– Thoughts on Strategy and Management

Calculus trust

In this former post I discussed three alterations of trust. With this new post I would like to discuss the concept of confidence building. To do so I will employ the banking industry as an example. One has to have in mind that due to the financial turmoil the trust levels between banks and customers have dropped sharply.

Concept for confidence building. In retail banking business a relationship between bank and customer can start very early to maintain or to gain market share. Some retail banks employ a phase of life concept that starts right after the childbirth of a potential customer. The objective of this concept is to establish a relationship between future customers and the bank very early or at least to stabilize the relationship between parents and bank. When young customers enter their “professional life” – i.e. when leaving the high school – they have already gained experiences in terms of financial products; furthermore they have made their own experiences with banks. Hence these young customer can use their experiences when evaluating issues like liability, friendliness, fairness and accurateness of a bank. In addition customers can use external product reviews and interest rate comparison lists from customer organizations as external data to confirm or disprove his evaluation. Such experience generation is essential to establish a frame for calculus trust.

Calculation by the customer. Within retail banking business calculus trust plays a major role on two different occasions. A customer can rely on personal experiences and prefer certain bank products when making the purchase, assuming that the bank and its products performance as hitherto. A customer can also rely on experiences and prefer a certain bank when accepting purchasing recommendations to buy products of other financial suppliers than the bank itself. The latter one is based on customer’s additional hypotheses that certain parameters are in place which control the bank’s process to select external products in order to achieve customer satisfaction. HOCH and DEIGHTON (1997) have confirmed that customers use hypothesis in their interaction with the environment; furthermore they also learn from experience. In the case that a customer has made a positive experience with a bank product he assumes that considering purchasing recommendations for external products will cause positive results, too.

At this point I would like to highlight a critical issue. Many retail banks follow an open-architecture approach today. This term expresses the concept to sell both products and services made by the own organization as well as products and services from external enterprises. The integration of external products creates an additional consulting conflict for a bank, since the criteria of selecting external suppliers may be driven by profit orientation instead of customer advantage.

A factor that determines customer’s experience is the personal relationship with bank’s representatives. One has to consider that the production of banking products requires customer’s participation and therefore the interaction with the bank organization. In some cases this interaction takes places in an impersonal way, i.e. when the customer records data on the bank’s website. Despite all technological developments a specific number of situations both in service and consulting require a personal interaction between customer and customer consultant, i.e. when the bank employee interviews the customer in terms of financial objectives to present product recommendations. In such cases the personal relationship will determine both quantity and quality of information. In an established and cultivated relationship the customer is prepared to offer more information about his needs; otherwise the bank employee can consider more information to select the relevant product class, to select an appropriate level of product customization, and to highlight those product features that might be important for the specific customer. Taking into account customer’s objectives the bank employee can change product class or modify product bundles as well as the range of product information.

The calculus trust perspective is an important aspect for banks which want to establish a long term relationship with their customers. Banks have to consider that in particular this concept takes time and effort in order to establish a positive track record of experiences.

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