Increasing competition and changing customer behavior in the German financial services sector

Thaidigsmann, Ulrich

Blick ins Buch

Increasing competition and changing customer behavior in the German financial services sector

An analysis of market trends and their consequences for the business model of cooperative banks

Masterarbeit, 2006, 125 Seiten

BWL - Investition und Finanzierung

Leseprobe

Ulrich Thaidigsmann

Increasing competition and changing customer behavior in the German financial

services sector

An analysis of market trends and their consequences for the business model of

cooperative banks

ISBN-10: 3-8324-9923-7

ISBN-13: 978-3-8324-9923-5

Druck Diplomica® GmbH, Hamburg, 2006

Zugl. Fachhochschule Ludwigshafen, Ludwigshafen, Deutschland, MA-Thesis / Master,

2006

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Confirmation

I confirm that I have written the dissertation entitled

,,Increasing competition and changing customer behavior

in the German financial services sector

an analysis of market trends and their consequences

for the business model of cooperative banks"

independently and without any unauthorized assistance. All publications

employed in the writing of this dissertation have been cited accordingly as

sources and noted in the bibliography.

__________________________

Stuttgart, may 12

, 2006

Ulrich Thaidigsmann

Abstract

Within the last few years, dramatic changes took and still take place in the retail

banking business.

On the supply-side competition for cooperative banks is increasing due to

various reasons. New competitors with different business models have entered

the market. There is no doubt that they pose a serious threat to cooperative

universal banks (which were the focus of this dissertation) and whose market

share is declining constantly. Furthermore, "non-banks" and "near-banks" have

to be considered in this respect, too, as these entities' business models are

increasingly targeting customers of universal banks.

On the demand side, changing customer behavior has accelerated

transformation processes in recent years. An increased willingness to change

suppliers can be noticed as consumers are placing more and more importance

on price. A strong price awareness is changing market conditions in many

business sectors in Germany. Decreasing customer loyalty forces universal

banks to push sales activities and to intensify their personal relationship with

the customer.

The main objectives of this dissertation are the following:

Work out a strategy within today's typical structure as a universal bank.

Identify key success factors and evaluate this strategy for its chances for

success.

Derive the consequences for the future business model of a cooperative

bank. Determine the change steps necessary to strengthen the

competitiveness.

Furthermore, the prerequisites of such a change process will have to be

worked out.

Conclusions regarding the objectives:

It can be stated (given the current structures) that a clear differentiation into two

business models (price and quality) under one roof would be needed to meet

the customer expectations. But, due to the typical size of the cooperative banks,

it would be difficult to successful (and permanently) implement this. Especially,

it does little to resolve the central problem among cooperative banks, which is

the great complexity. Today's business model is caught in a trap. A completely

different solution has to be found.

The author worked out, that cooperative banks have to go about two major

strategic shifts.

Strategic Shift Number 1:

Cooperative Banks can come closer to the real needs of their customers

through innovative, future oriented service offerings. Therefore it is important to

recognize and systematically convert interesting trends into business. This way,

a small competitor can keep its market position. Perhaps not always in today's

(financial) products and services, which are to a large extent exchangeable in

the industry, but in the subjects of "life management", which truly matter to their

clients.

Strategic Shift Number 2:

In parallel, the value added chain has to be drastically reduced. By means of

super regional product and services centers almost all subjects with the

exception of sales and strategic tasks will be bundled into new units. The newly

developed vessels allow for an increased capacity and lower per-unit costs,

which in turn is the prerequisite of a lasting sales success. The banks can

become competitive again through reducing the complexity of the business

model and cost structures by outsourcing all other functions. In fact, it will lead

to a new business model with a strong focus on the core competence "sales".

Summarizing, the results mean a revolution in the cooperative sector and a

dramatic shift in the structure and self-conception of the small banks. But if the

necessary change process will not be started within the next three to five years,

the cooperative sector would face existential problems.

Acknowledgement

- blank page -

Table of contents

Acknowledgement ... 5

Index of figures ... 8

Index of shortcuts ... 9

Introduction ... 10

1.1

Initial Situation... 10

1.2

Objectives ... 11

1.3

Methodology ... 12

1.4

Limits ... 14

The Demand Aspect Customer Behavior Over Time ... 15

2.1

Trends in Customer Behavior Noticeable Development ... 15

2.2

The Customer Why he buys, or doesn't buy ... 21

2.2.1

Crucial factors for purchases from the customer's view... 21

2.2.2

Differentiation for Target Groups ... 27

2.3

Expected Development Tendencies ... 30

2.4

Conclusion ... 32

The Supply Side New Competitors with New Strategies and

Business Models... 33

3.1

Definition of "Business Model" ... 33

3.2

Meaning of the Business Model... 36

3.3

Structure of the Financial Services Market in Germany ... 39

3.4

Comparison of the Strategies and Business Models of the Main

Competitors ... 42

3.5

Summary and Conclusion... 53

The Challenge for the Cooperative Banks ... 58

4.1

The Cooperative System ... 58

4.1.1

The Roots of the Cooperative System ... 58

4.1.2

Flexibility and Limits of Future Organization based on a

historic/ideological Viewpoint ... 61

4.2

Cooperative Banks Today Detailed Analysis ... 63

4.2.1

Target Group Segmentation and Positioning... 63

4.2.2

Interim Conclusion ... 67

4.2.3

SWOT Analysis of Cooperative Banks ... 68

4.2.4

Is the Business Model Caught in a Trap? ... 70

4.3

Overall Conclusion about Future Survivability of Business Model ... 75

Future Strategic Positioning as Universal Bank ... 76

5.1

Basic Strategic Orientation of a Cooperative Bank ... 76

5.2

Positioning of Universal Banks in the Price and Quality Competition. 81

5.3

Factors of Success in Price and Quality Competition ... 84

5.3.1

Factors of Success in Price Competition ... 84

5.3.2

Factors of Success in Quality Competition ... 87

5.4

Consequences for the Business Model... 88

5.5

Critical Conclusion ... 92

Strategic Escapes from the Positioning and Complexity Traps ... 93

6.1

Conceptual Basis for a Strategic Positioning ... 93

6.2

Uniqueness through Positioning in Profitable Growth Markets

(Innovative Product- and Services Concepts)... 95

6.3

Competitiveness by Concentrating on Sales (New Organization of the

Value Added Structure) ... 100

6.4

Conclusion ... 104

The arrangement of change ... 105

7.1

Prerequisites... 105

7.2

Change Management Consider the "soft" factors ... 107

7.3

Integrated Results of Expert Interviews ... 109

Final Conclusion ... 111

Attachments ... 113

Bibliography ... 116

Index of figures

Figure 1: Approach of the dissertation (own representation)... 12

Figure 2: Proportional Internet use and Online-Banking per Age Group ... 18

Figure 3: Average number of branch attendance per customer ... 20

Figure 4: Preparedness to Change Banks of Customers of "Sparkasse" ... 22

Figure 5: Contribution of each factor on customer satisfaction... 23

Figure 6: Active customer information is important. ... 24

Figure 7: Six criteria crucial to the customer's decision (own representation).. 25

Figure 8: Importance of different purchase crucial criteria for each target group

(own portrayal ... 28

Figure 9: Increasing Popularity of the Phrase "Business Model". Number of

Articles using the phrase "Business Model" in the Data Base ABI/Inform. 33

Figure 10: The Business Model Definition... 34

Figure 11: Questions today and questions in the future ... 37

Figure 12: Supplier structure in the financial services sector (private clients) .. 41

Figure 13: Cooperative Sector Development of Market Shares ... 45

Figure 14: Annual Revenues of MLP AG by Age ... 51

Figure 15: Typical Three-Level Retail Customer Segmentation... 64

Figure 16: Analysis of the customer structure in accordance with frequently

found segmentation criteria... 65

Figure 17: Analysis of the customer structure of total customer volume (OCV) 66

Figure 18: Analysis of the Customer Structure by Age Groups ... 66

Figure 19: Cooperative Banks lose their ground! (own representation) ... 70

Figure 20: Six Business Model Traps... 71

Figure 21: Which Business Model Matches of a Cooperative Bank? (own

representation)... 72

Figure 22: Cooperative Banks between Price and Quality Competition ... 73

Figure 23: An Example of Capacity Distribution in a Medium Sized Cooperative

Bank (own representation) ... 74

Figure 24: Generic Strategies (own representation)... 76

Figure 25: Basic Challenge in Production ... 79

Figure 26: Positioning for Quality and Pricing Competition (own represent.) ... 82

Figure 27: Cost Leadership or Quality Leadership? ... 93

Figure 28: Create Uniqueness through Combination of the Strength of the

Cooperative System and Social Mega trends (own representation) ... 96

Figure 29: Demand Focus of Private Banking Services ... 98

Figure 30: Centralization of Production Processes Independent on the Inflow

Channel into a Market Service Center (MSC) ... 100

Figure 31: Smaller depth of the value chain and focused orientation increase

the profitability... 104

Index of shortcuts

BVR

Bundesverband der Volksbanken und

Raiffeisenbanken (German Association of

Volksbanken and Raiffeisenbanken)

CEO

Chief Executive Officer

Coop

short for "Cooperative"

DiBa

DirektanlageBank (direct deposit bank)

CIR

Cost Income Ratio

CRM

Customer Relationship Management

dto.

ditto

e.g.

for example

etc.

et cetera

GGB

Gesellschaft für ganzheitliche Bankberatung GmbH

(Company for integrated Banking Consultancy Ltd)

IAO

Institut für Arbeitswirtschaft und Organisation

(Institute for Industrial Engineering and Organisation)

KWG

Kreditwesengesetz (German bank law)

MLP

Marschollek, Lautenschläger und Partner AG

p.m.

Per month

OCV

Overall Customer Value

RWGV

Rheinisch-Westfälischer-Genossenschaftsverband

VR-Banks

Volksbanken and Raiffeisenbank

1 Introduction

1.1 Initial Situation

The financial services sector has gained momentum over recent years.

Traditional banks complain about spiralling costs; they have to cope with

increasing credit risks and below-average yields compared to international

competitors.

On the supply-side of the banking business competition is increasing due to

various reasons. New competitors with different business models have entered

the market. There is no doubt that they pose a serious threat to universal banks

whose market share is declining. Furthermore, "non-banks" and "near-banks"

(e.g. financial branches of automobile companies) have to be considered in this

respect, too, as these entities' business models are increasingly targeting

customers of universal banks. At the same time, a clear positioning either

espousing low fees (e.g. all direct banks such as ING-DiBa) or high quality

service (e.g. MLP, Bonnfinanz) can be observed.

On the demand side, changing customer behavior has accelerated

transformation processes in recent years. An increased willingness to change

suppliers can be noticed as consumers are placing more and more importance

on price. As popular advertising slogans like "Geiz ist geil" ("Stinginess is cool")

demonstrate, a strong price awareness is changing market conditions in many

business sectors in Germany. Decreasing customer loyalty forces universal

banks to push sales activities and to intensify their personal relationship with

the customer. Typically, private individuals do business with more than one

bank.

All in all, the 1,300 cooperative banks in Germany are known as "banks for

everybody" due to their decentralized structure and local rooting. Their business

is apparently split trying to offer both a good and personalized service and low

prices. Obviously, without having a striking profile, they run the risk of being

annihilated.

1.2 Objectives

A structured approach needs to bear in mind the following goals:

Demand side: achieve transparency regarding trends in consumer behavior

in the financial services sector. Give answers to the question: What does

changing consumer behavior mean for cooperative banks in Germany?

Supply side: achieve transparency regarding new and innovative business

models in the financial services sector. Give answers to the question: Is the

market share or even the existence of cooperative banks threatened by

these competitors?

Describe a typical contemporary business model of a German cooperative

bank. Give answer to the question: What is the current situation?

Only after addressing those issues and after determining the reasons for the

perceived need to change, the main objective of this dissertation can be

addressed:

Work out a strategy within today's typical structure as a universal bank.

Identify key success factors for this strategy and evaluate this strategy

Derive the consequences for the future business model of a cooperative

bank. Determine the change steps necessary to strengthen the

competitiveness.

Furthermore, the prerequisites of such a change process will have to be

worked out.

Managers of cooperative banks will benefit from the results of this dissertation

as they will get answers to the important questions above.

THE DEMAND SIDE

trends in customer

behavior

Criterias crucial to the

customer`s decision

THE SUPPLY SIDE

Comparison of

strategy &

business model of

main competitors

Market development

VR-Bank TODAY

VR-Bank TOMORROW

Strategic Escapes from the Positioning

and Complexity Traps

Future Strategic Positioning

as Universal Bank

THE DEMAND SIDE

trends in customer

behavior

Criterias crucial to the

customer`s decision

THE SUPPLY SIDE

Comparison of

strategy &

business model of

main competitors

Market development

VR-Bank TODAY

VR-Bank TOMORROW

Strategic Escapes from the Positioning

and Complexity Traps

Future Strategic Positioning

as Universal Bank

1.3 Methodology

An inductive approach was chosen to achieve the aims of this thesis (Gill &

Johnson). Firstly, an in-depth analysis of existing literature was carried out in

order to gain an overview on current developments such as

a) customer behavior;

b) the competitive situation of the financial services sector;

The results were to produce not only an explanation for current trends but also

allow the prediction of future trends over the course of the next years. The

environment in which cooperative banks are operating was described in detail.

Figure 1: Approach of the dissertation (own representation)

This approach provides a good basis to identify the relevant factors and to work

out the necessary consequences for cooperative banks.

In order to examine possible conclusions, interviews with 12 experts in the field

were conducted. The target groups were:

CEOs of cooperative banks and

representatives of cooperative bank associations.

It is those people who are confronted with new challenges by the market on a

daily basis and hence forced to develop an adequate response on behalf of

their bank or their member banks.

The interviews were conducted freely, allowing for open and direct questions.

The author prepared them by designing a rough sketch for the conversation

beforehand.

Some alternative methods were not to be applied:

The amount of data to be gathered was deliberately limited to a doable number

of oral interviews. It would have been of course be possible to obtain more data

by using written interviews or questionnaires or holding workshops. This

method is likely to have widened the breadth of views and opinions. However,

the author felt to gain more useful results by focusing on personal, in-depth

interviews with key business leaders and experts. Moreover, in large surveys

respondents often fail to overcome their inhibitions to talk about business

strategy. This effect can be reduced in personal one-to-one interviews as

confidentiality can be guaranteed, hence more openness. This method follows

the "principle of concentration to gain information" developed by Ch.

Niedereichholz

and should yield sufficient results.

The weak point of this methodology is that due to the small sample the focus of

the investigation was put on certain aspects of the problem. It has to be noted

as well that perhaps the persons interviewed may have been unwilling to

provide the author with all the information solicited and relevant for this thesis.

Niedereichholz, Ch., Unternehmensberatung (Consulting), München, 2003, S.39.

dto., S.38

1.4 Limits

The scope of this analysis is limited to cooperative banks. Other entities such

as universal, savings or commerce banks have to be ignored here as including

them would mean to examine specific aspects of their business models in

detail. Furthermore, it has to be born in mind that the approaches detailed

below cannot be implemented one-by-one by any cooperative bank,

irrespective of its size, location and structure, all of which often differ from each

other enormously. However, cooperative banks have enough in common to

draw general conclusions and to develop generally applicable guidelines. For

time reasons, it was not possible though to elaborate a detailed implementation

plan for the strategy in the framework if this dissertation.

2 The Demand Aspect Customer Behavior

Over Time

2.1 Trends in Customer Behavior Noticeable

Development

Declining Customer Loyalty

Banks often complain about a clearly declining customer loyalty. Although it

was once customary to conduct nearly all transactions through the local bank,

today's modern consumers commonly have multiple finance partners. A

customer uses an average of 17 finance products that he usually maintains with

7 or 8 different competitors

. This causes a higher complexity and lower

manageability of the customer's product portfolio, which he, however, seems to

accept for the greater satisfaction of his specific purchase requirements. For the

bidder it brings a lower cross-selling-factor (number of sold products per

customer) and thus lower contribution margins per customer. Particularly, it is

the retail banks with higher fixed costs which encounter difficulties in generating

enough sales per customer to be able to cover the personnel and material

costs.

The situation of declining customer loyalty can also be referred to as "declining

willingness to commit". This phenomenon is not only restricted to the finance

sector, but also occurs in political parties, religious organizations, partnerships,

and so on.

Increasing Requirements

One reason for the erratic buying patterns is the growing requirements of

private customers in finance matters.

The rising social divide gives those with weaker income and proprietary wealth

the challenge to use their available assets and savings as efficiently as

Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management

Praxis, figure 49, p.10.

possible. Therefore, to give the customer the necessary technical support is not

only obligatory, but would also be ethically important.

The potential yield from such a bank connection, however, often doesn't allow

for an intensive consultation through the provider. The costs resulting from such

consultation would already consume the attainable marginal income before its

generation. At the same time, these lower social classes depend on using the

least expensive offers and will thus behave in a price-conscious manner.

Wealthier customers, on the other hand, rightfully expect an integrated

consulting approach by qualified personnel and demand attractive and

innovative products and concepts that offer high rates of return.

Despite differences in their financial means, the necessity for an adequate

private and company-based pension scheme is important for all people. The

view that the payments to the public pension schemes have developed a

significant gap in healthcare provision has spread widely. This example of the

topic shows that there are increasing customer expectations for a high quality

consultation which forces the banks to continuously further the training of their

advisors.

Unawareness of the Population in Financial Matters

The development of customer behavior and demand is exciting, particularly

against the background of the population's increasing unawareness of financial

matters. Accompanying the rising requirements of financial service providers is,

paradoxically, the customer's lack of sufficient knowledge regarding personal

finance questions, product functionalities, and experiences in the handling of

financial offers. A study by Bertelsmann-Foundation from the year 2004 shows

that Germans feel very uncertain regarding financial matters. As a

consequence, they deal with money matters very reluctantly, either giving it no

time or procrastinate with respect to important decisions.

Franke, D., Was will der Kunde? (What does the customer want?), from ,,die bank", 12/2004,

p.36.

Leinert, Johannes, Finanzieller Analphabetismus in Deutschland (financial illiteracy),

Bertelsmann Stiftung, Gütersloh, 2004.

Without a doubt, legislators and banks are not entirely innocent of this trend.

one regards the introduction of the "Riester-Pension" some years ago as an

example, then it shouldn't be a surprise that the complexity of the product and

promotion layout deterred, rather than encouraged, both the customer as well

as the consultant, to include this alternative retirement product into the

consulting discussions. In the meantime, through the discontinuation of the

annual tax exemption form requirement, many improvements have taken place.

Altogether the fact remains that even customers with little potential yield and

little technical knowledge make high demands to the efficiency of their financial

service providers. Banks which are able to master this balancing act in the

customer perception will gain access to a new source of revenue.

Transparency in the market, and changing uses of access ways

The rising self-confidence of the buyer is especially due to the fact that the

consumer can nowadays gain hold of a comprehensive list of services and

prices in the market through the Internet. Specializing in these comparisons are

mediatory portals

or provider-tests which allegedly give the buyer the

possibility to examine the quality and price which is suitable for them.

Particularly the simple, easy to use products such as giro accounts, call money,

and debit/credit cards, push for the increasing transparency for market prices

and margins. This coincides with an old proverb between salespersons: "Those

who do what others do must lower the price".

Customers are hardly willing to spend more money on a standard product than

is necessary. This is evident in the success of Direct Banks and the Postbank,

which, over the course of the past few years, focused on simple, low-priced and

self-explanatory products which fulfill the basic customer needs.

The simpler the product is, the more attention the customer pays to the

attractiveness of the price.

Neske, R., Der Kunde baut die Bank der Zukunft (The customer builds the future bank), from

,,die bank", 9/2005, p.28.

Examples of these Financial portals are easy enough to find on www.google.de

(ie. www.buylando.de)

Ott, Dr. U., Raus aus der Nische (leave the niche), from ,,die bank", 9/2004, p.33.

It is obvious that the Internet, as a medium, has not only changed the business

life and consumer behavior, but also revolutionized the banking world. If one

regards the growth of Internet use, and takes note of the portion of online

banking accounts among the different age groups, it results in the following

proportional distribution:

Figure 2: Proportional Internet use and Online-Banking per Age Group

It is amazing how fast the Internet has grown in the past few years. Meanwhile,

young people without Internet connections are increasingly uncommon. Even

two thirds of all people between the ages of 50 and 59 years already use the

Internet. The fastest growing adult groups of Internet users are those over 60

years.

Whoever thinks the older generations are not connected to the online

world is very wrong.

12.7 Percent of the population between 14 and 64 years of age admit that they

plan to use the Internet.

This value is still higher than it was in the year 2000,

Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection

of statistic charts), version 26.4.2005, Berlin, p.24.

study "(N)Onliner Atlas 2005" from TNS Infratest

Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection

of statistic charts), version 26.4.2005, Berlin, p.14.

Internet use

Online-Banking

Percentage share of the Internet use and

on-line Banking in the age groups

despite the fact that 30 percent of the population has already gone on-line since

that time. The massive trend of migrating towards the Internet has not yet

exhausted its potential by far.

Even more remarkable is that 82 percent of all people with university level

graduations use the Internet (the highest value of all graduation categories).

Since this clientele has the highest registered incomes, the meaning of the

Internet for all banks can only be stressed further.

What is interesting is that the Internet was initially used only as a pre-purchase

research tool. In a survey made by the Boston Consulting Group among

Internet surfers, 90% of them confirmed that they inform themselves online first,

before purchasing a product in a retail shop.

A similar response was provided, when asked for the main reason for the use of

the Internet: The main purpose here is the possibility to compare prices (said

67% of those asked).

A more in-depth review of the portion of all Internet users who use online

banking reveals that in the past 4 years, this proportion has risen from 45

percent to 57 percent.

Thus, Internet banking is becoming slowly, but surely,

an everyday occurrence. It is interesting that the customers of Savings & Loan

Banks contribute under-proportionally with 51% compared with the average of

57% (average with cooperative bank clientele: 58 per cent). Customers of the

National Banks already regard on-line banking as nearly natural with 69%.

These numbers show that typical clientele of Savings & Loan Banks, and,

similarly, those of Cooperative Banks are less tech-savvy. This reflects the

strong representation of rural and older customers. The so-called universal

banks have attached great significance to the subject of "Selling and

Communicating via the Internet", since their customers will make up their

tardiness in the general movement towards the Internet.

from: www.brutkasten.de/aktuelles/Prognosen.htm

Bundesverband der Volks- und Raiffeisenbanken (BVR), Sammlung Statistikfolien (collection

of statistic charts), version 26.4.2005, Berlin, p.21.

from: journal ,,Die Bank", Online Banking der Zuwachs ist ungebrochen (the growth is

unbroken), issue 11/2005, p.68.

The personalization in the customer service progresses!

Not counting use of automated teller machines:

How often per month do you visit your bank branch?

(average number of the branch attendance)

3,0

2,6

2,7

3,8

2,3

1,9

2,5

2,0

2,2

Total

21-30 y

51-70 y

< 1500

> 2500

1995

2003

- 23 %

- 37 %

- 42 %

Source: icon Studie 2004

The Internet has serious consequences on the frequency of visits to the

branches of the banks. The number of service contacts at the bank counters

decreases dramatically. For many customers it has been months and in some

cases years since they have been in a bank for service issues. If a bank cannot

manage to get the customers into the bank for consultations, it will be only as

useful as the self-service terminal in the entrance hall.

Figure 3: Average number of branch attendance per customer

For the year 2003 the average number (Figure 3) of branch visits for each

customer per month was determined to be 2.3 times, 23% lower than the values

of 1995. Newer surveys reveal that 60% of all customers use the cashier or

consulting services less than once per month. Because numerous customers

hold multiple bank accounts, it is unlikely for a customer to personally appear at

the branch of each individual competitor bank.

Dramatic Consequences for Bank Branches

It costs a considerable amount of money to lure a customer into a bank for a

consultation, in order to do business. The main challenge consists of adapting

the service capacities (= personnel expenditure) to the frequency of branch

visits and customer qualities. This is difficult in that smaller branches with 2 to 4

workers are often not able to decrease its manpower by 0.2 to 0.5 working

years. Even if smaller branches can achieve this through the use of flexible

hours and flexible part-time job contracts, the single branches are often under a

strict audit by upper management. After all, the fixed cost usage of the

branches is enormous. A one-sided reduction of local personnel expenditure

only solves this problem in the short run.

Referring to Figure 3, the 42% decrease of the sales activity numbers of higher

earning customers, like the above-average 37% decrease of younger

customers, makes the pressure for action more evident.

If these interesting and promising target groups apparently use the local

branches ever less, alternative solutions must be found.

One question should have already been asked at this point:

2.2 The Customer Why he buys, or doesn't buy

2.2.1 Crucial factors for purchases from the customer's view

In order to work out which criteria are important for customers of financial

products during purchase, it is worth figuring out the reason for why a customer

would want to change their bank. Once one finds why a customer would search

for a different bank, defining the factors crucial to the purchase is not far off.

This theme is discussed in many studies and dissertations with similar aims, but

in detail they deliver results on different focal points.

As will be detailed in Chapter 3.4, Savings & Loan Bank customers are

particularly comparable with customers of Cooperative Banks. Therefore, the

following analysis over the preparedness to change of customers of

government owned institutions is also suitable for drawing conclusions about

Cooperative Bank customers.

Do we have the correct characteristic of "customer orientation", if we continue

to run expensive, labor intensive services at local branches, that all customers

must pay for indirectly, despite the fact that most customers do not even use it?

Figure 4: Preparedness to Change Banks of Customers of "Sparkasse"

The study proves that on average 17% of Savings & Loans customers are

vulnerable to change to different banks. Depending on the bank, this figure

varies between 8% and 34%. For each bank to know its own value would surely

be very useful. However, more exciting are the reasons for why those 17% are

so ready to change. In first place with 33%, most customers state high fees and

unfavorable interest rates. Second place with 28% is a result of bad and

unfriendly service. Astonishing is, however, that bad consulting quality follows in

third place with only 12%.

It seems that the price sensitivity, as described in Chapter 2.1, has a strong

impact and cannot be offset just by improving the quality of advice. This is at

least true, if one wants to continue to attract the broad mass of customers.

Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management

Praxis, issue 49, p.12, Values come from the Databank of Business and Financial Market

Research.

Preparedness to change banks

of customers of Sparkasse

Would you select the current bank account again?

83%

92%

66%

10%

24%

10%

average

best score

worst score

select again

not select again

does not know yet

Bad interest, expensive current account

33%

Unfriendly service

28%

Unsatisfactory consultation

12%

Change / removal of the local branch office

11%

Other Bank ist more favorable located

Private reasons (marriage etc.)

Difficulty obtaining loans

If not, why:

The perception of favorable interest rates

becomes the strategic success factor

Qualified consultation

Friendly service

Trusted customer representative

Favorable interest rates

Reliable/fast job execution

Representative at any time

Pleasant branch atmosphere

Bank comes to customer

Low loan interest rates

Favorable interest rates

Low prices for account processing

Brisk operation

Discretion is always ensured

From position

10 to 4

betw een 1995

and 2003

That customer satisfaction is influenced by multiple factors is definitely not a

new idea. The increasing meaning of the factor "Interest Income" as a symbol

for the so called "Geiz ist geil" - mentality ("Frugal is Cool") of Germans is

shown in the following chart (Figure 5). In it, the criteria for the importance of

customer satisfaction has climbed from position 10 to position 4 in just 8 years.

In the top 3 positions are (continue to be) consultation, service, and the trusted

advisor.

Figure 5: Contribution of each factor on customer satisfaction

A different study

, mainly discussing the reason for changing accounts to a

different bank, resulted in the following conclusion: Right after "Change of

Location" (21%), the second most important reason was "more favorable

conditions" (20%) of the newly chosen bank account. Further reasons such as

"Service Quality" and "Advice Quality" were of a significantly less importance

with only 10%.

The Direct Bank DiBa states, that among potential direct bank customers, over

66% of the interested parties see favorable conditions as a main argument for a

possible change of accounts. It is interesting that a reason having to do with the

customer's lack of satisfaction with their existing bank could not be found.

Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management

Praxis, issue 49, p.18

Wiskow, Jobst-Hinrich, from journal CAPITAL, 12/2005, p.58

Ott, Dr. U., Raus aus der Nische, from journal ,,die bank", 9/2004, p.36.

26%

37%

Do employees provide information on their

part?

Never, rarely

Yes, rarely

Yes, regularly

32%

67%

Do you w ant to be addressed more?

Less frequently

Just right

Yes

High Earners (3.000 monthly household net income and more.

Young adults.

Social climbers with qualified training

A survey by the business consulting group Bain & Company

, found that only a

few things are really important to customers: first and foremost attractive

pricing, a good complaint management, a reachable hotline and, accordingly, a

representative who will speak and listen to them concerning their expectations.

The fact that a pleasant, active conversation with a representative is sought

after by customers is especially evident in target groups of high earners, young

adults, and those climbing the social ladder with a qualified education (see

Figure 6). This gap has been exploited by independent financial service

providers such as MLP AG, which have taken market share from universal

banks among their focused target customer group of young professionals

(compare 3.4). A study of the business consulting group, Booz Allen Hamilton,

confirmed this outcome by stating that the majority of customers are dissatisfied

by their bank branch and expect more active advice from the advisor.

Figure 6: Active customer information is important.

Why then, do customers still use their local branch to such a degree if prices or

active advice often are not right?

Huber, Dr. J.-A., Wisskirchen, Dr.C., Wichtig ist wenig (less is important), from journal ,,die

bank", 7/2005, p.57

company Elaxy: customer magazin, 1/2005. p.4, www.boozallen.de

Szallies, Rüdiger, Dem Wechsler auf der Spur (tracing the changer), from: S-Management

Praxis, issue 49,, p.15

Comfort

Location/

local proximity

Consulting quality

Price

Process quality

defined by

· Interest rates for deposit and loan products

· Fees (e.g. current account)

· Transaction management from home

· Availability of automated teller machines

· Transparency of pricing and services

· Friendly service, known faces

· long-term relationship

· appreciation

· Active complaint management

· Accessibility independently of the input port

· Process and quality of workmanship

· Individual solutions from customers`s viewpoint

· Problem solution ability and decision making aid

· Comprehensive assistance for a life time

Activity

· Proactive approach of the customer by the bank

· Information about innovations, changes etc.

· Inquiry of customer expectations/satisfaction

Criteria

Ahead of everything, the following reasons have been named:

Easy and comfortable to reach (93%)

Fast and simple execution (92%)

Competent advice (89%)

Altogether, the following criteria are crucial in the view of the customer:

Figure 7: Six criteria crucial to the customer's decision (own representation)

Purposely not included in the criteria was "brand". The brand can be regarded

as the result of the unique combination of all top criteria in the bank's own

Grieffenhagen, D.; Röckemann, Dr. Ch., Mobil näher zum Kunden (mobil closer to the

customer) , from journal ,,die bank", 2/2005, AT Kearney study ,,grow profitable".

Ende der Leseprobe aus 125 Seiten - nach oben

Details

Titel

Increasing competition and changing customer behavior in the German financial services sector

Untertitel

An analysis of market trends and their consequences for the business model of cooperative banks

Autor

Ulrich Thaidigsmann (Autor:in)

Erscheinungsjahr

2006

Seiten

125

Katalognummer

V225040

ISBN (eBook)

9783832499235

ISBN (Buch)

9783838699233

Dateigröße

897 KB

Sprache

Englisch

Schlagworte

finanzdienstleistungen banken swot business model volksbank

Produktsicherheit

Diplom.de

Arbeit zitieren

Ulrich Thaidigsmann (Autor:in)

, 2006, Increasing competition and changing customer behavior in the German financial services sector, Hamburg, Bedey Media GmbH, https://www.diplom.de/document/225040

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