The Cost of Quality in Financial Services

There is little question about the desirability of high quality in products and services. On the other hand, there is very little consensus on the economic value that high quality yields and where the point of diminishing returns lies… the point at which the cost of high quality exceeds the value derived.

In order to determine the point of diminishing returns it is necessary to quantify the benefits derived from improving quality and the benefits lost from degrading quality in relation to the cost and savings from altering quality.

Lessons from the Industrial Revolution

We learned the miracle of mass production from the 19^th century but it was not until the 20^th that we began to appreciate that increasing quantity without also enhancing quality was non-productive. This lack of appreciation for quality was vividly captured by the term, “planned obsolescence”. It was a widely held belief that excess quality could be removed from products and services without consequences.

The belief in planned obsolescence came close to destroying the US auto industry. US automakers continued to degrade quality to improve margins while foreign competitors improved quality to gain customer acceptance, loyalty and sales. It was reversing this belief in planned obsolescence that eventually saved the US auto industry in the 1970s.

In today’s auto market, vehicle and service quality is a prerequisite.

Financial Services Allegory

Faced with a growing awareness of customers’ desire for quality, financial services institutions recognize that the only opportunities to deliver quality are when there is contact with customers. Obviously, customers do not drive their mutual fund, annuity or 401(k) plan! There is however, extensive contact through statements, contact centers, Web sites, mobile communications and social media. These contacts are referred to as “touch points” and are the only practical way to deliver a message of quality.

Institutions must therefore make effective use of each touch point. Taking action is made difficult because certain touch points are more effective than others and this varies from one customer to the next. It is therefore necessary to set standards for each touch point that reflects its effectiveness in molding customer opinions.

Statements have the widest reach by far. They generally do not create a deep positive impression but can create a strong negative one across a large number of customers.

On the other hand, contact centers touch very few customers but the impressions they make are deep.

The quality of electronic media is growing in importance and customers are becoming more demanding as the quality at other non-financial experiences improves.

Quality: How Much is Too Much?

Financial services institutions must avoid the temptation of keeping up with competitors. While it is important to understand the competitive environment, it is seldom prudent to copy every move!

It is essential to make a through assessment of the facts and circumstances before adopting new trends.

Quality: How Little is Too Little?

As with the theory of “planned obsolescence” institutions need to be doubly careful in adopting cost reduction measures at the expense of the quality of the customer experience.

The following are examples of high impact cutbacks at various touch points:

• Wait Times… Regardless of the touch point, the time a customer must wait has the greatest effect on the perception of quality.
• Font Size and Layout… Not being able to find an answer that is present is the leading reason that customers seek human access.
• Automated Responses… Greatest failure is omitting frequently needed choices in an effort to push customers to a low cost touch point.
• Human Access… Often deliberately obscured to favor low cost touch point.
• Generic Security Measures… Repeating security checks after customer has been identified.
• Quality Monitoring… Lack of controls to detect and correct poor performance.
• Language and Accents… Written and spoken language that is not adapted to the customer is evidence of poor quality.
• Inexperienced Representatives… The worst experience occurs when the customer has to educate the representative.
• FAQ Bias… FAQs that do not include the most frequently asked questions are non-productive. This is evident when the FAQs do not include, “How do I change my address on your records?”
• Single Contact Completion… Incomplete solutions are not only an indicator of poor quality but are costly since the next attempt involves repeating the entire previous attempt.

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