Building a winning SME proposition

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1 Building a winning SME proposition A simple framework to build and improve value propositions for financial services firms marketing to SMEs June 2013 Written by Phil Noble, Paul Diviny & Mads Larsen October 15 <Insert publication name> 1

2 Proportion Building a winning SME proposition Despite significant efforts and investments to improve their standing with SME customers, banks still face low satisfaction levels, particularly among those customers that do not have a dedicated Relationship Manager. SPP has found that applying a simple Convenience, Simplicity, and Insight (CSI) framework can help managers improve their value proposition and in turn, grow revenues. SME customers have generally low levels of satisfaction and a significant proportion are likely to switch. Up to 20% of SME customers are likely to switch with a further 30% at risk. A survey conducted by RFI into small business banking (see exhibit 1) found that up to 20% of customers are likely to switch with a further 30% possibly at risk. Despite significant investments in more bankers, better branches, improved customer service processes and new products, these levels of switching propensity are alarmingly high. When customers who had recently switched primary banks were asked what motivated them to switch, fees ranked as the top reason (31%), followed by customer service (2%), better/more suitable products (23%) and convenient location of bank branch (23%). The usual scapegoats, interest rates and availability of credit, were further down the list with 22% and 1% of responses respectively This propensity to switch presents both an opportunity and a threat to the banks. Banks need to look at how they can improve SME customer retention and acquisition and hopefully improve share of wallet in the Exhibit 1 Likelihood of SMEs to switch their primary business bank How likely would you be to switch your primary business bank to another institution? 100% 0% 0% 0% 60% 50% 40% 30% 4% 4% 3% 3% 6% % 4% 4% 6% 4% 2% 3% 16% 13% 13% 14% 13% 12% 15% 12% 14% 14% 15% 16% 32% 32% 33% 23% 1% 2% 3% 31% 31% 26% 24% 2% 2% 24% 25% 20% 22% 24% 1% 22% 2% 22% 21% 22% 5 - Very likely 4 - Somewhat likely 3 - Neither likely nor unlikely 2 - Somewhat unlikely 20% 10% 21% 24% 2% 24% 26% 25% 35% 34% 42% 33% 36% 3% 1 - Not at all likely 0% Jul-0 Oct-0 Feb-10 May-10 Sep-10 Dec-10 Mar-11 Jul-11 Sep-11 Dec-11 Mar-12 Jun-12 Source: RFI SME Banking Council, July Base: SME operators (Jul-0: N=502, Oct-0: N= 506, Feb-10: N=505, May-10: N=506, Sep-10: N=512, Dec-10: N=501, Mar-11: N=501, Jul-11: N=524, Sep-11: N=51, Dec-11: N=503, Mar-12: N=503, Jun-12: N=516) 2

3 Performance process. Improving retention and building loyal customers has multiple flow-on benefits. Loyal customers are more profitable and can act as advocates for your business. Banks are weakest in the areas that tend to be insight driven. A good place to start is talking to customers. As part of the survey conducted by RFI, SME operators were asked to rate the importance of various business banking attributes and to rate their agreement with how well their main business bank performs on these attributes on a scale of 1 to 5, with a score of 4 or 5 on both scales taken to mean an attribute is important and performing well (see exhibit 2). Results from the survey found that the banks are weakest in areas that relate to knowing customers and their needs and using that knowledge to provide advice and ideas. These items are mostly insight driven such as understands your business and industry, understands your financial needs and provides the advice you need. The banks were generally seen as performing well against what might be considered hygiene factors, such as the availability of internet banking, provision of suitable financial products and a branch within close proximity. The source of these responses may stem from the difficulties banks have traditionally had in serving small and micro business customers through their retail bank platforms, which have not always been geared to the more demanding needs of this segment. In any case, the results suggest that there is an opportunity for banks to build deeper relationships with their SME customers, both assisting customer retention and addressing key customer concerns. The CSi framework can assist banks in improving their value proposition and service levels to SMEs CSi helps focus on what is important to customers. Convenience, Simplicity and Insight, or CSi, is SPP s simple framework to Exhibit 2 Importance and bank performance of business banking attributes Time wasters Low priority 6 Is proactive with ideas SPOC who knows your business 5 Provides the advice you need Understands your financial needs Values your business 4 Understands your business and industry Importance Source: RFI SME Banking Council, July Keep up the good work 15 Red flags Key (Underperformers highlighted) 1 Understands your financial needs Has the right products to meet your 2 financial needs Conveniently provides the right 3 products and services Understands your business and 4 industry 5 Provides the advice you need 6 Is proactive with ideas Values your business Handles complaints effectively Provides a single point of contact who knows your business 10 Has a global/ international reach Has a brand that you feel an affinity towards Has a branch in close proximity to your business 13 Promises better service 14 Delivers better service 15 Provides functional internet banking 16 Offers competitive pricing and fees 1 Has a strong reputation for business banking 3

4 help business banking leaders and product managers capture this customer feedback and apply it to their SME strategies and offers (see exhibit 3). Convenience focuses on the ease with which customers can access services Regardless of how many channels are available to or used by SME customers, a key attribute to driving satisfaction is consistency. This means wherever and whenever they choose to do their banking, they know what to expect, do not have to provide information multiple times, and they feel in control. Simplicity improving simplicity or being easy to do business with is another vital ingredient to satisfaction In large complex financial services firms, this requires an end to end process view for all products and services. However, simplicity can be compelling. Consider this US example: According to our 2012 survey of business owners, only 3% of small businesses purchased a cash management service from a bank in the past year. Meanwhile, since it became available last year, over 00,000 Exhibit 3 SPP CSI Framework for SME Banking merchants have started using Square. Despite charging higher fees and needing to buy a phone or tablet, business owners prefer to use Square because of its elegant simplicity. (Source: Corporate Executive Board How product simplicity unlocks SME demand) Insight has two dimensions: A. What knowledge do you have about your customer? B. What insight and advice can you provide that will help your customer? Business intelligence solutions are playing an increasing role in generating customer insights. As business banking evolves from branch-based interactions to remote channels, major banks may miss opportunities to keep abreast of customer needs. To compensate, technology solutions can deliver alerts to front line bankers when their small business customers have needs for proactive advice such as improved cash flow management, financing expansion or succession planning. Similarly, providing bankers with near to real time insights on customer concern, A compelling offer for SME banking clients Convenience 24/ access Multiple, easy to reach access points Self-service options to give customers control Consistent experience across channels Help with complex situations Source: SPP CSI framework. Simplicity Easy to understand product set and pricing structure Simple application process Proactive problem resolution Simplify to excite Insight Know your customers business and challenges Anticipate their needs Provide guidance and advice Tell customers what they need to know 4

5 frustration or potential switching behaviour can be a powerful lever to reduce customer pain points and attrition. Another example is the emerging ability to provide benchmark data to customers on financial metrics of similar businesses, helping owners manage their business. The CSI framework has many useful applications. It can be used to benchmark performance, to guide product development (including product rationalisation) and channel optimisation or as a filter on cost optimisation projects to ensure that changes do not undermine customer value. As an example of how this framework could be applied, consider the comparison of credit card propositions below. We have used the CSI framework to devise a scale for assessing banks business credit card offers. This scale, shown in exhibit 4, illustrates simple criteria that could be used to assess credit cards for SME banks and the types of measures that can be applied. Exhibit 4 SPP CSI scale for measuring performance of SME credit cards Category Criteria Assessment Approach Convenience Simplicity Customer Insight Choice of channels (online, phone, branch, mobile) Channel fulfillment Turnaround times Easy to choose right product Simple application process Easy to follow process Targeted offers to different segments Range of delivery options for different customer needs Links in with other business products Channels for application are convenient, offered through easily accessible means (online, phone, branch, mobile) End-to-end fulfillment can be achieved through a single channel or seamlessly transferred between channels using convenient methods no repeating information, consistent application tracking Application indicates turnaround time and scores highly if there is immediate confirmation that application will succeed Basic product specifications are provided, scores highly if additional guidance on selecting the correct card is provided Steps and requirements to apply are clear and easy to follow Assistance relevant to product and process is readily available Monitors transaction behaviour and provides advice on best deals, fraud protection, complementary insurance Provides a range of outbound channel options (SMS, , phone) Cards are matched with other business products based on insights into business type, structure, and other factors Source: SPP approach In exhibit 5, SPP has applied this scale to compare a major Australian bank with its overseas peers. This approach can easily be extrapolated to other banking products, services or channels. Exhibit 5 CSI SME business credit card comparison CONVENIENCE SIMPLICITY CUSTOMER INSIGHT TOTAL USA Domestic NZ Domestic 5 Int. CC Provider Aus Domestic Source: SPP approach 5

6 Next steps to capitalise on the right approach for your organisation Where to now? There are a number of possible next steps to start improving your SME value proposition using the CSi approach. Apply the CSi framework to identify potential service proposition improvements in one (or all) channels Channels are the lifeblood of any bank s SME proposition. Reviewing channel experiences from a customer s view is a powerful way to find pain points and consider better ways to engage with customers. Ensuring channel consistency, simplicity and insight is a must. Use the CSi framework to review one of your products/services Banks should start by trying the CSI framework with a single product category such as a business credit card. Consider scoring your current performance vs. that of your peers to highlight areas of potential improvement in the product/service offer. Track performance against the CSi framework Once a product category or Channel has been reviewed consider tracking ongoing progress to a superior CSi score as improvements are made and again, continue to track progress vs the relevant peer group, whether that is local or international. If you are interested in discussing these opportunities further, please contact Phil Noble on , or to phil.noble@spp.com.au. 6

7 About SPP Strategic Project Partners is a generalist, strategy consulting firm. We support General Managers on difficult strategic and operational challenges. Established in 2005, SPP has delivered successful outcomes for a broad range of commercial and Government sector clients. As a result, we have strong relationships with many businesses, from Top 50 listed companies through to small enterprises. When we deliver our projects, whether it s a strategic study or the implementation of large-scale change, we focus on: Strong project management Clarity of outcome An obsessive focus on project benefits Robust, fact based analysis Simple communication Bringing experience to bear Contact us for more information Strategic Project Partners Level 41, 120 Collins Street Melbourne, Victoria 3000 Phil Noble m t e phil.noble@spp.com.au Insigh tinfluen ce Impac t Managing Partner & Practice Lead About the authors Phil Noble Managing Partner Phil has a broad range of experience in general management consulting, as well as in Banking and Insurance. Phil started SPP with the aim of bringing good strategy and general management practice to businesses with a minimum of fuss, and maximum impact. Paul Diviny Senior Engagement Manager Paul is a highly innovative, senior financial services executive with expertise in program management, consulting, business transformation, marketing, sales and operations management in superannuation, business banking, consumer lending and payments, gained in some of Australia s leading financial institutions. Mads Larsen Senior Engagement Manager Mads has over 10 years experience in strategy & operational performance improvement across a number of industries but with an emphasis on financial services. Prior to SPP, he worked as a Strategy Manager at NAB and as a consultant with the Boston Consulting Group. Mads holds a Master of Science in International Business from Copenhagen Business School, where he also completed an undergraduate degree in Business Administration