolve the customer's problem immediately, transforming an angry malcontent into a delighted fan. On average, a convert will tell a dozen people about his or her positive experience.

Bain's Net Promoter Score surveys also make clear that customers' expectations vary dramatically across Asia Pacific. Yet, in every industry and in every market surveyed, the high scorer outperforms its peers financially. Here's what it takes to become an Asia-Pacific loyalty leader sector by sector:

Financial services: Invest in retaining customers, not just acquiring them.
Though financial services is arguably the region's most dynamic and promising sector, it's one with some of the least loyal customers. Banks, brokers, credit card issuers and insurance underwriters posted low Net Promoter Scores in most markets. The core problem: To win over the large and increasingly affluent middle class emerging across the region, financial services companies have spent heavily to build branch networks and other infrastructure. But they're investing little in customer retention. With banking laws that kept out foreign competitors and inhibited local institutions from poaching each other's customers, domestic firms once counted on holding customers captive. But in mature markets like Australia, Japan and Singapore, spending to sign up new customers is reaching a point of diminishing returns. And in emerging markets, like China and India, where banks are investing heavily to lure service-hungry consumers with modern retail financial products, firms that also focus on building customer advocacy early on will be able to minimize costly customer turnover down the road.

Retail banking: The easiest profits have a big cost. Few industries are more attuned to measures of financial performance than banks. Ironically, retail banks routinely undermine their long-term performance by alienating customers. Succumbing to the allure of easy profits, banks pile on fees for routine services like ATM use, impose hair-trigger penalties for minor infractions like a rare overdraft, or scrimp on customer service. Those profits all come out of customers' hides and turn them into detractors. Many banks become addicted to these "bad profits" and are blind to the harm they can cause. Yet account holders do not stew in silence, even if they are locked in by mortgages or other long-term contracts that prevent them from switching banks. Detractors are far more likely than promoters to warn off other potential customers.

That pattern repeated itself across the region. Among customers of Japanese retail banks, promoters provide more than 10 times as many new customer referrals as detractors and buy over a third more products. But it's hard to find promoters: Net Promoter Scores averaged negative 57%. With a positive NPS of 7%, Shinsei Bank stands out from its peers for its customer service. Shinsei's customers praise its no-fee account maintenance, free interbank transfers over the Internet, and extensive network of ATMs available 24/7 in Tokyo metro stations, convenience stores and post offices throughout Japan. It's little surprise, given its departure from banking as usual, that Shinsei leads the industry with a 10% compound annual revenue growth rate from 2003 to 2005. The average revenues of Shinsei's six principal competitors, by contrast, actually shrank 2% over the same period.

Retail banking in Singapore has long been dominated by large local banks. But as the Monetary Authority of Singapore has opened up the market in recent years, foreign players such as Citibank are shaking up the industry with creative new approaches. Citibank has opened new types of branch offices in strategic locations close to carefully targeted customer segments, rolled out new products and strengthened customer service. Customers are taking note. Citi is steadily gaining market share and earned the highest NPS in the retail banking sector.

On the whole, the Australian retail banks have lifted their Net Promoter Scores modestly. The average NPS of the 14 banks in the most recent survey was 5%, as two banks from our 2003 survey—ANZ and St. George Bank—climbed into positive territory, garnering scores of 16% and 9%, respectively. Both organizations have invested heavily over the last few years to identify the right customer segments, tailor service propositions that suit their target customers, and empower local branch employees to solve customers' problems. As a result, both banks have broken away from the pack and their competitors are now scrambling to catch up.

In China, which is opening its markets to international banks under World Trade Organization rules, international banks are lining up local partners, spending on infrastructure and buying market share. But both domestic and foreign competitors ignore the need to cultivate customer advocacy at their peril. Our survey of nearly 7,500 customers of 20 state-owned and publicly traded joint-stock banks in 8 major cities found that Chinese consumers are up for grabs—affluent consumers foremost among them. Giving banks an average Net Promoter Score of just +4%, China's consumers are delivering a declaration of dissatisfaction to the financial services industry.

A few forward-looking organizations are beginning to infuse a customer focus into their businesses. China Merchants Bank, one of the new breed of joint stock banks, is one. China Merchants has set out to distinguish itself as a full-service national retail bank. Among other customer-friendly innovations over the past three years, the bank became one of the first to offer fixed-rate mortgages, giving prospective home buyers the lowest borrowing rates in the industry. The formula is working: In the Bain NPS survey, China Merchants emerged as the top-ranked bank having national reach, with a score of +19%.

Insurance: Customers care about quick settlements and underwriting. Bain's surveys reveal that Asia-Pacific insurance underwriters are only slowly beginning to recognize the importance of customer advocacy. In Singapore, customers of all life insurers complained about agents who were indifferent to their needs and claims settlement processes that were slow and inconvenient. Overall, the industry averaged an NPS of minus 33%. In Japan, policyholders complained about high premiums, unhelpful sales agents, poor after-sale service, and a lack of trust in the companies. Customers of Japanese auto insurance companies also gave negative ratings, grousing about high costs and poor handling of accident claims. In both markets, and for both life and auto insurers, the value of promoters could not be clearer. Promoters referred a friend or a colleague to their insurer 11 to 14 times more than detractors did.

Steady improvement in building customer advocacy takes persistence, systematic effort, and a clear vision that permeates the organization. Just how precarious a reputation for customer advocacy can be is evident in the Net Promoter Scores from customers of Korean life insurance companies, surveyed in 2004 and again in 2006. While Prudential narrowly remained the sector leader the overall industry average was little changed, at about minus 26%, the rankings of individual companies varied considerably. For example, Samsung Life Insurance raised its NPS by 32 percentage points, emerging from the middle of the pack in 2004 to grab one of the top spots in the latest survey. Samsung Life had tackled the problem customers had identified as the principal irritant-poor service provided by the company's sales agents. The company stepped up the training to strengthen sales rep's personal relationships with customers. By 2006, Samsung's scores for customer service had jumped to near the top of the industry.

Retail: Customer advocacy follows price and localization
Tools like NPS can help retailers monitor customer trends as the shape of retail changes across the region. In developed markets like Australia, Singapore, and Japan, discount chains are challenging traditional department stores. Meanwhile, in the newly emerging economies, much of the population outside the biggest cities still buys from traditional markets or directly from producers. In this fluid environment, customer advocacy appears to be following price and local offerings.
In South Korea, for example, Wal-Mart and Carrefour failed to gain a sufficient following and withdrew as home-grown E-Mart, Home Plus, and other discount chains with a better understanding of what customers wanted and a deep network of Chaebol connections sprang up after the government relaxed rules that protected small shopkeepers. In Japan, where regulatory barriers protect retailers, detractors far outnumber promoters among department store, supermarket and convenience-store customers, who complain about poor product offerings, high prices and unfriendly sales staff.

In Australia, Aldi, part of the German-headquartered discount supermarket chain, is the pre-eminent favorite of shoppers. Aldi garnered a superb Net Promoter Score of 65%, based largely on its execution of the original owners' "spend a little, live a lot" philosophy of offering rock-bottom prices and wide selection of high-quality private-label goods in a no-frills setting. In Singapore, the local favorite, NTUC FairPrice, enjoys a slight NPS edge over Carrefour, the French discounter.

The challenge for retailers across the region will be to remain relentlessly focused on their target customers and not succumb to the temptation to simply add merchandise in a bid to keep same-store sales rising. Rather that trying to serve everyone, they should concentrate instead on fine-tuning their insights into what precisely defined target customers are looking for.

Telecommunications: Customers want short waits and flexible plans
Across the Asia-Pacific region, providers of broadband, fixed-line phone service and mobile communications are all getting static from customers. In all three, markets are becoming saturated, and state-of-the-art technology, offering reliable, low-cost, voice and data transmission, is merely the price of entry.

Broadband customers in Japan, for example, cited low fees and a secure, fast and reliable network as the key reasons for promoting their Internet access providers. But what also won the hearts of promoters was good customer service, an established brand image, and access bundled with free Internet phone calls. Likewise in Singapore, where StarHub earned the top NPS, customers wanted a reliable network and low rates. And they were quick to complain when providers didn't reward longstanding customers with incentives to stay.

Providers of mobile telephony face a particular challenge: The rapid spread and quick adoption of new 3G mobile technology—which delivers everything from video calls to music downloads and live news—is increasing the use of wireless services for entertainment, storing personal information, and even making everyday purchases. But the technical wizardry appears to be generating lower margins and higher customer churn, as subscribers defect for flashier services at lower prices. In South Korea, for example, customers of SK Telecom, the country's biggest wireless provider, can subscribe to a Global Positioning System locator service that allows subscribers to the service to locate each other. But dazzling as the new capabilities may be, Korea's wireless providers are not ringing bells with customers. All three of Korea's big mobile companies—SK Telecom, KTF and LGT-are battling to achieve profitable growth in a saturated market that's becoming costlier to serve.

Achieving lasting growth is an even bigger challenge for mobile telcos in Japan. There, the race to offer feature- and fashion-rich handsets has ramped up both customer acquisition costs and turnover. The companies that pull ahead will look for ways to enhance offerings by giving customers service options they want. NTT DoCoMo, for example, is pushing hard to lure customers with flexible family-calling plans that allow subscribers to consolidate their phones and services on a single bill. DoCoMo also allows customers free backup of their electronic phonebooks on the company's network and a hotline for customers who lose their phone and want to have their data locked. Through such manoeuvres, DoCoMo hopes to win as many as five million subscribers away from its rivals.

As competition, new technologies, and deregulation continue to pry open markets for consumer services across Asia in coming years, companies will have to remain relentlessly focused on the big strategic picture. At the center of this picture must be a deep understanding of customers—who they are, which ones are most important to you, what matters to them and, crucially, what you must do to deliver a complete customer experience. Customers will want more, expect more, and demand more, and they will reward companies that deliver on their promises.