Not quite, researchers say, though RDS promotional material proferred the latest BAI research as proof that customer relationship management is "disappearing."

The agenda for the Bank Administration Institute's Retail Delivery 2000 show, held last month in New Orleans, promised a sesssion that would "demonstrate that the theory of CRM is quickly disappearing." Pity, since the financial sector continues to spend more than any other on customer relationship management.

"In its place," the promotional literature continued, "is CMR, the customer-managed relationship."

In fact, the theatrical keynote presentation, drawing on major consumer research by BAI, came to praise CRM, not to bury it. In an interview, Earl Fischl, executive director of strategic research at BAI, said the organization had not meant to suggest that CRM is dead. To the extent that its importance is lessening, it is because "trying to organize your information about a customer is not as important as trying to understand the customer's view of the organization," Fischl says.

"CRM" is a loosely defined term to convey organizations' efforts to track their customers' business with them-to better "read" them so as to better sell to them. Technology vendors of all stripes claim to offer CRM in some fashion, CRM being such a buzzword. Retail financial institutions worldwide will spend $5.45 million this year on CRM technologies, up from $4.75 million last year, according to Meridien Research Inc., Newton, MA.

BAI did not address CRM technology, per se, but it faulted the typical thinking such technology is put in service of.

The industry association's research concluded that "radical new approaches" to understanding customers are about 20 years overdue. That's how long commercial banks' share of consumer assets has been dwindling, BAI notes in the initial findings of its major new research effort, titled Competing on Supply, Winning on Demand: Recapturing Share of Consumer Financial Services. Publication of the final report is slated for next month, but BAI released some of the results at its huge Retail Delivery conference. BAI undertook the study in conjunction with The Cambridge Group Inc., a New York-based consulting firm specializing in "demand strategy." (BAI involved other firms as well in three recent studies that are somewhat related: profitability, CRM/consumer demand and building a bank sales culture.)

No one needs to tell commercial bankers about the erosion of their share of the financial services wallet, says Navtej S. Nandra, a principal in The Cambridge Group who has led the research effort along with BAI's managing director for ecommerce and emerging technologies, Paul McAdam. What those bankers may not realize, however, is that there has been a "dramatic shift ... in the demand for financial services" during the past 15 years or so, Nandra says.

Unless they recognize this trend soon, he suggests, and discard the old 80-20 rule-the proposition that 80% of a commercial bank's profits are generated by 20% of its customers-banks' share of the critical consumer market could hemorrhage in the 21st century.

"Yes," the consultant acknowledges, "it requires a leap of faith" for bankers to embrace fundamental changes in their approach to retail markets, but the alternative is standing by idly as non-bank financial services companies continue to siphon off those revenues.

The key for banks, large and small, Nandra declares, is to become "demand-led companies"-examples of which include Charles Schwab & Co., America Online and Cisco Systems, among several others cited in BAI's first white paper outlining its research. Such companies "define their business through the eyes of the customer," Nandra says, "rather than defining the customer through the eyes of the business."

James McCormick, president of First Manhattan Consulting Group, which did profitability research with BAI, noted in an interview, "You can't psych out a customer without asking them, but CRM is predicated on psyching out the customer without asking them."

By contrast, "CMR (customer-managed relationships) means trying to ask the customer in the right way what their needs are." That's vital, McCormick says, whereas CRM-"a vastly integrated approach that reaches all touchpoints" is not essential to profitability. (The RDS session McCormick and Fischl co-presented on First Manhattan's-BAI's profitability research was packed with over 700 attendees, Fischl noted.)

Christopher Kuenne, president of Rosetta Marketing Strategies, a customer segmentation firm that is collaborating with First Manhattan, adds: "Most people say that CRM doesn't work because they don't do their segmentation right."

IDC Corp. analyst Ian Rubin was more cynical. Presented with the idea of CMR as an alternative to CRM, Rubin, who heads IDC's new online financial services practice, retorted: "When vendors sell something that doesn't work, they often respond by suggesting banks need to buy something else."

BAI's McAdam says that by focusing on the demand side-the customer- researchers have garnered a number of insights about today's retail banking market in the United States. For the 80% of those customers who aren't wealthy, he says, "the model of banks does not, in their view, do what they want it to do."

The study included 18 separate consumer focus-group sessions, which were conducted in Chicago, San Francisco and Edison, NJ, as well as data from a mail survey comprising more than 3,200 respondents. Selection of survey recipients was made on the basis of geographical and demographic data to ensure the sample would be representative of the total U.S. population.

"Banks have been used to taking a certain approach to this market, trying to go for that marginal revenue share," Nandra says. "They have made their channel decisions based on the top 20 or 30 (percent of their most profitable retail customers)." Going forward, the research indicates, bankers will have to pay much more attention to the 70% to 80% of their customers who, for many years now, "have been forced into alternative channels and overwhelmed by what is happening" in their extremely busy lives.

"Typical" customer sentiments expressed during the focus-group sessions-and listed matter of factly in BAI's white paper-included a laundry list of modern-day angst: stress, aggravation, tension, fear, anxiety, depression, apprehension, worry, sadness and confusion. "Remember, though, that this anxiety applies to the 80% who are not the wealthy asset managers," McAdam says. "For these people, personal finance is a difficult issue and not one they care to think about a whole lot; but, when they do, they're very emotional about it."

Preliminary analysis of the data reveals a sizable chunk of customers whose incomes are still modest but who are well educated and appear to have "strong earnings trajectories," the white paper states. Retail banking strategies in place today would largely ignore this segment, the research indicates, and Nandra says banks continue to do so at their peril. Using this segment of today's less-profitable customer base as an example, the consultant noted that not only would these customers' incomes-and thus their potential profitability for the bank-increase in the coming decade, they're also more likely than other segments to use banks as their primary financial services providers and to purchase bundles of products.

Scientific research may play a role in generating such market data, Nandra says, "but what is really necessary is a whole new way of thinking. If you want to change the way people behave, you have to change how they think ... about pricing, about bundling, about positioning." Both the consultant and McAdam were quick to add, however, that BAI's effort to help banks recapture consumer market share is not about creating yet more channels or even new products and services.

Instead, explains Nandra, the study's findings will show that the "underlying channels and products" already exist; in fact, on the product side, they may well be too plentiful, further complicating the already stressful lives of the institution's retail customers. The researchers will ask even more of banks, adds the consultant: nothing less than a complete reorganization of the enterprise.

Only after that demand strategy is in place, Nandra says, can the business begin to realign supply to meet its targeted demand. McAdam says banks that subscribe to the BAI study will find plenty of meat on the theoretical bones that support the research. The final report, he says, will include numerous specific actions banks can take based on what the study revealed about retail banking customers at the dawn of 2001.

Both in his presentations in New Orleans and in later interviews, Nandra was slow to use superlatives or resort to melodrama. He believes banks-no less than other businesses-are capable of making "radical" changes in their approach to serving retail markets. What's more, he says, it is critical that they begin the process immediately.

CRM investments in the past several years have been "significant," Nandra says, but they have not produced the returns bankers anticipated. The same tools-data warehousing and mining, profiling and the like-will remain useful, but they must be applied in concert with a comprehensive, demand-led strategy. The latter, he says, will always include direct communication with customers.

"You have to re-humanize the process," says Nandra, repeating that studying customers through the eyes of the business, rather than the opposite approach, is a prescription for continuing erosion of wallet share. He notes that BAI's study, by putting customer demand first, is producing "segment data" on the retail banking market containing genuine insights, not just statistics. For example, the researchers identified one segment of the currently less profitable customers-the infamous 80%, as it were-who demonstrated a keen desire to build a nest egg for their families (read: future deposits) and a strong affinity for technology (read: relatively inexpensive to serve).

In February's final report, the authors say, BAI will outline what banks must do to be "demand driven" businesses. The final document also is expected to show significant demand going forward for services such as account aggregation and one-stop shopping for financial services, in addition to a significant increase in consumers' interest in obtaining financial advice from banks.

So will we have CRM or CMR in the future? Adding to the confusion, Robert Hall, past founder of profitability specialist Action Systems, now chief strategy officer of CRM company Xchange, says, "We may have ERM-employee relationship management." That prospect arose during a discussion of a new phenomenon: bank employees' depressing the prices of their banks' stocks by contributing their comments-often critical-to the Web site of New York hedge fund Second Curve Capital:

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