Consumer banking ‘the most customer-led market segment’

• AI analysis of UK PLC annual reports highlights correlation between customer centricity, as evidenced by customer centric language, and company share price improvement across FTSE 350 businesses
• Share prices for the most customer-centric businesses grew by up to 10% over three years*

Unstructured data analysis of the annual reports of FTSE 350 businesses reveals those that lead on customer centricity, as evidenced by the language used, grew their share prices over a three year return by 10pp more than those who were the least customer-centric.

The research was conducted by global strategic insights and customer analytics group STRAT7. On average, references to customer-centricity appeared on a third (33%) of the pages of annual reports.

Consumer banking was the most customer-centric category overall with references to customer centricity featuring in around 60% of all pages in annual reports. NatWest emerged as the highest ranking FTSE 350 business overall with a customer-centric reference on over 70% of its pages.

In addition, four of the top five ranking banking brands – NatWest, HSBC Holdings, Investec and TBC Bank Group – remained high performing over the past three years, in spite of market disruption.

Björn Dufwenberg, MD of STRAT7 Advisory, says: “The most successful brands are built around the evolving needs and behaviours of the customer. The past five years have been more disrupted than any in living memory so our hypothesis was that those businesses best placed to navigate change at pace and scale would be the ones most active in thinking – and thus talking – about their customers.

“However, what’s key – and what we see in high performing businesses – is that the language used isn’t just lip service. This isn’t to say those brands will necessarily always get it right, but they understand the importance of continuous improvement. Making experiences better means listening to customers and acting on that feedback – and this especially true when mistakes are made.” 

The second highest rated sector was utilities, and 80% of the businesses in this space grew their share price over three years. Travel and tourism took third place, with language related to customer centricity featuring in 47% of the pages in this segment’s annual reports. However, it’s worth noting this hasn’t shielded this category from macro factors such as the pandemic and cost-of-living crisis.

Paul Jackson, joint lead of strat7.ai, says: “It’s challenging to make a definitive case for customer centricity being a core driver for share prices, given macro variables that have impacted each category in wildly different ways – for instance it wouldn’t be fair to compare consumer banking with travel and tourism like-for-like.

“However, the aggregate figures across sectors certainly indicate there is a link between performance and a clear customer-centric mindset. A 10% uptick in share price performance makes for a compelling argument. It’s worth noting customer centricity cannot be turned on or off, it’s a journey that takes time and care, but as our findings show, it is one worth investing in.”

The research was carried out in summer 2023 using the strat7.ai platform. It reviewed the annual reports of all the UK’s largest listed companies (FTSE 100 and FTSE 250) to assess the relationship between customer centricity and stock market performance.

The activity identified and logged customer-related phrases that appear in the same sentence as the key words “customer” and/or “customer centric.” The AI’s quant accuracy was then corroborated by human qualitative analysis of reports from the top performing companies. Statistical modelling was carried out taking pre-pandemic reports from 2019 as a baseline for performance within more typical market conditions.

For more information, please visit https://strat7.com/strat7-ai/

Methodology

STRAT7.ai downloaded and ingested around 700 Annual Reports** from the FTSE 100 and 250 for the period 2018 – 2023 inclusive.

The analysis excludes four PLCs where customers are referenced on almost every page and some others in which the Annual Reports couldn’t be ingested. The analysis excluded pages which relate to financial information / with no relevant text.

Next, 1 Year, 2 Year, 3 Year and 5 Year financial returns were collected  for each company and statistical techniques were used to analyse the relationship between customer centricity and financial returns. The financial returns data were collected as of 19^th June 2023 for FTSE 100 companies and 21^st June 2023 for FTSE 250 companies.

A 10% increase in the number of pages related to customer centricity corresponds to a 2.6% (rounded to 3%) increase in financial performance, taking into account other factors.