KQ Article

Small business owners have a bred-in-the-bone appreciation for the importance of catering to their customers and nurturing the personal relationships that build their businesses. They are typically close to the front lines of their companies, and — if they’re determined to be successful — they have a quick understanding of what works to satisfy customers and what drives them away.

When they’re on the other side of the counter, however, that hard-earned understanding makes them more impatient and demanding than their retail banking counterparts.

Those expectations are heightened today with words like “recession,” “meltdown,” “credit crunch” and “depression” flying around the media and Web. Whether you’re a small business owner or a banker whose business depends on attracting and retaining their business, sleep probably doesn’t come easy most nights.

The J.D. Power and Associates 2008 Small Business Banking Satisfaction Study analyzed more than 6,500 responses from financial decision-makers at companies with annual revenues from $100,000 to $10 million, in the hopes of better understanding which banking strategies best deliver customer satisfaction in these unsettled times.

We found that successful banks are reaching back and concentrating harder than ever on the fundamentals of the in-person branch experience, and on practicing sound relationship management with their small business customers.

Those two factors alone constitute 40 percent of the equation defining the overall customer satisfaction experience. Many of the best practices we identified involve a larger investment in common sense than they do in expensive technology. The ability to cleanly execute the basics — such as welcoming customers to the branch, assigning dedicated bankers to their accounts, and establishing proactive quality outreach practices — is what really matters.

BACK TO THE FUNDAMENTALS
Enhancing customer satisfaction, and consequently moving small business banking customers from the ranks of the moderately committed to the highly loyal, can have a substantive bottom-line financial impact for banks and credit unions.

By shifting just 5 percent of moderate- and low-commitment customers to levels of high commitment, banks can potentially increase small business customer incremental revenues by more than 4 percent. Highly committed customers have increased account balances, improved retention and generate positive word of mouth. This improvement translates to $18 million in additional revenue for every 100,000 small business customers. If you shift 10 percent to the highly committed column, that revenue doubles.

Our study revealed that the key to creating such a bond is contained in the person-to-person connections built between bank or credit union staff and small business owner. Small business banking customers want a primary contact that can make decisions and deliver results. And when those services do not materialize, small businesses often vote with their feet and deposits.

The top reason (47%) small business banking customers give for switching financial institutions is a desire for better/improved banking relations, followed closely by a search for lower fees (45%) and better/improved customer service (38%). Banks can build firewalls against that kind of defection by focusing on the quality of the personto- person relationships of the banking experience.

SIMPLE BUT EFFECTIVE BEST PRACTICES
During our study, we saw two primary best practices emerge that separate the leading small business financial institutions from their competition in terms of customer satisfaction. As basic as these practices may seem on the surface, small business owners report that they are hardly the rule. Those best practices are: 1) assigning a dedicated representative; and 2) understanding the customer’s business.

Only half of all small business banking customers surveyed reported having an assigned business banker available to build a relationship with them, which emerged as a bedrock requirement for satisfaction in our survey. Customers with dedicated bankers have satisfaction index scores of 737 in the J.D. Power study (on a 1,000 point scale), as opposed to 640 for those without. Still, as necessary as that step is, it is only part of the process of creating loyal customers.

Small business customers also want their banks to see them as more than nondescript customers with generic needs. An assigned banker is a first step, but what small business owners really want is for that person to have a solid understanding of their unique individual business needs. How banks and credit unions respond to that expectation can make or break a relationship.

When customers think that a banker only partially understands their business — a sentiment shared by just under half of the small business banking customers we surveyed — their relationship satisfaction index scores settle in at a plebian 657. That mediocre rating opens the door to defection to another institution.

But for the 45 percent of customers who felt their business banker completely understands their needs, the world is a much more satisfying place. Their scores are more than 200 points higher, at 858. That satisfaction creates the coveted high-commitment customers that can sustain and grow a financial institution’s business, built on this solid customer relationship foundation.

What is the big takeaway from this study? It seems to be that the little things matter — a lot. When small business customers walk into a bank or credit union branch, they expect to be treated as individuals, with all the personalized attention such individual treatment entails. As an example to the contrary, a staggering one-third of the customers we surveyed reported not receiving a welcome and greeting when they walk into a branch. That simple omission drives a 19 percent decline in in-person transaction satisfaction scores.

So in today’s challenging and fluid economic environment, we must revisit these most fundamental of customer relationship-building measures. This simple but essential act might help us all sleep better at night.