The Bigger the Bank, The Lower the Customer Satisfaction?

That’s what seems to be the finding in this interesting study:

Customers of the biggest banks in the United States are the least likely to believe their financial institution does what’s best for them as opposed to what’s best for the bottom line, according to a new report from Forrester Research.

To put the rankings in perspective, large banks have generally been at the bottom of the list since the survey was initiated seven years ago, and many of the banks have alternated between the bottom spots year to year, said a Forrester vice president…

Here’s my question: how do you explain this?

And I’d like to pose the question to two classes of people: economists, and the wishful thinkers (me often included) who like to point out that trustworthy behavior is business-successful behavior.

The fact is: it’s not easy to square certain beliefs with certain data. Let’s climb up to 30,000 feet and look at this in broad, simple terms.

Bank Data vs. Economists’ Assumptions

I’ve got to be careful here because I’m not an economist. But I’ll go out on a limb and say that nearly all economists believe a few things. 

All else equal, people in a free market buy the lower-priced good. 

All else equal, satisfied customers in a free market reward the better company with higher profits and growth.

Higher size yields lower costs, thus greater profits and/or lower price and/or better quality.

Roughly right? Then how do we account for a situation where lower customer satisfaction correlates with higher size?

Here are some of the logically possible answers to the conundrum.

  1. It’s not a free market at all; never has been. And if you believe removing regulations to make it more ‘free’ will improve customer satisfaction ratings, I’ve got a bridge to sell you. (I give this explanation the highest probability)
  2. All else is never equal; things like ATM availability, extra-bank fees and aggressive marketing give big banks an advantage;
  3. The survey identified the wrong customers; the ‘real’ customers are institutional with strong ties to the big banks, and they are very, very satisfied.
  4. It’s an aberration due to recent market conditions. Um, no. Not over 7 years. That goes back to 2002. Nope, this is pretty solid.
  5. The biggest firms didn’t grow by organic growth from satisfying customers, but by acquisition of failed banks. Maybe, but that should have resulted in lower costs. And economists think lower costs drive customer satisfaction. The conundrum remains. 

Help an economist today; what are some other explanations that cover this seeming anomaly?

Bank Data vs. “Doing Well by Doing Good” Theorists

There are lots of studies to suggest strongly that trustworthy behaviors like focusing on customer service and data transparency are not only socially valued, but result in higher profitability too. I cite those studies, and so do others.

And then there is data like this, which most of us feel in our guts to be true. It really does raise the question, “Just where is the link between good-citizen behavior and good economic results?”

I hear from almost every trust cynic: they simply do not believe that behaving in a trustworthy manner is profitable. It is too risky, they say; and contrary to wishy washy thinking, behaving nicely results in getting your butt kicked in the market.

For that point of view, here’s Case Exhibit I. How can DWBDG theorists explain their way out of 7 years of uncorrelated satisfaction and market performance?

The logically possible answers to this conundrum, I suggest, are identical to the answers for the economists, 1-5 above.

But what about you? How do you explain the data? And what are the policy implications of your explanation?

 

 

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