If you’re an independent adviser to TD Ameritrade, you may want to borrow a couple of pages for your practice from the playbook of namesake Toronto-Dominion Bank on how to best serve customers. Or perhaps even Victoria’s Secret, which has nothing to do with financial services..
That is, if you want to boost your bottom line by working the virtuous cycle of the “service profit chain,” after the 2011 National Conference of TD Ameritrade Institutional Services – which begins Wednesday, Feb. 2, in San Diego – is in the history books.
The chain works like this, according to Thomas H. Davenport, a professor of information technology at Babson College and co-author of “Competing on Analytics: Analytics at Work.”
If you and your employees are happy and engaged at their place of work, then customers will be happy and engaged. If they are happy and engaged … you’ll make more money.
“And the world would become a perfect place,” Davenport deadpanned Monday (Jan. 31, 2011) in New York.
For examples of how to put the principle into practice, you can start by looking at Victoria’s Secret, the seller of women’s lingerie to men seeking romantic results.
Its owner, the retail chain operator known as Limited Brands, determined that every additional 1 percent of men that it could convince to buy something when they came through the Secret’s doors would result in $35 million more in sales and $15 million more in operating profits a year, Davenport told roughly 300 senior financial executives attending a Corporate Performance Management conference held by CFO Publishing at the Crowne Plaza Times Square Hotel.
But the chain found that its most experienced and successful salespeople were working the stores during normal business hours, on weekdays. They were not in the stores when the men they needed to convert came in the doors.
So Victoria’s Secret came up with incentives that convinced more of its best converters to work on weekends, when the men who needed to make up their minds came in.
Then there is TD, or Toronto-Dominion Bank. The Canadian firm found that 19 percent of the profitability of one of its branch offices could be determined by how well it executed on service levels, according to Davenport.
Eight years ago, Toronto-Dominion was struggling with its $8 billion acquisition of CT Financial Services, which became TD Canada Trust, a new bank.
The merger of the TD Bank and Canada Trust would pay for itself only if Canada Trust’s historical record of retaining customers could be maintained and combined with TD’s greater ability at acquiring new customers. Canada Trust only lost 8 percent of its customers each year. TD Bank increased customer rolls 13 percent a year.
TD Canada Trust, as a result, came up with a Customer Satisfaction Index that captured measures of customer satisfaction and loyalty, along with a number of service “behaviors” that could be counted on to drive customer satisfaction and loyalty, according to a case study published in 2008 by the Harvard Business School.
This index had to be reflected in a customer service model that had to be “bulletproof,’’ according to chief marketing officer Chris Armstrong, who had been behind $80 million of advertising that tried to articulate that TD Canada Trust showed “banking can be this comfortable.”
TD created a relatively long list of “service behaviors” that it thought led to concrete results. And began surveying its customers, to be able to determine if they were in fact drivers of satisfaction – and results.
These behaviors were sorted into four “service dimensions” with somewhat squishy names:
- Makes you feel comfortable. Behaviors: “Treats you in a respectful manner.” “Makes you feel they appreciate your business.” “Smile.” “Show they are interested in you as a person.”
- Speed of service. Behaviors: “Wait time acceptable.” “Processes your transaction quickly.”
- One on one. Behaviors: “Confirms or restates details of your request.” “Thanks you for your business.” “Addresses you by name.”
- Privacy. Behaviors: “Keeps your financial information confidential.” “Conducts your banking privately.”
Once established and tracked, each factor then could be translated, over time, into measurable results. Each incremental percentage point increase in the factor labeled “Makes Me Feel Comfortable” resulted in $5.4 million more in annual contribution to profit. Each increase in “Speed of Service” contributed $2.5 million. And so on.
Overall, the analysis suggested, according to the case study, that if all branches in the TD Canada Trust network increased customer satisfaction by 1 percent, then the gross contribution to profit would go up $3.3 million. IF all branches hit the customer satisfaction level of the best branch in the network, $42.5 million of annual contribution would be generated.
The most important finding, Davenport suggested, is that the improvements that really matter are those that are made in the middle of the playing field.
If, for instance, a branch only moves the needle on a particular customer satisfaction measure from 1 to 2 on a 10-point scale, that barely matters. It’s merely moving from awful to lousy. Similarly, going from 9 to 10 doesn’t make much difference. That is going from “wonderfully outstanding” to dead-near perfect.
Here’s Davenport’s description of “performance management nirvana,’’ whether you’re a banker, a financial adviser – or a seller of lingerie.
- The future is foreseeable. “We’d have predictions of future corporate performance, not reports on the past.”
- The unseen becomes seen. “We’d report externally on intangibles.”
- Understanding of objectives is widespread in your company. “We’d know why the items on our scorecards were there.”
- Data would back us up – or not. “We’d be able to confirm our strategies.”
- Data would show alert us to problems. “We’d know how and where to intervene if performance began to suffer.”
- Responses would be precise. “We’d simulate and optimize resources to implement strategy.”