Royal Bank of Canada, which has been pursuing initiatives to improve customer profitability and marketing success for well over a decade, is just now getting to the hard part, bank officials said.
Royal Bank began compiling information about customers in a common data base in 1978, well before the term "data warehouse" was invented. And it began sorting customers into profitability segments-another facet of today's customer relationship management efforts-in the early 1990s.
Only recently has it reached the "hardest part," said James T. Rager, vice chairman, in an interview following his keynote address at American Banker's Customer Relationship Management conference last week.
For the past 18 months, the heads of Royal Bank's various product groups and business lines have been meeting weekly to define marketing objectives for customer segments, and ways to work together. The discussions, which typically cover tradeoffs among product groups, represent "a shift from a product-centric focus to a customer focus," Mr. Rager said. "That's a mind shift."
Shauneen E. Bruder, senior vice president of marketing and planning, said "watersheds" in making the cross-functional teams work were the creation of pooled budgets and shared accountabilities. Performance and compensation measures for business unit heads have been changed to reward behavior that builds and exploits relationships with customers. The resulting shift in behavior "trickles down" through the rest of the organization, Ms. Bruder said.
"Technology is the easy part," Mr. Rager said. "The soft skills-getting people to work together-are more important."
An ability to "get the people side right" is the real challenge of managing customer relationships, said Bill Bradway, research director at Meridien Research in Needham, Mass.
Royal Bank has achieved response rates as high as 25% in some of its direct mail campaigns, compared with an industry average of 1% to 2%, Mr. Rager said.
The bank first divided customers into three profitability groups, and now separates them into 25,000 segments.
Over the years Royal Bank has layered different models onto profitability information to augment its understanding of customers. For example, it has developed six life-cycle codes that fit customers into categories such as "up and comers."
The bank has learned to withhold customer profitability information from front-line staff members. Ms. Bruder said it took two years in some cases to unwind staff perceptions that customers in the least profitable segment were "bad."
Today, Royal Bank displays specific sales and marketing instructions on employees' desktops, rather than profitability codes that are open to interpretation.
Recently developed customer potential codes display a customer profile, a list of possible product offers, and past offers-with the customer's responses. The information is also used to suggest customer-retention moves such as waiving fees and approving credit lines.
Banks that focus only on the next "best product" risk remaining product- centric, Mr. Rager explained.
The next layer of complexity Royal Bank is tackling is to make information consistent through all its channels. Otherwise, "it will confuse clients and weaken the brand," Mr. Rager said.
Mr. Rager, who oversees personal and commercial banking-worth about 60% of Royal's net income after taxes-advised leaders of customer relationship management efforts to "be engaged. There's a lot of hard slogging and emotional issues and misunderstandings."
He recommended working closely with others who believe integrated customer relationships give the bank a strategic advantage.
"You have to believe it, because it's hard, and you could change your mind very easily."
