Q4, 2000: Retail & Finance Sectors
Commentary by Professor Claes Fornell
The Donald C. Cook Professor of Business Administration Director, National
Quality Research Center, University of Michigan Business School
Feb. 20, 2001
(Excerpted)
Financial Services
If quality (customer satisfaction) elasticity of demand is relatively low for gas stations, the opposite is true for banks and life insurance companies. In other words, customer satisfaction is critical for customer retention in financial services. The satisfied customer is likely to stay with the bank or insurance company longer and the dissatisfied is more prone to leave. Retention of high margin customers produces tremendous economic leverage in this business. For banks, which are up by 2.9% (68 to 70), smaller competitors tend to provide higher levels of customer satisfaction. The smaller bank competes well on personalized service, but there is only a small gap between these banks and Bank One (72 vs. 70), which increased its score by 6% from 1999. The improvement in customer satisfaction is consistent with Bank One's stock price movement, up 38% for the past 12 months. It also appears that the new "smart" card offered by Bank One has been well received by customers. It allows users to store a great deal of information about web sites, personal profiles, and other information for easy access. Wells Fargo and Bank of America also improved their scores, but Bank of America is still 13% below its all time high 6 years ago. This too is consistent with a lackluster stock market performance over the past five years.
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