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IJBM
31,5
Obstacles to upgrading customer
value-in-use in retail banking
Ilkka Lähteenmäki and Satu Nätti
Unit of Marketing, Oulu Business School, University of Oulu, Oulu, Finland
334
Abstract
Purpose – Improving capability to generate value for customers is seen as a way to create a new
competitive edge, but developing the related organisational capabilities involves facing several
obstacles that stem from the producer-orientation of the retail-banking business. This paper aims to
focus on defining and describing those obstacles.
Design/methodology/approach – An in-depth, qualitative single case study of a European retail
bank was conducted.
Findings – A retail bank can find it challenging, first, to understand the deepest meaning and
character of customer value and, second, to harness the organisational attributes to deliver that value.
The main barriers lie in the strong producer-oriented way of doing business, a lack of employee
commitment, a strong product and sales orientation, a restrictive network, difficulties in seeing the
profitability aspect of a new mindset, lack of conceptualisation and proper segmentation, and finally,
silo-style bank organisations.
Research limitations/implications – The research is focused on the retail-banking industry, while
the findings are transferable to other retail finance businesses.
Practical implications – Enhancing value creation may provide a competitive edge, but developing
that edge means facing several obstacles, which may jeopardise the calculated positive return on
investment. For management, understanding the value of the banking service in the customer’s own
context is critical.
Originality/value – Developing customer experience and value-in-use has been suggested as a good
starting point for customer orientation. However, research on its implications for organisations and
potential obstacles to implementation remains scarce. This paper offers a detailed view on the
organisational development necessary to generate value-in-use in a retail-banking context.
Keywords Retail banking, Customer orientation, Customer perceived value, Value-in-use, Banking,
Customers
Paper type Case study
Introduction
Despite retail banks attempting to improve levels of customer satisfaction, the business
has suffered from declining customer loyalty in recent years. Fragmented demand and
intensified competition have forced banks into price competition, reducing costs and
dropping the level of face-to-face customer service (see e.g. Jagersma, 2006). In addition,
online banking products and services, and the related automation, have changed
service production radically (Acharya et al., 2008; Sarel and Mamorstein, 2003).
Amidst ever-increasing competition, existing ways of gaining a competitive edge
seem to be neither sufficiently effective nor durable. Developing customer perceived value
may provide a new means to differentiate a service offering from that of competitors (e.g.
Strandberg et al., 2012; Meyer and Schwager, 2007; O’Loughlin et al., 2004; Roig et al.,
2006; Bick et al., 2004). However, as Frow and Payne (2007) have noted, few companies
International Journal of Bank
Marketing yet understand the meaning of customer value, in terms of what it looks like and
Vol. 31 No. 5, 2013
pp. 334-347
how their managers can galvanise the organisation to deliver it exceptionally well.
r Emerald Group Publishing Limited
0265-2323
DOI 10.1108/IJBM-11-2012-0109 Authors have contributed equally.
We suggest this is also true of the retail-banking sector, although the idea Obstacles to
of customer orientation in that business is not new. Banks have traditionally been upgrading
physically close to their customers through their extensive branch networks.
The introduction of internet banking was predicated on a customer need for digitised value-in-use
banking services, and while encouraging its use, banks have also tried to maintain the
impression of having close relationships with their customers by maintaining some
face-to-face interactions. In spite of the current trend for internet banking, some banks 335
recognise that a relationship strategy emphasising interaction, customisation and
confidence building in their customer relationships is effective (Camarero, 2007; Molina
et al., 2007), hence many customers are still offered personal advisors. However, it
seems customers are not satisfied and do not feel they are gaining enough value from
banking services. For example, O’Loughlin et al. (2004) argue that financial services
providers continue to promote bank policies that are adverse to consumer interests,
resulting in diminishing service quality and restricted delivery channels (see also
Wong et al., 2008).
Thus, it seems that in the present retail-banking business, the customer is a target
of marketing activities, not the origin of plans for and maintenance of the service
experience. We suggest that banking services are too often devised, developed and
delivered without sufficient understanding of related customer activities, everyday
practices and life, that is, of customers’ value creation (see e.g. Payne et al., 2008).
Banking services are to a very great extent provider oriented. They are products of a
producer-centred mindset that gives primacy to the bank’s own practices and processes
(cf. Heinonen et al., 2010; also Vargo and Lusch, 2004, 2008a).
It seems as if even the most innovative developments of the customer experience in
retail banking are still based on a logic where the customer is “forced” to participate
in the bank’s process and tools (e.g. in the promotion of internet banking). This is
not necessarily the evil intention of banks. Implementing customer orientation
is challenging in any context (e.g. Gummesson, 2008; Vaux Halliday, 2002) and in retail
banking, certain characteristics cause inertia militating against change. Although
deregulation has increased competition, efficiency and flexibility in the bank sector
since the 1980s (Lähteenmäki, 2006, p. 23), banks have long been subject to regulation,
which is why bankers are focused on developing intensively internal production
procedures, and may find it more difficult to shift the focus to customer value
(Batiz-Lazo and Wood, 2001). In addition, financial services are today more heterogeneous
and delivered through multiple channels, which provokes fragmentation and further
difficulties in internal integration and collaboration across multiple channels and service
producers in the network of service producers (see e.g. Plé, 2006).
The above-mentioned challenges are particularly pressing because the process of
customer value creation demands a variety of organisational capabilities be integrated
(see e.g. Grönroos, 2006; Gummesson, 2008). Service providers should be able to
integrate all customer-targeted actions into a coherent entity. In addition, the bank
should understand how its customers will further integrate the service generated by
that entity into “their own activity system”, that is, their value creation process
(Heinonen et al., 2010, p. 542).
Given the noted challenges, the path to customer centricity may necessitate
remarkable changes to an organisation’s management system, culture, structure and
processes (see e.g. Shah et al., 2006). However, the level of existing knowledge of the
development needed from service producer-centred logic towards being a co-creator of
value in the customer’ process is still generally low (see e.g. Frow and Payne, 2007;
IJBM Heinonen et al., 2010), and especially in a specific context like retail banking. There
31,5 are plenty of general studies of barriers to implementing relationship marketing or
market orientation in different contexts (e.g. Jaworski and Kohli, 1993; Piercy, 1998;
Vaux Halliday, 2002), and specifically in a retail-banking context (Nielsen et al., 2003;
Kolar, 2006; Harris, 2000; Bennett and Durkin, 2002). Those studies are reviewed at the
end of the following section. However, value creation is always very context-specific
336 (e.g. Grönroos, 2006) and the studies mentioned were often conducted in other contexts,
or, those that are specific to retail banking lack a link with the value creation discussion,
being more concerned with comparing different market areas (Nielsen et al., 2003),
exploring specific market development (Kolar, 2006) or only one aspect of customer
orientation, like organisational culture (Bennett and Durkin, 2002). Facilitating value
creation and improving customer experience seems to be a very attractive way to
create a new competitive edge in retail banking (e.g. O’Loughlin et al., 2004).
Nevertheless, developing such capabilities may give rise to several managerial
challenges in the retail-banking context. Our aim is to offer a holistic view on
organisational obstacles to upgrading customer value-in-use in retail banking. The
following theoretical section defines the main concepts involved, before the aim of
providing a holistic understanding is addressed by using an explorative case method.
Methodology
The chosen method for this paper is an explorative, in-depth, single case study.
Qualitative research methods are appropriate, because there were no exact, prior
theoretical constructs of what constitutes the change needed in a retail-banking
organisation in relation to the phenomenon in focus (Shaw, 1999). For the same reason,
this case study is explorative. One very information-rich case was chosen to reveal the
process of developing customer experience and value creation in the retail-banking
context and the related obstacles facing such efforts. The case study method supports
researchers in their work to form a holistic understanding of a complex phenomenon in
focus (Yin, 2003, p. 2; Kovács and Spens, 2005).
This study was preceded by a pre-study, which involved a meeting with a
representative, either from senior management or the business development unit of all
the banks active in the same local market. The bank chosen for the case study was
selected because of its stated strategy of developing customer-centric practices
extensively. The decision of the case company to do so offered a great opportunity to
examine this phenomenon in the banking context in a longitudinal manner. This case
was both intrinsic and instrumental (Stake, 1995). The case itself was interesting to
investigate, and the case study made analytical generalisations possible (Yin, 2003, p. 10).
Secondary data including earlier customer satisfaction surveys and other
documents from the case company were used to provide background information.
Primary data were gathered in a workshop, development sessions and thematic Obstacles to
interviews and through participatory observation throughout the process (see Table I). upgrading
One of the authors was involved in the development process, gathering data from its
different phases. Before the interviews, the researcher facilitated a workshop in which a value-in-use
group of four managers created a common understanding of the value-in-use
concept based on the existing theoretical understanding and with the help of a few case
examples. In the two following development sessions, a researcher and one of the 339
bank’s managers (who was responsible for the research) created a loose framework of
the meaning of the value-in-use concept in this specific context. In a subsequent
executive board meeting attended by all the participating managers, the model was
presented and further refined following discussion.
The model was then used in the interviews to alert the managers to the potential
of the concept and to discuss the obstacles that could impede its implementation.
We wanted to understand how informants saw the value-in-use idea in the banking
context compared to the prevailing value-in-exchange logic. Thematic interviews
permit intensive interaction between a researcher and interviewee (see e.g. Kovács and
Spens, 2005). The whole senior management of the bank (nine people) was interviewed.
Interviewees were first asked to describe the competition in their own business area,
then to relate their own views on the development of a customer-centric orientation, the
possibility of creating a competitive edge through use of this concept and also what the
potential obstacles in the process might be. Finally, the discussion proceeded to
address innovation in banking and how customer relationships influence innovation
activities. The informants represent the retail bank’s deepest understanding of the
current banking business and strategic possibilities – and in addition have the ability
to change that logic. The analysis of the interviews was presented in the final
development session and workshop with the bank’s executive to verify the results.
The case study method supports an abductive research logic, enabling interplay
between and simultaneous development of theoretical and empirical material (Kovács
and Spens, 2005). Our approach was abductive in the sense that theoretical and
empirical understanding grew in the course of developing the value-in-use idea in the
Cultural obstacles
General banking logic. According to our data, a company wishing to position itself as a
facilitator of value-in-use instead of value-in-exchange, would be required to adopt a
customer-centric way of doing things (see e.g. Vargo and Lusch, 2008b; Heinonen et al.,
2010). The data suggest the main obstacle to implementing that new logic is the fact that
retail banking is traditionally very service-provider oriented, meaning that the starting
point has been the bank’s processes, and the customer has been required to adjust to that
situation. There are certain inertial forces like the history of regulation, and a relatively
stable, formal and risk-averse culture (Kolar, 2006). However, progress towards the value-in-
use logic will demand a change in the mindset prevailing among bank senior management:
For a bank, it is difficult to think out of the box, to see and understand the need of the
customer and how the bank could create value (Head of personal bank).
The bank should react into customer’s action and has the ability to explain the benefit of the
banking service for the customer in a long-term period (Head of personal bank).
A low level of interaction between the bank and its customer base does not necessarily
mean that the service must be a failure or that value is not created at all. However, a
lack of interaction means that the bank does not possess sufficient control over its
customers’ value creating processes, nor can it conduct a sufficient volume of encounter
processes to expand the scope and penetration of its service offerings. The bank leaves
the direct control of the use of the banking service to the customer alone (see e.g. Obstacles to
Grönroos, 2011; Grönroos and Ravald, 2011). upgrading
According to our data, it is evident that banking services are often presented as if
they were goods rather than services. This is based on one-off sale culture rather value-in-use
encouraging an ongoing relationship. The value-in-exchange view dominates, and the
bank is not capable of creating a constant, seamless interaction with its customers to
co-create value-in-use with them (Heinonen et al., 2010). However, those “banking 341
products” should be seen as one part of service encounters, not an object of exchange
in themselves:
In the current banking business, the product view is emphasised (Head of Digital Services).
According to our interviewees, the digitisation of banking services has transferred
the service encounters from physical branch networks to the electronic banking
environment, and the interviewees were concerned that banks were losing contact with
their customers. However, based on our interpretation the problem is not digitisation
and self-service per se, but the attitude and mindset in the organisation; it is marked by
the traditional goods-based banking logic, a lack of interaction with the customer and
consequently a lack of understanding of customers’ value creation.
Lack of commitment. The empirical data indicate that our informants found it
relatively easy to define what implementing value-in-use should involve, but saw the
corresponding change management of the company culture as very risky and time
consuming. Our data suggest that in general the motivation to change the business
culture is lacking. The mindset that militates against the establishment of a sufficiently
strong driving force for change was visible in the citing of results of customer
satisfaction surveys:
The customer satisfaction rate is still high enough (Head of personal bank).
A regulated business environment might lack the competitive push that would
stimulate the necessary change in organisational culture at the strategic level. Now the
case bank operates as a selling organisation and it seems as if any change towards a
more customer-oriented logic would need some driver emerging from outside the bank
that forces it to change. For the management, it would mean the change from sales
management into banking business management as a whole. In that world, acquiring
individual customer accounts is no longer the driver, but coordinating and maintaining
the relationship over the long term is. Moreover, for the bank, its market share would
cease to be the main business target, and be replaced by that of having a profitable
banking business in the selected market area.
At the operational level, given the emotional aspect of customer perceived value
(Roig et al., 2006), among other things, it is clear that bank employees play a crucial
role. Uncommitted employees dealing directly with customers can sour the whole
development process:
People who work in a bank view the banking business as a low-interest industry; the mental
backbone, pride, and even specialist attitude are missing (Head of Business Planning).
Conclusions
In this study, we researched the main organisational obstacles faced by a retail bank
developing its customer orientation by encouraging a topical value-in-use mindset. Our
empirical data clearly showed that changing the mindset within a bank is not without
its challenges and requires change in the management system, cultural, structural and
IJBM processual aspects (see also Shah et al., 2006; Harris, 2000). Those obstacles were found
31,5 at both structure/system and cultural levels and in related business activities.
For a retail bank, it is challenging first to understand the deepest meaning
and character of customer value and second, to harness the resources of the
organisation to deliver that value. The main barriers arise from the strong
producer-oriented way of doing business, a lack of employee commitment, in the
344 strong product- and sales-orientation, the restrictive network, difficulties in seeing
the profit potential of adopting a new mindset, the lack of conceptualisation and
proper segmentation, and finally, in a silo-style bank organisation. At the same time,
these obstacles encompass the potential enablers of a competitive advantage. If a bank
wants to gain a durable competitive edge based on a strong capability to co-produce
value with its customers, addressing the obstacles described would present it with
an operational roadmap to do so.
Our study reinforces the idea of silos within organisational functions impeding
development of customer centricity (see e.g. Nielsen et al., 2003), and how important
a role reward systems have in facilitating cooperation and knowledge transfer
across functions (e.g. Jaworski and Kohli, 1993). The current study also touches upon
the importance of empowering employees involved with the customer interface
(e.g. Bennett and Durkin, 2002). However, our study draws a more detailed picture of
the situation in retail banks facing new challenges. It expands on the effects of a strong
producer-oriented mindset, illustrates the characteristics of a strong sales orientation
and the reasons behind it, shows how restrictive a company’s network can be and how
difficult it can be to understand the financial reasoning behind development needs.
In addition, the study confirms that business practices like conceptualisation and
segmentation have a role in the development towards customer centricity.
Although there now seems to be a view of how bank services should be developed,
it is very important to maintain a critical perspective and ask how far banks could go
along the road to customer centricity. The profitability and efficiency of the company
influence the right degree of commitment, and banks would need to investigate the
extent to which they could focus on value-in-use while maintaining a balanced
approach for each stakeholder group (see e.g. Gummesson, 2008) bearing in mind
the resources available to the organisation. Banks must also not lose sight of the
customers’ real experience, as Gummesson asks, “how intimate do they really want to
get with suppliers?” (2008, p. 317).
Although there are different conditions – and a really customer-oriented approach
demands much time and management effort – we believe that future changes in
regulation, competition and customer behaviour will ultimately trigger a change
in retail banking and force companies to focus on providing an integrated and holistic
value-in-use.
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