This article originally appeared in Trends

According to a Bain study, 80 percent of companies believe that they provide a superior experience to customers, while customers concur in only eight per cent of cases. Why customer experience is so difficult to create and control, how to accurately measure it, and how to embed it in a bank’s day-to-day operations. Read on for answers.

As the Middle East banking sector becomes increasingly competitive and consolidated, regional banks will face shareholder pressure to focus on value rather than revenue growth. However, a Bain study of companies from a wide range of industries in 12 countries shows how difficult this is to achieve. Over the past decade, just one company in ten proved to be a Sustained Value Creator, by registering 5.5 percent annual sales and earnings growth and above-average total shareholder return.

One key to sustainable value creation for regional banks is scale; among Saudi banks, for example, the largest players are also the most profitable. Given that scale is important, banks must focus on retaining their customers and capturing those of the competition through improving customer advocacy. Indeed, Bain studies have shown that loyalty leaders grow more than two times the rate of competitors and have costs that are 15% lower.

Despite the proven importance of customer advocacy as a key factor in profitability and value creation, companies have a poor understanding of their customers’ level of satisfaction. According to a Bain study, 80% of companies believe they provide a superior experience, while customers concur in only 8% of cases.

This suggests three big challenges for regional banks that set out to improve customer experience:

1. Customer experience is difficult to design and control
2. It needs to be accurately measured
3. Disciplines that sustain and improve it need to be embedded in the bank culture in order to achieve sustainable profitable customer-centric growth.

One big reason why a coherent customer experience is so difficult to achieve is that it is influenced by a series of interactions with a company’s brands, offerings and touch points such as bank branches, web sites and call centers. Other reasons: customers are fickle, their needs change, and they are making decisions in an environment with many choices.

While measuring financial profit has been well developed for more than a century, measuring customer loyalty is not as far advanced. Most customer loyalty measurements face several challenges, including limited track records, lack of standards, lack of focus throughout the organization, and inconsistent and often improvised data gathering processes. Loyalty measurement tools in use today tend to be cumbersome, reach a small percentage of customers, have limited proven impact, and lack tangible outcomes. Also, they don’t inspire action and learning, they are metrics that are simply tracked in dashboards – the process is static and doesn’t inspire change. Banks need a new system to manage customer advocacy effectively.

A single, holistic query is more useful for management than a detailed survey based on a complex breakdown of factors. For example, Bain has developed a metric called the Net Promoter® System (NPS®) based on a single, key question. It asks customers, “On a scale of 0-10, how likely are you to recommend our company to a friend or colleague?” To compute its NPS, the company subtracts the percentage of detractors (those giving a score from 0 to 6) from the percentage of promoters (those answering 9 or 10).

While the Net Promoter System is simple, it is also a powerful and robust approach with proven results in building customer centric organizations focused on building customer loyalty. In Bain’s 2012 global study of customer loyalty in retail banking, we found that promoters bought more products from their primary bank and were more likely to recommend the bank than detractors.

The total value of creating promoters is compelling. As mentioned, loyalty leaders achieve annual growth rates that are more than two times higher than that of competitors, according to Bain research. To be effective, the Net Promoter System must be embedded in a bank’s operations. This involves both a top-down and bottom-up approach.

The top-down approach gives the executive team an understanding of where the company sits relative to the competition – this should help inform the strategic decisions they take to make the customer experience better than that of competitors. Companies survey customers’ attitudes, with the intent of showing the company’s relative performance and identifying patterns and opportunities. Companies generally measure these scores through a double-blind process in which the respondent doesn’t know who is sponsoring the survey and the company can’t trace back responses to any individual respondent.

The complementary bottom-up approach provides feedback to employees for improvement. Bottom-up Net Promoter System surveys are openly sponsored by the company, and the company keeps track of who responds. These surveys often take place after particular transactions. It is a way to gauge the health of the customer relationships and it gives front-line access to customers – to address their feedback and learn from it.

In our experience, implementing a full potential Net Promoter System requires eight key elements:

Measure performance. It is important to design a robust metric that allows a bank to understand its baseline performance, define improvement targets, and evaluate progress.

Understand the economics of loyal customers. To evaluate which actions are most likely to win promoters or avoid creating detractors, banks need to quantify the incremental value of a loyal customer. Loyalty economics are critical for developing a business case based on customer satisfaction.

Identify “moments of truth”. Just a few customer interactions, such as taking out a loan, reporting fraud, or replacing a lost or stolen credit card have a disproportionate influence on earning customers’ loyalty and deserve the disproportionate attention of bank employees. Banks need to be able to identify and monitor customer experience at these touch-points closely.

Close the loop. Building a closed-loop feedback process enables employees to monitor and improve performance continuously. This includes listening, addressing and learning from the feedback they gather from their customers.

Engage the front line. It is also important to motivate employees to invest in developing long-term customer relationships by delivering exceptional experiences through training programs and incentives that reinforce customer service.

Instill a bias for action. Once the system is in place, the next step is to set up cross-functional teams to lead NPS improvement initiatives and facilitate the sharing of best practices.

Support with robust infrastructure. Throughout the transformation process to a customer-centric model, firms must develop a robust infrastructure to support the NPS implementation, including adequate resources, well-defined reporting tools, and sufficient IT support to sustain the effort.

Lead and communicate. Customer-centric banks need to embed a loyalty focus deep in their organization through clear communication and leadership. Critical for doing this are direct employee participation, a centralized team to manage cultural transformation, loyalty report cards for tracking employees’ performance, and at the right time alignment of management compensation with loyalty targets.

Much more than a one-off initiative, the Net Promoter System is a holistic transformational approach to achieve a durable customer-centric organization and lay the foundation for sustained value creation.

Net Promoter® and NPS® are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.

Tom De Waele, who is a principal at Bain & Company, also contributed to the feature.