Dime Bancorp's planned merger with Hudson United Bancorp is only the most visible aspect of its strategy to transform itself into a commercial bank.

The $22.3 billion-asset Dime also has been pursuing its metamorphosis on a more basic level -- literally customer by customer.

Since starting a major data base software initiative in 1997, New York-based Dime has sought to attract the "right" new customers while retaining the older, conservative, branch-dependent people that have traditionally driven thrift profits.

The right customers, according to Dime executive vice president Peyton Patterson, are younger consumers who are credit-driven, use debit cards, and bank through low-cost channels like the telephone and Internet.

Ms. Patterson was charged with getting more of these customers three and a half years ago when she moved over from Chase Manhattan Corp. to take charge of retail banking. With 20 years of retail banking experience and an intimate knowledge of the competition, she put into motion an aggressive customer acquisition plan.

Besides Chase, Dime is fighting against megabanking conglomerates like Citigroup and FleetBoston Corp., as well as sizable regional thrifts like Astoria Federal. The 140-year-old Dime currently has dealings with 700,000 New York-area households and a 6% share of deposits.

With 124 branches -- one-third to one-fourth the number of Chase or Citibank -- Dime feels pressure to stand out.

"Our people must work harder to get more customers," Ms. Patterson said. "The level of service at the branches and other channels must be greater."

Bill Bradway, research director at Meridien Research in Newton, Mass., said Dime has "a tall order." Its regional status and the need to compete with the likes of Chase and Citi on a more modest budget is challenging enough, without having also to manage a major culture change, he said.

Ms. Patterson dived into the job by first dissecting the data base to determine profitability per customer.

"We really peeled the onion and segmented the types of customers we have, to understand the profit dynamic beyond the obvious criteria," Ms. Patterson said.

To demographic data such as age and income, Dime added financial and lifestyle characteristics like the cars its customers drive, the neighborhoods they live in, their number and types of brokerage accounts, and the magazines they read. It acquired the data from research sources such as ADC Lifestyle and MRI.

Dime then divided its customer base into three tiers -- most profitable, potentially profitable, and not profitable.

To retain its most profitable customers, Dime introduced services such as private banking. For the middle tier, it adopted a strategy to sell additional products and increase profitability. It gave the unprofitable customers incentives to use less costly channels such as the telephone and introduced new pricing schemes, including additional fees.

Through surveys, Dime got information that let it develop offerings tailored to different segments. The company was surprised to find, for example, that clusters of customers in Brooklyn want different services from those in New Jersey, and very different services from those in Long Island.

In addition to analyzing its customer data, Dime invested in product development, including consumer loans and core deposit accounts, and in service channels, including a telephone bank and a forthcoming Internet channel.

Dime made a multimillion-dollar investment in software from Charlotte, N.C.-based Broadway & Seymour, which was subsequently acquired by Science Applications International Corp. of San Diego. Dime uses its Touchpoint software to ensure that services are presented consistently to employees and customers, regardless of the channel or system they use, and that the flow of work associated with fulfilling new services or responding to queries is the same across channels.

Dime's call center staff uses Touchpoint to bring up customer information, determine the next best product to sell, and record conversations. The system is being tested for use in the branches.

Dime officials did not announce any results from their efforts so far. Ms. Patterson would say only that it increased branch productivity last year by 60% through selling the right products at the right time.

"Dime is pretty happy in terms of understanding who they are making money from and why," said Kevin T. Timmons, an analyst at First Albany Corp. "It's not a bad mark yet if they haven't shown results."

Mr. Bradway of Meridien Research said, "Dime has made substantial progress in transforming their ability to serve customers, but they are not to the final chapter." As long as management stays focused, he added, "then it boils down to: Can they execute?"

Execution, Mr. Timmons said, "comes down to getting employees to buy into" the new emphasis on identifying customers and selling more products when appropriate.

To this end, Dime has instituted a "sales culture" that has affected employees at all levels, from senior managers to tellers, Ms. Patterson said.

She leads Tuesday morning meetings with senior managers to discuss five big areas of focus that are communicated to 1,700 front-line employees. The message is, "You aren't here to accept deposits but to sell based on customer needs," Ms. Patterson said.

Each banker has specific weekly customer-acquisition goals. Dime measures sales per day made by individual bankers and teams. The team approach "motivates tellers to work closely with licensed representatives and customer sales representatives. They give each other referrals and report statistics," Ms. Patterson said.

People are compensated for cross-selling, with some products getting more weight than others. Service quality and expense control also are considered.

Dime customer service representatives place welcoming calls to new account holders within 30 days and ask them about the experience of opening the account. "New customers are expensive until you can grow the relationship," Ms. Patterson said.

Once an account has been open 30 days, salespeople begin cross-selling at every opportunity. Dime uses "hooks" such as annuities, special money market offers, and home equity loans to attract business.

"Dime is a retailer like Bloomingdale's or Food Emporium and needs hooks to get people in its stores, or branches," Ms Patterson said.

Once the customers are at the point of sale, "we can drive share of wallet and retention efforts," Ms. Patterson said. "There is a direct correlation between a satisfied customer and share of wallet."

The company also does quarterly phone surveys to monitor satisfaction, particularly among profitable segments. Attrition indicators predict the likelihood of customer defection. Cancellation of a direct deposit service, for example, usually means a customer will leave the bank within three months and serves as an early warning to step up retention efforts, Ms. Patterson said.

As Dime becomes more proficient at targeting individuals, it is eschewing mass marketing. "Mass marketing is costly and often ineffective," Ms. Patterson said.

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