March 21, 2010
Last year I posted about the research Dennis Campbell and I did in financial services where we found the surprising result that self-service can increase costs (the article was just published in Management Science.) Dennis and I have been working with Ryan Buell, a fantastic doctoral student at HBS, on additional research about self-service. This new research shows, unsurprisingly, that online customers have higher retention than customers who are exclusively offline. The goal was to determine whether the increased retention is due to greater satisfaction (customers love being in control and using all those convenient online tools) or greater inertia (it’s too painful to re-enter all those billpay addresses).
The winner? Greater inertia — the aggravation of switching is just too high for online customers. Even more troubling, it turns out that online customers are less satisfied than offline customers. So even though online customers stick around longer, they’re not at all happy about it. Why is this a problem? Because these customers are a ticking time bomb for banks. Once a competitor figures out how to reduce the pain of jumping ship, they’ll be first to exit.
It’s tempting in any competitive environment to conclude that “loyal” customers must be satisfied ones. But we’ve found that even when customers keep giving you their money, they still might be miserable. All those familiar faces may not be placing a particularly high value on your products and services — rather, they may simply be placing a higher value on the time and energy it would take to leave you. My advice is to start scanning the horizon for competitors who can give your customers a better experience without exacting a high price for the privilege. Or better yet, play it safe and become that competitor yourself.
September 29, 2009
A “self-service” play almost always has a strong cost component. The model’s logic is that if your customers are doing more of the work, then your employees can do less of it — and can be paid less for it. Of course, firms look for additional advantages to customers meeting their own needs such as increased retention, but the desire to drive down costs anchors most of these initiatives. (For a dated look at these type of motivations, see this link.)
I want to share a recent research finding that upends this logic in surprising ways. Dennis Campbell and I studied what happened to customers after they adopted online banking services, which are essentially designed to drive people away from retail branches that are costly to build, maintain and staff. The web’s promise of low-cost, scalable self-service business models seemed like a reasonable direction for the banking industry, and so we studied the option to measure just how much companies could save. We were then shocked to discover that the cost to serve these customers increased after they moved online.
As we investigated this phenomenon, we uncovered something interesting. When customers move online, they become more engaged with their financial information. They can suddenly spend hours examining each transaction, and no one is line behind them to hurry them along. This new consumer behavior, on its own, is not problematic for the banks. But the heightened level of engagement can also drive customers to consume more full-service resources from the bank. Customers now call more. They have more to say and more to inquire about. They even visit branches more often.
In other words, an unintended outcome of self-service is increased engagement, and a predictable outcome of increased engagement is the desire to engage even more. The lesson I take from this research is that managers must anticipate the potential impact of self-service on their customers’ engagement. If it seems likely that engagement will increase, make sure that the goals of a self-service model go beyond potentially elusive cost savings. Make sure that improved service is a central part of your agenda. Indeed, make sure that the project will be considered a success even if costs go up.
Who should pay attention to these findings? New self-service options that make customer information more accessible are ripe for this dynamic. Think online health records, not pumping your own gas.
August 13, 2009
The NYT recently described an innovative new iPhone “app” that allows customers to use their phones to deposit a check. Take pictures of the front and back of the check with the phone’s camera, and then use its email function to send the pictures to USAA. Now discard the check. No trip to the bank necessary.
The application is a great model for self-service innovation. USAA customers get a solution they prefer to the existing alternatives. Instead of going to an ATM, they can now deposit a check from anywhere. Customers get the enhanced convenience of mobile banking without having to sacrifice functionality. In fact, the mobile deposit service increased the functionality of the traditional online banking experience, essentially overcoming the classic tradeoff between functionality and convenience.
USAA didn’t just transport the same services to a new channel — it designed new services for a new channel. Bank of America, in contrast, created an iPhone application that only performs a limited set of transactions, all of which can be performed through its online banking program. This type of solution is far more common and creates far less value for customers, a concession to the tradeoff between convenience and service. USAA reminds us that great service innovation occurs when we challenge our employees (and often customers) to overcome persistent assumptions.