All banks consider themselves customer-focused institutions. In practice, though, most are not. The vast majority still organize fundamental business processes around products and business lines. Marketing is a case in point.
Banks have traditionally viewed marketing as a tactical activity intended to reinforce efforts of product-oriented business units. This orientation will not support the transformation of a bank to a customer- centric organization. If a bank is to be customer-focused, it must transform its marketing function into a strategic process designed to acquire, build and maintain customer relationships, and develop marketing capabilities that are strategic in scope.
A customer-centered enterprise is, by definition, a marketing- oriented enterprise. It focuses on the customer as the basic unit of business, and sees management of customer relationships as its fundamental business activity. Marketing finding out what customers need and delivering it to them is an integral element of this customer relationship management (CRM) process.
Unlike common tactical marketing efforts designed to sell specific products, strategic marketing aims to build and maintain comprehensive banking relationships over the customer s lifecycle. Such marketing efforts offer customers products and channels that are adaptable to changing needs and dynamically priced to earn optimal profit from the relationship.
At Transamerica Life, successful development of strategic marketing capabilities is the result of four factors: clarity of management s customer-centric vision, corporate objectives, definition of process and creation of a dedicated, multifunctional strategic marketing group.
While these factors sound abstract, they have specific, actionable components. To understand what clarity of vision means, it is important to understand that CRM means more than being pleasant to customers. It means evaluating activities in terms of their contribution to the profitability of customer relationships. And it entails dynamic relationship pricing of bank products and services.
The first component of a clear CRM vision is developing a lifetime value metric that accurately assesses current and future profitability of a customer relationship based on predictive behavioral and cash flow modeling. Only when we value relationships by identifying key profit drivers can we make sound business decisions about ways to acquire and manage relationships profitably.
The second component is the ability to identify and segment customers based on propensities for specific products. The mechanics of behavioral segmentation are complex, and the field of predictive behavioral modeling is one of the newest in banking. The basic idea is familiar: People with mortgages and college-age children will be better candidates for home equity loans than childless renters.
The third component is adopting a targeted, multi-channel approach to customers. The foundation of CRM is the ability to provide channel options based on price tradeoffs. The customer must be able to decide whether the preferred channel is worth the price for any particular transaction.
The fourth essential element is understanding CRM as a closed-loop process. Every activity in the CRM chain must provide some form of feedback to the bank. Every time we touch a customer we gain important information about his or her propensities and preferences. Good CRM demands that this information be captured and analyzed every time to guide our next approach to the customer.
The impact of the customer-centered vision on current business practices is not trivial. Customer relationships cut across all business lines. The failure of any single business unit to accept the implications of the vision will jeopardize the whole process. If you do not have the committed support of senior decision-makers, do not proceed. Concentrate instead on realigning cost structures and building awareness while you wait for the takeover.
After translating the abstract concept of customer relationship management into actionable attributes such as lifetime value metrics, the next task is to impart clarity of business objectives to the process. This requires translating the bank s corporate business plan into a customer- driven strategic marketing plan.
This step requires us to translate such traditional marketing measures as customer acquisition costs and retention rates back into traditional corporate performance measures such as return on equity or earnings growth. Many CRM initiatives fail because their champions neglect to develop a business case that senior executives can understand in terms of their own objectives. There is no substitute for showing the CEO how much this initiative will contribute to the bottom line in the short and long terms.
The third step, definition of the strategic marketing process itself, involves the design of marketing information systems and implementation of information technology (IT) platforms that will support them. The first component, customer points of contact, consists of feedback mechanisms from customer contact points. The importance of closed-loop feedback mechanisms to the strategic marketing process has already been noted. The bank must identify all points of customer contact so that feedback of messages from the customer is complete. The bank must also ensure that its message to customers is comprehensive and consistent, regardless of the channel used.
The second component is a data capture facility, which must include a CRM database and a campaign management system. These two elements are necessary to capture and map customer data, track responses, communicate consistent messages across channels, and compute critical performance measures such as detailed return on equity (ROE) for campaigns and saturation points by customer.
The third component consists of knowledge creation engines for business analysis and modeling. Analysts will use these engines to transform data from the information capture components into new program designs, proofs of concept, and corporate plans, and to model such critical measures as retention rates, customer lifetime values, and behavioral propensities.
The fourth component of strategic marketing is developing, executing and evaluating marketing strategies and campaigns. This embraces activities most closely associated with traditional marketing, including creative development, list construction, scoring, and script designs. Products from this component are fed directly back to customers through their preferred channels, initiating the next round of customer feedback, information capture, analysis, and design. Each circuit through the loop brings the bank closer to the goal of strategic marketing, the full understanding of the individual customer we characterize as the segment of one .
As noted above, only one component of the strategic marketing process is dominated by activities that we traditionally associate with marketing professionals. The implications for the creation of the strategic marketing team are obvious. In addition to classical marketing specialists, the strategic marketing team will have to include data and systems specialists from the IT function, business and financial analysts from financial management disciplines, and statisticians trained in such leading-edge disciplines as behavioral modeling. The only reason for referring to this group in terms of marketing is to remind us where the final emphasis should fall, on the critical task of reaching and satisfying the customer.
The value proposition for creating such a strategic marketing group is threefold. It will give the bank a single, consistent and enterprisewide view of information, decisions and business processes. It will yield centralized decision making based on factual analysis and consistent with overall corporate goals. And it will increase overall profitability by optimizing the management and profitability of individual customer relationships.
The profit improvements that the strategic marketing process yields are impressive. Experience indicates that a well-designed strategic marketing effort can reduce per-customer acquisitions costs by 50 percent or more. Industry observers estimate that improved customer retention rates generated by good CRM practices can add at least 20 percent to the overall earnings of a retail-banking unit, and that strategically-driven sales practices can add as much or more. With increases like these, strategic marketing capabilities could spell the difference between survival and failure in a consolidating industry.
Meheriar Hasan is head of strategic marketing for Transamerica Life Company, Los Angeles, CA.