Customer experience management after a bank merger

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UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Business School

Customer Experience Management After a Bank Merger

Master’s thesis Service Management Iina Kilpeläinen (276486) 26.04.2020

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ABSTRACT

UNIVESRITY OF EASTERN FINLAND Faculty

Faculty of Social Sciences and Business Studies

Department Business School Author

Iina Kilpeläinen

Supervisor

Pasi Tuominen, Helen Reijonen Title

Customer Experience Management after a Bank Merger Main subject

Service Management

Level

Master’s thesis

Date 26.04.2020

Number of pages 65 + appendixes Abstract

The object of this study is to find out how has a bank managed its customer experience after a merger. This study also answers how has the bank created its customer experience management and what factors influence on the creation, what challenges and advantages merger creates in relation to customer experience management and what are the critical success factors in customer experience management after a merger.

The study was conducted as qualitative study, because of its descriptive nature. It is a case study conducted in one independent bank within OP Financial Group. Five people were interviewed from the independent bank. Also, a person who has been involved in a lot of merger processes within the group, was interviewed to give the reader a more comprehensive idea of bank mergers.

The data was collected using a semi-structured interview.

According to the findings the bank considers customer experience very important and invests its creation and management. The findings suggest that the customer experience is created mainly by the front-line employees, yet there are several other elements influencing the creation, some that the bank can and cannot control. Customer experience management was considered to be mostly about motivating and training the employees in the right way and moreover about objective setting, researching, implementing, measuring and reacting. These findings conform the presented theoretical framework quite well. The merger creates some advantages as well as challenges for the customer experience management, and from these one could derive some critical success factors that could be helpful in future bank mergers.

Key words

Customer experience, Creation of customer experience, Customer experience management, Financial industry, Bank mergers

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FIGURES

FIGURE 1. HOW TO SUSTAIN THE CUSTOMER EXPERIENCE (GENTILE ET AL 2017) ... 11

FIGURE 2. CONCEPTUAL MODEL OF CUSTOMER EXPERIENCE CREATION (VERHOEF ET AL. 2009)... 14

FIGURE 3. A CONCEPTUAL FRAMEWORK FOR THE CONSTRUCT OF CUSTOMER EXPERIENCE (PALMER 2010) ... 15

FIGURE 4. THE CUSTOMER EXPERIENCE: ROAD MAP FOR IMPROVEMENT (JOHNSTON & KONG 2011)... 18

FIGURE 5. CONCEPTUAL FRAMEWORK OF CUSTOMER EXPERIENCE MANAGEMENT RESEARCH. (HWANG & SEO 2016) ... 19

FIGURE 6. THE NET PROMOTER SCORE REICHELD (2003) ... 21

FIGURE 7. THEORETICAL FRAMEWORK ... 21

FIGURE 8. NUMBER OF BANKS IN THE OP FINANCIAL GROUP (2020) ... 27

FIGURE 9. SUMMARY OF FINDINGS ... 55

TABLES

TABLE 1 INTERVIEWEES IN THE CASE COMPANY ... 35

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1. Introduction

1.1 Background and previous studies

The idea of my Master’s Thesis topic has a lot to do with my personal experience working in the financial industry as well as working in other various customer service roles. I have been interested in customer experience for a long time and majoring in Service Management it felt natural to pursue my interest in this study. Bank mergers have been in the headlines in Finland in the recent years, therefore this topic is also very intriguing and current.

Customer experience has been an interest of lot of studies, especially in the past decade, but to my knowledge customer experience management after a merger, or after any major organizational change, has not been studied before. There are several studies about customer experience management e.g. Verhoef et al. (2009); Parandker

& Lokku (2012); Frow & Payne (2007); Ryder (2007); Johnston & Kong (2011);

Hwang & Seo (2016); Berry & Carbone (2007). They all have different perspectives of the main concerns about customer experience management but also lots of

similarities. The similarities were the understanding what effects on the customer experience as well as understanding the customer journey and customer touchpoints.

The differences were mostly in what are considered the most crucial issues to focus on when managing the customer experience.

Impacts of mergers and acquisitions on the other hand have been studied rather in a financial basis and the focus has been in the organizational fit between the merging parties. Kumar (2012) in their study of mega mergers and acquisitions have focused on the merger motives and Anderson et al. (2003) have researched how customers and suppliers in the merging companies perceive and behave in relation to a merger. In their research Focarelli & Panetta (2003) have studied if mergers are beneficial to customers, but have concluded that constructing such measure is impossible.

In my research, I have companied customer experience management and a merger and found a research cap and with this case study I wanted to get more insight on this phenomenon. I have chosen to study one specific merger in the OP financial group.

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The merger was said ultimately benefit customers because one of its main goals was to ensure more professional and diverse customer service. Therefore, I wanted to research how has the bank created and managed its customer experience after a merger.

1.3 Objectives and research questions

The objective of this study is to find out how has the bank created and manged its customer experience. What have been the challenges and advantages and draw some critical success factors according to customer service experience. One of the main purpose in a bank merger is to certify services to their customers in the future. Small banks are often going through financial hardships and merger is the only option to continue. The message that the banks want to give their customers about the merger is that it is beneficial for the customers. After a merger, they can provide better and diverse services and this way create more value for the customer and over all better the customer experience.

The key is to identify and demonstrate bank’s customer management strategies after a bank merger. First it is important to know how does the bank define and create

customer service and how do they conduct customer experience management. After that one can add the component of merger and draw more specific research question which in this study are:

1. How does the bank create and manage customer experience after a merger?

2. What challenges has the merger created in relation CEM?

3. What advantages has the merger created in relation to CEM?

4. What are the critical success factors in CEM after a merger?

The support questions give more value for this study, answering what challenges and advantages a merger creates in relation to customer experience management will help the reader understand the considerable effect a merger has on a company and its customers. Once one has been able to get answers to these three research questions, it is also rational to answer what are the critical success factors in customer experience

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management after a merger. This will hopefully give some insights for what factors to specifically keep in mind in when new banks are merging in the future.

The nature of this study is descriptive and therefore it is conducted as a qualitative study. And the data was gathered using a semi-structured interview. Six people in total were interviewed. One of them was Governance Lead in OP Financial Group who has years of experiences of mergers. The chosen bank was willing to be studied even though the nature of the study is somewhat sensitive. It is known that big

organizational changes can be stressful and cause tension within the company. As the focus is on the customer experience and its’ management, it was important to take into consideration all the emotions of the interviewees. The interviews were conducted over a year after the merger for that specific reason and because it was more relevant to study the customer experience management after the dust had settled and the merger was truly assimilated.

1.4 Key concepts and structure

Key concepts in this study are the concept of customer experience, which is the relationship between the customer and the company, where value is created in both ways and is influenced by several components. (Gentile et al. 2007; Grönroos &

Ravald 2009; Vargo & Lusch 2004). Creation of customer experience is about episodes where production of the service and the interactions between the service provider and the customer occurs. These episodes are called touchpoints and they create the customer journey. Within the journey there some elements that the company can and cannot control. (Maklan et al. 2017; Lemon & Verhoef 2007;

Rawson et al. 2013; Verhoef at al. 2009). This all leads to Customer experience management which means that companies need to understand the customer journey and try pre-control the customer experience in a way that it will create value both to the customer and the company. (Verhoef et al. 2009; Parandker & Lokku 2012; Frow

& Payne 2007; Ryder 2007; Johnston & Kong 2011; Hwang & Seo 2016). Measuring the customer experience is an important part of customer experience management. It would be ideal for firms to measure overall customer experience with one metric, but the problem in trying to measure customer experience is the complexity of context specific variables. One established metric to measure customer experience is still to

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be discovered, but there are ways to measure different means of customer experience such as the loyalty aspect and the prospect of customers being great promoters for the company. (Palmer 2010; Lemon & Verhoef 2016; Reicheld 2003). It is also important to open the concept of financial industry and bank mergers. Financial industry

provides economic services and in a bank merger two or several banks amalgamate their asset and liabilities to become one bank. (Phillips 1999; Kumar 2012).

In the first chapter of this study there is a short preface which tells how the subject of the study was chosen. After that objectives and the research questions are shortly introduced to the reader, which are followed by key concepts and structure of the study. In the second chapter the concept of customer experience, its creation, management and measuring are being unfold. In the third chapter, important background concepts, financial industry and bank mergers, for this study are

introduced as well as the case company and merger in the case company. For this part I have interviewed a government lead who has been highly involved in most of the merger processes all over Finland within the case company. Chapter four contains the chosen methodology. Meanings of qualitative study, case study, semi-structured interview and primary data collection are demonstrated for the reader which is followed by the analysis of the data. In the fifth chapter findings of the study are being carefully shared. In the sixth chapter one can find summary and conclusions of the study with discussion, managerial application, study evaluation as well as study limitations and ideas for future research.

2. Managing Customer Experience

In this chapter concept and creation of customer experience as well as meaning of customer experience management and it’s measuring is being established. There are several studies and theories about customer experience, it is a vivid concept that splits many opinions. As it is such a vide construct, I have chosen some of the studies and models that I felt are most fitted for this study. In the end of this chapter, I have gathered a theoretical framework that combines some of the soon introduced models of customer experience and its management.

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2.1 Concept of Customer Experience

Some of the first writes to indicate the notion of customer experience were Pine &

Glimore (1998, 1999) in their books Welcome to experience economy and The

experience economy – Work is Theatre and Every Business a Stage. Their idea was to get people to understand how companies in fact are competing on experiences.

Customer experience is now widely discussed among other practitioners and

academics alike. Customers are no longer just buying products or services, there are buying and receiving experiences, good, bad or insignificant. (Johnston & Kong 2011)

The goal of experience marketing is to support customers’ value creation, following a service logic. Due to the interactions where the firm’s and the customer’s processes merge into an integrated joint value creation process, the firm is not restricted to making value proposals only, but can directly and actively influence the customer’s value fulfilment. Furthermore, it can extend its marketing process to include activities during customer-firm interactions. (Grönroos & Ravald 2009). Service dominant Logic by Vargo & Lusch (2004) states that value is created for the customers in the received service. Different people can share the same service but experience it

completely different way, according to their background, previous experiences on the same or same type of service, their personality or how they feel in that exact moment of consuming the service.

Experiential marketing see consumers as rational and emotional humans who want to achieve enjoyable experiences in contrast to traditional marketing where consumers are seen as rational decision makers caring only about functional features and

benefits. According to Schmitt (1999) there are five different types of experiences that can me also called strategic experiential modules. These modules are: sensory,

affective, creative cognitive, physical, behaviour and lifestyle and social-identity experiences. Marketers can create these modules depending on the service/product they are selling and depending on what the customer is longing to experience by buying the service or product.

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Gentile et al. (2007) define customer experience as the relationship between the company and the customer. It is presented in (figure 1). Experiences are a unique set of feelings, there are six components or dimensions affecting to the experience:

Sensorial Component: Customers experiences service through sight, hearing, touch, taste and smell. Emotional Component: Experiences are linked with different emotions etc joyful, surprising, sad or angry. Cognitive Component: Customer uses conscious mental processes during the experience such as problem solving or creativity. Pragmatic Component: The experience is connected to doing something, for example using a computer. Lifestyle Component: The offering/the brand is joined with values and beliefs connected with a certain lifestyle and behaviour. Relational Component: Closely linked with the lifestyle component. Experience that is joined with social context, relationship with other people and ideal self. It is consumed together with other people, or can create communities/ fans, strengthen identity and create feeling of being part of a social group. (Gentile et al. 2007)

Figure 1. How to sustain the Customer Experience (Gentile et al 2017)

Accroding to Zeithaml (1988, p 14) Value is the consumer's overall assessment of the received service/product quality. Holbrook on the other hand highlights the

importance of understanding the nature and types of value customers obtain in the consumption experience. In other words, what kind of value the customer gets when buying the product or service? (Holbrook 1994b).

According to Meyer & Schwager (2007) Customer experience is the feeling that the customer gets when involved with the company directly or indirectly. Direct contact

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means the customer’s initiated course of purchase, use and service. Indirect on the other hand is unplanned encounters with the company’s products, services or brands usually carried out by word of mouth, advertising or news. (Meyer & Schwager 2007)

Customer experience can also be viewed through perspectives of consumer

behaviour: the traditional information processing and decision oriented approach and the experiential perspective. With this approach the customer has the will and

knowledge to assess the benefits and disadvantages when buying the product or service. Consumption through experimental view expands this perspective, because consumption also includes fantasies and flow-feelings and is not also goal-orientated.

Nevertheless, customer experience should be seen both an information processing approach as well as sub-conscious processes. This way it can be viewed from normal day-to-day routinized actions, as well as more emotional experiences’ perspective.

Customer experience management should carefully consider which on one of these perspectives to emphasize depending if its business-to business or business-to- consumer context. Congenial combination of the rational and emotional perspectives gives companies the possibility to create superior customer experience. (Frow &

Payne 2007)

2.2 Creation of Customer Experience

Customer experience constitutes of episodes where production of the service and the interactions between the service provider and the customer occurs. These episodes are called touchpoints. Touchpoints can be defined as any way a consumer can interact with a business. Customer journey is something that the customer creates itself and may not be the one that the service provider suggests. Customer experience starts when the customer comes aware of the firm and develops within time through all the encounters trough all different channels. Maklan et al. (2017) posit that the influential elements of customer experience are the company, its partners, the environment, nature of the service and customer’s character. Experiences are derived from series of interactions between the consumer, the environment and the service provider. It is a complex process that evolves over time and retains value. According to Homburg et al. (2017) customer experience is a mix of customer’s sensorial, affective, cognitive, relational and behavioural response to the company’s brand in different touchpoints

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during the customer journey and how the customers is evaluating the journey against co-occurring experiences and customer’s own related environment.

Lemon & Verhoef (2016) underline in the creation of customer experience there are elements that are in the company’s control e.g. service interface, retail atmosphere, assortment and price, but also elements that cannot be controlled e.g. influence of others and purpose of shopping. They also underline the fact that customer experience is about the total experience; the search, the purchase, consumption and after-sale phase and it can involve several retail channels. It is also important to take into account the interaction between the retail brand and the delivered customer

experience as well as the fact that the current customer experience is affected by the customer’s previous customer experiences. It is complicated for companies to create, manage and try to control the customer experience and the journey of each customer.

Companies should integrate multiple business functions so that they can more easily control the customer experience. Verhoef et al. (2009) have created a conceptual model of customer experience creation. In their model (Figure 2.) the elements that can be controlled such as service interface, retail atmosphere, assortment and price.

Also, the brand, customer experience in alternative channels as well as customer’s previous experiences effect on the total customer experience. They also take into consideration elements that cannot me controlled such as social environment, situation moderators (e.g. culture and economic climate) and consumer moderatos (e.g. socio- demographics and consumer attitudes). According to the model the customer interprets all these elements in cognitive, affective, social and physical way and forms a subjective customer experience, which will intrinsically reflect on the customer experiences with the same company in the future.

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Figure 2. Conceptual Model of Customer Experience Creation (Verhoef et al. 2009) Rawson & et al. (2013) posit that it is tactical to optimize a single customer journey.

Organizational culture, changing processes and mind-sets all effect on the journey.

Creating desirable customer journeys is not easy but it can be rewarding through better customer and employee satisfaction, increased revenue and lower costs. It is a true competitive advantage because it creates a culture that is difficult to build otherwise.

Palmer (2010) suggest a customer experience model (figure 3.) that starts with three basic elements: quality of tangible elements and processes as well brand relationship and interpersonal relationships. These elements intertwine in customer’s mind and customer starts to separate and interpret them. After that customer’s emotional receptivity and memories from previous customer experiences effect on the new customer experience of the company and it’ services. Palmer underlines that customer experience is not a static state rather a constantly molded by memories and

observations that can distort in time and create existing attitude. (Palmer 2010)

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Figure 3. A conceptual framework for the construct of customer experience (Palmer 2010)

2.3 Customer Experience Management

As we now know customers interact with the company through various touchpoints.

Understanding the customer journey is very critical for companies to try and pre- control the customer experience, which can be called customer experience

management. Customer experience management is the company’s way to control the customer experience in a way that it will create value both to the customer and the company. To enhance customer relationships and build customer loyalty is the main purpose of customer experience management. It is important to highlight that customer experience management focuses on the customer’s current customer experience rather than the history of the customer encounters as it does in customer relationship management. (Verhoef et al 2009) Customer experience management has gotten a lot of research attention, it is said to be one of the most promising marketing approaches in consumer industries.

Parandker & Lokku (2012) as many other practitioners alike state that managing the customer journey through various touch points will lead to overall customer

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experience and the key is to be able to manage the interaction at each of the touchpoints They also highlight that customer experience is ultimately about minimize the gaps between the customers’ perceptions and the company’s understanding of these perceptions. It is vital for companies to understand their customers, why they use the services and how they choose among other competitors in the industry. Touch point experience is the key to understanding the overall

customer experience. Companies should determine if they have succeeded in meeting the customer expectations in every touchpoint and therefore evaluate customer satisfaction and possibility of repurchase.

In their research Frow & Payne (2007) posit that organizations wanting to improve customer loyalty and profitability should concentrate on achieving superior customer experience. It is important for companies to do research on their customer’s

perceptions of the service experience, recognize the problems areas for improving the customer experience. This will ultimately increase customer loyalty and improve financial returns. Co-creation of value is the key in this issue, it is vital for companies to realize that the superior customer experience is created together with the customer.

There are several tools to use to point out critical points and underline the

opportunities for the improvement of customer experience e.g. process mapping, service-blueprinting, customer activity cycles and customer-firm touch point analysis.

Managing the customer touchpoints is crucial for companies pursuing superior customer experience. This way companies can map out the customer journey and recognize the most critical touchpoints. Measuring customer experience at each step of the customer interaction allows companies to truly hear the customer and identify problem areas and implement new techniques and processes. Most used measure is the net promoter score that will tell companies how likely is the customer willing to recommend the company to family and friends. No matter the channel the customer should always get consistently as good customer service. Multi-channel integration strategy offers a bigger scope for understanding customer’s channel preferences and this way enhance the company’s attractiveness and better their customer experience.

Customer have different needs depending on which stage of relationship cycle they are. Recognizing customer needs yet not forgetting that superior customer experience needs to be delivered no matter the stage of the relationship cycle is critical for companies wanting good recommendations from their customers. A deep knowledge

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of the customer can only be achieved when cross-functional manner has been undertaken, this means that all staff and departments collaborate in sharing all information about the customer and all the service encounters. Different customer segments have different desired customer experience as well as different levels of profitability. Different profit contributions mean different feasibility of delivering superior customer experience. Communications and services across different channels should be relevant, coordinates and coherent. This way brand communication is consistent and customer. Superior customer experience and employee experience go hand in hand. Motivated and satisfied staff are not only willing but will enjoy creating superior customer experience for their customers. (Frow & Payne 2007)

Ryder (2007) posit that there are three key elements to customer experience

management and successful long-term sustainable competitive advantage. People are people first: It is important to realize that no matter if you are management, first row employee, customer or supplier it is a human reaction that counts when creating any kind of experience. Understanding how people feel in different situations is important, otherwise the company is in risk of losing their business, customers or even

employees. Manage the reality gap: Understanding the expectations of customers as wells as the reality of current customer experience is relevant. Its common that companies might think they create superior customer and/or employee experience when in reality, they do not. Create trust and relevance: Trust is the key element of any experience. Companies making promises and not delivering them is sadly very common. Delivering what is promised is the main element of successful customer experience. (Ryder 2007)

Berry&Carbone (2007) emphasize the importance of emotional connections in customer experience, which requires systematic customer experience management.

Organizations and their employees send different clues to their customers. Companies cannot manage customers’ emotions but they can manage the clues that they send.

These clues carry different messages, which tell the company’s story: does the organization care about its customers and how does it want their customers to feel?

Customer experience management is about telling customers the right story

exceptionally which creates the value for customers and emotional connection with the company.

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Johnston & Kong (2011) state that systematic planning of customer experience is a challenge in every organization. They have responded to the challenge by developing a road map (figure 4.) that will help companies to improve their customer experience and achieve triple bottom line. They identified ten stages of engineering the customer experience. In the first stage the company should instigate and set objectives for their customer experience following the creation of the business case and coordination and overseeing the changes made. In the fourth stage the company should do customer research and then define the experience. In the sixth stage areas of development should be prioritized and after that undertake action research followed by developing and piloting the changes. In the last two stages, it is time to change the support systems and asses the impacts.

Figure 4. The customer experience: road map for improvement (Johnston & Kong 2011)

Hwang & Seo (2016) identify in their model (figure 5), of conceptual framework of customer experience management research, antecedents of and consequences of customer experience. Antecedents are divided in internal and external factors. Internal factors are socio-demographic factors (e.g. motives, knowledge and personalities), past experiences, familiarity of the service and customer engagement highlighting the co-creation of value.

External factors are service/product quality, physical characteristics (eg. atmosphere and service interface), social/online environment (e.g. social interactions, service platforms), employee characteristics, economic factors and service technologies.

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Consequences of the created customer experiences can be emotional (e.g. enjoyment), behavioural (e.g. purchase decision), brand related (e.g. brand loyalty) or other

outcomes such as customer values. (Hwang & Seo 2016)

Figure 5. Conceptual framework of customer experience management research.

(Hwang & Seo 2016)

2.4 Measuring Customer Experience

Measuring customer experience is an important part of customer experience

management. According to Löyttänä & Kortesuo (2011) Customer experience can be measured in two different ways. One can either measure purely customer’s

experiences of the company or measure the impacts of the customer experience management, like mentioned in the model created by Johnston & Kong (2011).

Lemon & Verhoef (2016) state that it would be ideal for firms to measure overall customer experience and that there was a one metric to measure the experience at each stage an in all touch points of the customer journey. However current research and practise is more scattered. The most developed measurements are concerned about customers’ perceptions of the experience. Also, customer satisfaction has been in the focus for years. According to Palmer (2010) the problem in trying to measure customer experience is the complexity of context specific variables. There for one

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established metric to measure customer experience is still to be discovered. However, Löytänä & Kortesuo (2011) posit that companies can measure customer experience in active or passive ways. Active way is to actively ask customers or conduct research.

Passive ways are customer satisfaction polls, customer panels, focus groups,

biometric measurements, mystery shopping and continuous feedback questioners in various touchpoints. In the passive means customers give feedback or information from their own will for the companies to analyze. These can be different encounters through different channels, following customers’ actions in social media, and any feedback through reclamations, feedback forms or spontaneous feedback to any members of the staff. (Löyttänä & Kortesuo 2011)

The newest metric, Net Promoter Score, is proposed by Reicheld (2003). In the Net Promoter Score customers are asked: How likely is that you would recommend (company x) to a friend or colleague? The question can be answered from ten to zero, where then means “extremely likely”, zero means “not likely at all”, and there is no “don’t know” answer in the category. There are three types of customers in the Net Promoter Score: The Promoters that answer nine to ten, the Passives that answer seven or eight and Dectators that answer anything between six and zero. In their study Kristensen & Erskilden (2013) state that in a survey conducted in fourteen industries and based on four thousand customers NPS survey has the strongest statistical dependency with repeat purchases and recommendations in most industries. Frow &

Payne (2007) posit that NPS presents a calculation of advocacy and that companies having a seemingly higher NPS than the competitors it is likely for the company to grow fast. All measures have limitations, but it can help companies to reflect on how well they have succeeded in delivering superior customer experience.

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Figure 6. The Net Promoter score Reicheld (2003)

2.5 Theoretical framework

In figure 7. Is presented the platform for customer experience management and its outcomes. First it is important to establish what does customer experience mean as a concept, what are the elements for its’ creation, what are the important elements of customer experience management as well as resulted outcomes. The purpose of this figure is to combine the earlier explained theories and models in one figure.

Figure 7. Theoretical framework

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The background for this framework is that the organization has ability effect on the received customer experience. First it is important to establish what does customer experience mean as a concept. According to Gentile et al. (2007) experiences are a unique set of feelings, there are six components or dimensions affecting to the experience: Sensorial, emotional, cognitive, pragmatic, lifestyle and relational components. Creation of customer experience is complex construct. Verhoef et al.

(2009; 2016) posit that there are elements that can and cannot be controlled by the organization. In their model (figure 2) controllable elements are mostly functional such as service interface, retail atmosphere, assortment, price and brand. Elements that cannot me controlled are social environment, situation moderators (e.g. culture and economic climate) and consumer moderatos (e.g. socio- demographics and consumer attitudes. Also, effecting factors can be divided according to Hwang & Seo (2010) into internal and external factors. In their model (figure 5.) internal factors are socio-demographic factors (e.g. motives, knowledge and personalities), past

experiences, familiarity of the service and customer engagement highlighting the co- creation of value. External factors are service/product quality, physical characteristics (e.g. atmosphere and service interface), social/online environment (e.g. social

interactions, service platforms), employee characteristics, economic factors and service technologies. From these two models (figure 2 & figure 5) I have combined components that suit best for this study and divided them into functional and

psychological factors. In their model (figure 4) Johnston & Kong (2010) introduced ten stages of controlling the customer experience. The main categories in this model are planning and setting the direction that the company wants to go with their customer experience, then conduct customer research and change the mindset of the personnel. After that the company should develop their customer experience creation and exercise customer involment, which is followed by implementation of new procedures and embedding the changes. One should not forget that one of the crucial parts of customer experience management is constant measuring; how has the management and personnel succeeded in the creation of customer experience (Löyttänä & Kortesuo 2011). That is why I have added constant measuring in this model. Hwang & Seo (2016) posit in their model (figure 5) that the consequence of the created and managed customer experience can be emotional (e.g. enjoyment), behavioural (e.g. purchase decision), brand-related (e.g. brand loyalty) or other outcomes such as customer values. Customer experience management is a

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continuously moving cycle that is effected by various variables simultaneously, some that can and cannot be controlled. Mastering customer experience management is about understanding the customer journey, controlling the various touchpoints and mostly importantly creating value together with the customers by involving them in the process by listening, researching, reacting and measuring.

3. Financial industry and bank mergers

In this chapter are shortly introduced the important background concepts financial industry and bank mergers as well as the case company and merger in the case company. These concepts will help the reader to understand the background and meaning of this study better. The challenges that the financial industry are forcing on banks nowadays, the motives for mergers as well as the possible mergers’ effects on customer experience.

3.1 Financial industry

The financial industry consists of companies and institutions e.g. providing money management, lending, investing, insuring and trading services. Banks are one major player in the finance sector and in fact the one of the oldest business in the world.

Financial industry is a constantly evolving and very fast-paced landscape to operate in. It is facing technological changes and changes in customer demands and well as changes in regulations and laws. Lately the speed of the technological changes is the main driver for banks to think how to remain relevant to their customers and how to remain competitive in the marketplace. (Wealth and Finance 2020)

Banks are closing branches in a fast rate due to these changes that the financial industry has forced upon banks. It was unpredictable that 90% of daily transactions would be electronic and that internet banking would provide more revenue than branches. Nevertheless, no one would have guessed that conversations in social network would affect so much on customers’ preconception of the banks’ brand. And the latest, mobile banking has taken over and is becoming the main source in

customers’ daily banking. Assessing the role of the branch is important to consider what function the branch holds today. It has been considered a place where customers can walk in or book an appointment to ask anything that they need to know about

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their personal finances. But the reality is that most customers visit a branch increasingly less. The future for branches is critical. Advanced technology has changed consumer behaviour and branches that we know today are not the most cost- effective. The role of the branch must evolve as has the technology and the customer behaviour. The sooner banks realize this the sooner they can serve customers

appropriately. (King 2010) 3.2 Bank mergers

In a bank merger two or several banks amalgamate their asset and liabilities to become one bank. The banking industry is consolidating in a fast pace and you will hear and read about mergers in the news frequently. Mergers are very common in all fields of business. Milbourn et al. (1999) state that mergers allow banks to diversify their services and provide them with high potential profit. Mergers are the fastest way to achieve strategic goals and are often the most cost effective (Phillips 1999). Cost savings and revenue enhancement are primary motives for financial consolidation.

Merger often effects on firm size, scope or market power. In the banking sector mergers are meant to reap the benefits of economies of scale. Advances in

information technology, financial deregulation, globalization of financial markets and real markets, financial distress and increasing shareholder pressure for financial performance are also major drivers for mergers (Kumar 2012).

Phillips (1999) posit that mergers often have major effects on their competitors, suppliers and customers as well as to their shareholders and employees. Most often the merger literature has focused on the two, or several, merging parties and their organizational fit as well as the synergy between the companies, not the parties connected to the merging companies. Anderson et al. (2003) have researched how customers and suppliers to the merging companies perceive and behave in relation to a merger and state that merger influences and is influenced by the merging companies as well as well as their suppliers and customers. Business relationships evolve over time and are time consuming and resource intensive. Long-term relations are

characterized by mutual commitment, adaption and trust. Most studies do not address the issue of how mergers influence the involved companies’ customers. It is

understood that something positive usually comes along a merger.

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According to Anderson et al. (2003) methodologic reason might be the reason why customers and suppliers are not investigated in merger and acquisition research. Also time lag between a merger and the reactions among the customer or supplier as well as causality problem increases challenge for research. Another reason can be that researchers are stuck in traditions or paradigms. By not acknowledging customers and suppliers in the merger research one will miss the understanding of what kind of importance mergers and acquisitions have for the development of any integration between companies and for the outcome of any strategic step. Customer or suppliers are not likely passively to accept a merger and might not actually experience the benefits that the banks have used as arguments for a merger.

Focarelli & Panetta (2003) have studied if mergers are beneficial to customers.

There are various concerns for bank mergers. Banks need to renew their processes, rethink the vitality of their branches and train the personnel. There can also be culture clashes as the personnel from different banks unite and the soft information about the customers might not get transferred efficiently. Mergers also often lead to key

executives to resign which mean some information can be lost, especially when the new management does not necessarily have time to develop customer information.

Foracelli & Panetta (2003) would have liked to measure customer satisfaction after merger but stated that constructing such a measure is difficult because customer’s perception of quality is hard to observe and measure.

In their article Miles and Rose (2011) state that mergers can lead to customer

evanescence, but companies have a chance to avoid that of they listen and understand customers’ point of view before making big integration decision. Often customers expect the worse whenever mergers are announced. It’s common that bank customers lose their favourite branch because of merger. Merger embarks on seemingly minor changes which can make a big difference to customers. Even the most loyal

customers might re-evaluate their relationship with the bank. Companies that retain customers the best adopt the view of the customers as they make important integration decisions. These companies usually gather teams which evaluate every step and every change made through customers’ eyes and this way act as an advocate for the

customers.

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3.3 The case company

The specific case company, which is a part of a bigger financial group called OP Financial group, has wished to remain unknown. I will instead represent OP

Financial Group. OP cooperative banks are independent, local deposit banks. There are 143 member cooperative banks. All independent share the same values, principles and vision and offer retail banking. OP Financial Group is the largest financial

services group in Finland, it has over two million customer-owners. Being a Finnish Financial Group is an important part of its identity. OP Financial Group's success is about their strong foundation of promoting prosperity, well-being and security of its owner-members, customers and business partners. (OP Financial Group 2020) OP is guided with its new mission: “we promote the sustainable prosperity, security and wellbeing of our owner-customers and operating region.” (OP Financial Group 2020). Group’s strategic priorities for this year are: “best customer experience, more benefit for owner customers, excellent employee experience, faster growth in

revenues than expenses and productive development.” (OP Financial group 2020).

Three main values of OP financial Group are: people-first approach, OP Financial Group is for people, which is shown as a genuine concern for both customers and co- workers. Human respect is visible in all operations and each person is treated as an equal individual. Responsibility, OP is and ethically responsible company which operates locally, regionally and nationally. Their focus is building long-term customer relationships based on mutual trust. Prospering together with the customers leads the way for the development of operations and services. Operating as a unified group gives customers greater security and improves service capabilities. (OP Financial Group 2020).

3.4 Mergers in the case company

For this section I have interviewed a Governance Lead in the OP Financial group on 20th of February 2019. He has years of experience on mergers and he works as a support person for banks planning to consolidate. In his interview, we went lightly through history of mergers in the OP Financial Group, main motives for mergers,

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objectives, advantages and challenges as well as effects on the personnel and possible changes mergers create for the customers.

3.4.1 History of mergers in the OP Financial Group

The history of merger in the OP Financial group includes over a thousand

consolidations. Small village cash offices have amalgamated to bigger municipality cash offices and then they have transformed to banks and then later some of the banks have merged and become sub region banks and eventually banks for the entire county.

This is also how the concept of being local have evolved. Every bank has gone through a merger, it might have happened earlier in the history or it might be relatively recent.

Figure 8. Number of banks in the OP Financial Group (2020)

3.4.2 Motives and objectives

Mergers are somewhat connected with the history of the concept of locality. The perception of being local has changed and it has been natural for banks to change in the same pace. The main motives for mergers are securing and improving service ability. Every bank consolidating has their own list of motives that they think are the most important drivers for a merger. The biggest influence on the background is the financial industry as whole. Strict regulation and demanding competitive situation are most often unbearable to handle for a small bank as well as the pressure of being cost-

0 500 1000 1500

1903 1913 1923 1949 1959 1969 1979 1989 1999 2009

Number of banks in the OP Financial Group

2010:213 banks 3/2020: 143 banks

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effective. Most often in small banks one third of the resources go to tasks that are away from the work that creates value for the customer.

In a small organization, there are also a lot of pressure for individual workers, not to mention the CEO, as they are needed to do almost everything, no matter what they are actual good at or what they interest are. The transition pace in the financial industry is fast and it is hard for a small bank to live up to the standards and needs of the

customer rather lone the demands from the authority and form the OP financial Group. Vulnerability and the well-being of the employees are such challenges in a small bank which make them consider to merge. The competitive situation is brutal in the financial industry nowadays. Other financial operators have a lot less branches around the country, which makes them more cost-effective. Customer are not ready to pay considerably higher prices just because they want to keep their own branch alive.

The main merger objectives in OP financial group are secure service ability, growth and effectiveness for the banks operating in the same economy area. Furthermore, in the demanding financial competitive and market situation mergers secure and amplify that banks can offer services that are cost-effective yet diverse, resilient and personal.

3.4.3 Advantages

Mergers are different in sizes, depending how many and how big banks merge. The biggest advantage in a bigger bank, it is possible to offer a larger scale of financial services and more personal services for their customers, simply because there are more employees with a variety of special skills. Also after a merger banks are often able to offer flexibility in their service hours.

“No matter the size of the merge, comparing old to the new, all banks feel that they can provide their customer with better and larger scale of services after a merger.”

(P1)

“One of the biggest advantage for customers is that in a bigger bank the employees have time and resources to be actively in contact with the customer” (P1)

Sharing of the best practices is also an advantage in a merger, this way they will be spread around the organization and the bank can find the best way to create a superior

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customer experience and create a coherence procedures. In addition, the support from the co-workers is considered a positive impact of a merger, because employees feel that together they can serve the customer in the best possible way.

3.4.4 Challenges

There are two types of challenges within a merger; challenges involving the decision- making process and challenges of the option continuing to operate as independent bank. The biggest dilemma is that government, who are best aware of the challenges and of the future, initialize the merger process but the people, the co-operative membership, who make the merger decision do not know or understand a lot about the background, motives and arguments. The challenge is that how does the

government is able to communicate all the merger motives for the co-operative membership in a way that they would deeply understand the challenging in situation the bank is in now and especially in the future without a merger. Other big arising challenge in a bank merger are that people fear that the bank is no longer local for their customers, when in fact we come back to the beginning where we need to rethink what locality actually means. In the final merger meetings, the body of delegates feel that the branch itself is what concretize the feeling of locality, especially the cash office is associated with locality. This is overall a distorted paradigm, but it is a fact that in the decision-making ceremony this is what is being emphasized.

“The most often asked questions when the government and the co-operative

membership is being heard in a merger meeting are: is the locality going to become weaker? Are the decision making going further from the customers? How do the customers feel about the consolidation of the organization and its procedures? Are the services in my own branch going to end and will my contact person change or be further away from me?”(P1)

Also, the fear of losing a tight community when losing an independent bank is relevant. Local banks sponsor a lot of events and take care of the community in that way. These can be classified as emotional aspects which lot of customer have for their bank. In some level people think it is an absolute value to have an independent bank in your hometown. But it is good to remember that there is a big number of customers

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that do not have emotional relationship with their bank and perhaps think they are all the same and mostly use online services.

3.4.5 Effects on the personnel

As mentioned before after a merger the bank shares a bigger work community. This gives security, possibilities to specialize and even enables new career paths for some.

People can find areas where they are good at. In a small bank employees, might be forced to do tasks that they do not see natural for them. Usually employees see a bigger organization more attractive than a small one, but this of course is very

personal depending on the nature of the person. After a merger, one of the main goals is to create a coherence organizational culture, which naturally brings changes to all employees. This might also bring insecurity and fear of not being good enough in front of the new co-workers or valuable for the organization.

“Change is always somewhat scary; it brings up insecurity and questions from the employees: is my manager going to change? Is my work environment going to change, do I have to commute more and what about all the fringe benefits and everything else?” (P1)

“The worlds are different between the banks even if you have worked within the group for ages” (P1)

3.4.6 Effects on the customers

Customers do not need to do anything after a merger, all their services remain the same. This one of the fears that customer might have when they hear about the merger for the first time. Also, customers are afraid of if their contact person is going to change and will there be any familiar faces in the bank anymore. Most often the old personnel stay at least in the beginning, it is natural that within time there will be some changes made. Nevertheless, usually customers are delighted that there are new professional services available for them.

Being able to secure the service ability is the biggest step towards bettering the customer experience. In addition, experts and utilizing new customer service channels, actively being touch with the customers all add to long term goals of

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improving the overall customer experience. In long term, mergers can secure that the bank can secure their customers banking services even during the turbulence in the financial industry. Importantly in the merger meeting it is documented that the common will is to secure and develop the new operation are fairly and uniformly.

4. Methodology

In this chapter the methodology of qualitative study, data collection and analysis of data is being shared. In this research the creation of customer experience and its management after bank merger is being described. Qualitative methodology was chosen as the research method because it suits the best for the nature of the study.

4.1 Qualitative study

The material of the qualitative study constructs of the subjects’ description and its’

relation to the studied phenomena. In qualitative study the material is vivid, the researcher must outline a specific narrow phenomenon to study. It is not possible to interpret everything about the studies phenomena in advance, therefore it is possible that the nature of the study might change as the study proceeds. (Alasuutari 1999) Daymon and Holloway (2011) posit that what characterizes a qualitative study is that it is often holistic and contextual and that the research questions are complex and diverse in nature. Other main characteristics are that the researcher act as a reflector and as an interpreter and that a qualitative study is processual which creates new viewpoints and meanings for the studied phenomena. Creswell (1994) posit that the background ideology in a qualitative study is an inductive process. The study proceeds from private to general and is concerned in multiple simultaneous matters that effect on the result of the study. According to Maison (2019) in qualitative

research is more of a contextual research and one is moving away from the “questions and answers” type of interview. The posed questions are probing and expletory in nature. Qualitative study is concerned with and in-depth understanding of the interviewees experiences on the studied phenomena. The researcher focuses on a qualitative description of reality and is paying attention to a whole spectrum of the studied phenomena and not their actual frequency.

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4.2 Case study

The chosen qualitative method for this study is a case study. A case study is an empirical inquiry investigating a contemporary phenomenon in depth in a real-life context. Yin (2009) posit that case studies explains, describe, illustrate and enlighten.

Case study research is said to suit for studies that start with how, who and why. It is good for investigating single or multiple units, usually through interviews or surveys.

Case studies are empirical studies because they are based on knowledge and

experience. In small number of units, the case study researcher is able to look more in depth at the studied phenomenon. According to Bryman & Bell (2003) a case study is typically being used to study a specific case in an intensive manner. Usually the case is an organization, place, person or an event. In this case study, the case company is a one independent bank within the OP Financial group and in total six people were interviewed. One of the interviews was used to describe the context of this research in more detail.

By using case study research one will gain understanding or insight for the chosen subject of the study. It allows the researcher to look at the phenomenon in context. In this study the context is financial industry and bank mergers. In case study research, the research questions are closely connected to their context, which is appealing in business. Research is concerned with the theory and the case study researcher demonstrates how their research contributes to the theory. (Farquhar 2012)

Case study research encounters some prejudice. The researcher must construct and frame the research so that the story is credible. It is said that case study lacks objectivity and rigour. As mentioned case study’s purpose is to get in-depth

understanding of a contemporary phenomenon in context, therefore objectivity is not something that it aimed to achieve. In a case study the researcher is often absorbed in the case and the study can be described as subjective. Rigour as a term is indefinite. In this study, rigour has been tried to achieve through consistent and coherent research design, where suited research strategy is adopted, data collection and analysis of the data has been shared and each phase of the research has been explained and justified.

Moreover, case study faces criticism on the lack of large sample sizes which relates to the lack of generalizability. It is important to note that the case itself does not

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contribute as sample one and that the purpose of a case study is not to generalize findings to a population. Some critics also think that case study research is not an example of qualitative study. One can address these critics with a coherent research design and transparent discussion of the findings. Case study research is a strategy and the study methods can be qualitative, quantitative or include both. (Farquhar 2012)

4.3 Primary data collection

Primary data means that the researcher has collected the new data directly from the original sources and for the specific data. When collecting the primary data the aim is to get new insights into the research questions. The advantage of case study research is that it studies research questions in depth and in context, therefore the data

collection procedure should align with it. (Farquhar 2012) One of the main phases of qualitative study is to choose the most fitting cases. One talks about discretionary example, because instead of generalisation the goal is to understand more about some event or phenomena. (Hirsijärvi & Hurme 2008) According to Patton (2002) the purpose of the discretionary example is to find interviewees that could give as diverse information about the study subject as possible. That is why in this study I have talk to case company and asked then to pick interviewees that have experience on the bank merger and can give vivid information about customer experience management as well on the merger. There for the interviewees were not only managers but also employees working in the smaller branches. It was already known that the

experiences differ somewhat between the receiving bank and the merging banks. In a qualitative study to define a material that would be enough is hard to define.

According to Patton (2002) there is no strict numbers limitations for number of interviewees or cases in a qualitative study. The suitable number of interviewees or cases depends on the meaning of study. Therefore, the chosen interviewees and the gathered information drawn from the interviews is more valid than the number of interviews itself. This study is not about generalization but instead getting more in- depth knowledge of the studied phenomenon in the chosen context.

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4.4 Semi-structured interview

Semi-structured interview as data collection method was chosen. Semi-structured interview works well with small sample sizes and is suited for studying a specific situation or complementing and validating information derived from other sources.

Furthermore, semi-structured interview is efficient way for the interviewees to talk about their experiences on the phenomenon extensively. (Laforest 2009) Front line employees as well managers were interviewed. This way one was able to get more comprehensive idea of how the customer experience has been managed and how it is really been implemented in every day customer service encounters. According to Eskola & Vastamäki (2010) a semi-structured interview is a perfect fit for studies that aim to find out how people think about some specific phenomenon or matter.

Daymon & Holloway (2011) state that one aims to understand the structures behind the interviewees opinions and beliefs. In this study the aim is to understand the paradigm of the banks customer experience creation and management after a merger.

In a semi-structured interview one focuses on themes instead of detailed questions.

These themes give more space for the voice and thoughts of the interviewees and reduces the effect of the research’s viewpoints. (Hirsijärvi ja Hurme 2008) In a semi- structured interview the researcher can discuss about the studied phenomenon quite freely as the themes ensure that the indented matters will be reviewed. This is also helpful when the data is being analysed. (Eskola & Suoranta 1998)

Daymon & Holloway (2010) state that the biggest advantage is that a semi-structured interview is flexible in nature. Even though the themes have been set in advance the interviewees have the space to lead the conversation to something interesting that has not been thought in advance. Also, the interviewees have a chance to ask more detailed questions from the researcher that can lead to whole new insights of the studied phenomenon.

It is difficult to determine the exact number of interviews needed for a safety

diagnosis. Data saturation is achieved when the interviews do not provide any new or additional information. (Laforest 2009) The data was gathered using an interview sheet (appendix 2 and 3) and the themes were gathered based on the theory (Maklan et al. 2017; Lemon & Verhoef 2007; Rawson et al. 2013; Verhoef at al. 2009;

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Verhoef et al. 2009; Parandker & Lokku 2012; Frow & Payne 2007; Ryder 2007;

Johnston & Kong 2011; Hwang & Seo 2016) of the study as well as the study context.

The interviews had four themes and all themes included supporting questions. The four themes were: concept of customer experience, creation of customer experience, merger and customer experience management after a merger. The Governance lead was interviewed already in February 2019, in his hometown and the interview was conducted face to face. The other interviewees were chosen by the case company, they all had a long history working in the group. Five people were interviewed between 8.11.2019 and 17.2.2020 (Table 1). Three of them were managers and two employees. The interviews were conducted and recorded via Microsoft Teams

application, their duration varied from 32 minutes to 46 minutes. The interviewees are being referred as P1, P2, P3, P4, P5 and P6, because the bank and its employees want to remain unknown. Also, most of the interviewees felt that this way they can be more honest in their answers.

Table 1 Interviewees in the case company

4.5. Analysis of data

According to Hirsjärvi et al. (2009) the main points of a study culminate in the analysis of the data. In the analysis phase the research will find out the answers to the research questions. Nevertheless, in quantitative study the researcher does analysis throughout the whole research process. Farquhar (2012) posits that the analysis of quantitative data is evaluated based on how well it answers the research question and how well it integrates with the overall research strategy. The researcher must think deeply about the integration and how this effects on the analysis. (Farquhar 2012)

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The data requires transcribing, according to Hirsijärvi and Hurme (2008) one can only transcribe the parts of the data that are actually spoken. Unnecessary parts such as breaks, repetition and tones of voices can be left out. Transcribed data was all in all 57 pages, including the Governance lead’s interview (A4, font 12, line spacing 1,5).

The transcription was conducted shortly after the interviews so that the interviews were still fresh in mind. The transcribed data was analysed by themes; this means that the researcher tries to find attributes that are common to multiple interviewee. Themes are often the ones that are selected for the semi-structured interview, but it might be possible that new themes arise while analysing the transcribed data. Each interview was first transcribed as individual and after that all the transcribed data was carefully read multiple times and answers suiting for each theme was underlined and picked under the suitable theme. (Hirsijärvi & Hurme 2008) Expectations and knowledge of the researcher always effects on the analysis. According to Eskola & Suoranta (1998) data analysis is a combination of expectations and interpretation of the primary data.

Citations are also a curial part of analysing and reporting the data, this way the reader can judge if the researcher has made adequate interpretations of the data. (Eskola &

Suoranta 1998)

Abductive content analysis is used in this study. Abduction in research is seen as the systemized creativity or intuition to develop new knowledge. In abductive reasoning the case displays a convincing conclusion that might not necessary be logical, if its anticipated rule is correct. An empirical event or phenomenon is related to a rule which provides new insight. Nevertheless, abduction can also lead to suggesting general rules. Abduction is not focusing on generalizations. The purpose in this study is to develop new knowledge of a specific event. The knowledge is gathered from a real-life setting by researching observations that might promote or differ from the theory. As the research phenomenon, has been observed in a real-life setting, the purpose of an abductive analysis is to combine the observations and theory, which allows for new theoretical suggestions and final conclusions. (Kovacs & Spens 2005) The analysis of this study started of reading and familiarizing oneself with the

gathered data. The data was rearranged by themes and it was compared with the theory. This way one was able to identify similarities and differences. The data was structured within the research questions and suitable citations were chosen. From the

Customer experience management after a bank merger