Developing a broad-based relationship with retail customers offers huge payoffs for banks but also a host of headaches.

Increasingly, banks are trying to gather large quantities of customer data and plug them into computer models to predict which products and services can be cross-marketed. But shifting from a traditional product- focused approach to one that zeros in on customer desires can be tough for some employees, said Royal Bank of Canada executive vice president Jim T. Rager.

Convincing employees in different business lines to think beyond the boundaries of the product they are peddling can be a serious challenge, Mr. Rager said at a conference here last week. These employees may have been doing a good job, so asking them to hand some decision-making responsibility to higher management is sometimes greeted with resistance.

"They have to give up power, and they have to rethink the way they approach customers," said Mr. Rager. "You have to spend a lot of time ... building buy-in of your organizational units."

Monoline units, such as credit card operations, often have the most objections, he said.

"They are used to a certain narrow way of customer segmentation" within their own unit. Developing a system that more broadly groups customers' profitability across products requires "a lot of new understanding."

"In some of the monolines, there is a tendency to view a sale as a sale," while the "new age" of retail banking looks at a sale as an opportunity to explore a customer's other needs, added Brian C. Hartzer, vice president at First Manhattan Consulting Group. "Monolines tend to get frustrated with the lack of responsiveness and additional issues to deal with in the larger retail organization."

Royal Bank, which announced in January plans to merge with Bank of Montreal, is developing a system that will let branch employees view all the bank's products a customer uses.

Despite the hurdles, Mr. Rager said, banks risk alienating their customers by not developing a strong understanding of which products and services they may want. He pointed to several unfortunate scenarios that could take place at his bank today.

The bank mails statement stuffers for products customers already use.

Branch staff is unaware that a customer deals with the bank in another capacity.

Customers receive offers for products they have already declined.

Pricing is not adjusted to reflect a customer's value to the bank.

"The customer experience in financial services can be confusing and contradictory," said Sandra L. Devine, a vice president of American Management Systems, the Fairfax, Va.-based consulting firm that sponsored the conference.

On the other hand, the payoff from creating a strong, multiproduct connection with customers can be big and has been a major driver behind some recent megamergers, such as the Citicorp-Travelers Group marriage announced in April.

U.S. Bank, the lead bank of U.S. Bancorp, Minneapolis, was one of the first institutions to profit from a system that evaluates and capitalizes on customer needs. The $70 billion-asset bank began using its "relationship management system" in March 1997.

Since then, the bank has seen a 51% jump in direct marketing sales to existing customers, said Patricia T. Bauer, senior vice president of U.S. Bank's retail banking group. The sales were driven primarily by knowledge gained from predictive computer models and a data base of customer information.

In addition, the system allowed U.S. Bank to identify profitable customers among those who wanted to close their credit card accounts. Over half of those targeted were persuaded to keep their accounts open, Ms. Bauer said.

"This system has really allowed us to put customer information to work to better provide something that feels customized," said Ms. Bauer, who also spoke at the forum.

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