Imagine the marketing advantage a bank could achieve if it offered customers a simple statement at tax preparation time that reconciled all their accounts - from checking and mortgage to Treasury bonds and mutual funds.

Pursuing relationships has become the holy grail for retail bankers in the United States and in Europe, according to an extensive new survey on both sides of the Atlantic.

Bankers say creating meaningful customer relationships is even more important to them than cutting costs or raising quality.

Yet many bankers also say they're having trouble delivering services when and where customers want them. In the race to the information highway, banks either cannot design cost-effective ways of delivering services or cannot truly comprehend what's wanted. Or both.

The survey by Gemini Consulting Inc. contacted 40 executives representing 14% of the $3.7 trillion of bank assets in the United States and one-fifth of all European bank assets. It was done for the American Bankers Association and the European Financial Management Association.

Among the key findings:

*Four banks out of 10 are just beginning to build relationships with their customers.

*Only one bank in 10 claims to have fully adopted a relationship strategy.

*And the rest say they are somewhere in between, with their plans partially implemented or nearly complete.

Bluntly put, no bank has yet found the ideal model to deliver profitably what their customers want anytime, anywhere, and anyhow.

The primary reason cited by more than one-third of the bankers for pursuing a relationship strategy is to retain customers; one-quarter mentioned business growth. According to the bankers, it's almost impossible to lose clients if you've sold them multiple products; moreover, building relationships with selected customer segments is the best opportunity to increase revenues and profits.

Yet the task isn't easy. Almost one banker in two says the biggest obstacle to building relationships is the banking industry's woefully inadequate information systems.

The survey found many banks still run each product they offer on a separate computer system, use incompatible software, and say their managers worry more about turf rights than about developing a market-focused organization.

Other problems uncovered in the survey: Banks are weighed down by outdated computer systems, reluctant to write off undepreciated assets, and falling behind newer competitors. The telephone, automobile, and mutual fund companies offering credit cards and other financial products are particularly tough competitors.

Among bankers little agreement exists about what's involved in building relationships.

However, this much is evident: A sustainable relationship is not about being all things to all people. Nor can a bank expect a relationship strategy to succeed when marketing and sales resources are focused on the pursuit of new customers.

Our survey shows that banks must build deeper customer relationships that cut across products and distribution channels so they can compete effectively with mutual funds, brokers, and other suitors for their customers.

The two lessons for bankers that emerge most strongly from the survey are: First, pick a strategy that's right for the bank and then make sure it's better executed than anything of the competitor's. Execution is the real test for satisfying customers.

In developing relationships, the survey found, banks typically go through several stages:

*Most begin by being product-driven, offering a narrow range of standardized offerings geared to please anyone who walks in off the street.

*In the second stage, as the focus sharpens, segmentation begins but only on a rudimentary level.

*Segmenting becomes more sophisticated in the third stage, with value propositions designed to appeal to a well targeted audience.

*The fourth stage, which only a few banks will achieve, involves brand initiatives that are quite distinctive and precisely positioned.

Moving from one stage to the next can appear overwhelmingly difficult and complex, at times. Managers need to find ways to identify customers by segment, create new offerings (products and channel choices), ensure employees develop appropriate skills, and install new measurement systems. The present measurement systems are likely to reinforce organizational "silos" rather than cooperation across departments. All this requires careful coordination.

For example, customer relations aren't likely to improve if a bank changes its marketing strategy without altering its information system or retraining its staff.

Developing a customer segmentation approach is critical. Segmentation is the driver that leads to an integrated strategy with appealing products offered via the most convenient and profitable channels.

The overriding message on that point from our survey is to keep it simple.

Sure, it's tempting to leapfrog competitors by acquiring the most sophisticated marketing systems available, but banks that try that approach often rue the day. Frequently, the new segmentation approach is too complex for sales people to use, or the bank's product lines and delivery systems haven't caught up with the offerings being marketed.

Banks adopting segmentation should start with basic approaches linked to customer life cycles or behavior (for example, home purchases or channel usage). These approaches are very tangible, allowing for relatively easy data capture and straightforward training of sales and service employees.

As the bank gains experience at using segmentation to drive its business, more sophisticated approaches can be introduced, even segments of one - the ultimate in personal service.

None of this can happen without a well-honed customer information system. In effect, the progressive bank leverages its information technology to support targeted marketing and sales, plus the creation of products and distribution channels, offering faster and more satisfying service while reducing costs.

As their knowledge grows about customer habits - who uses tellers versus automated teller machines versus telephones, and when - banks can introduce discrete pricing. Tweaking prices with incentives for changing customer behavior can bolster retention rates and revenues.

Profitability can soar as banks adjust prices on unprofitable accounts. In addition, the bank soon develops a clearer picture of what distribution channel investments to make and how to manage the overall delivery network.

Progress won't come without friction.

Imagine how branch managers feel about all this. With the head office calling shots on products and delivery systems, the branch ceases to be a center of the retail bank. The manager's job must begin seeming like little more than downsizing the branch and motivating sales people - hardly the traditional position of authority, commanding respect throughout the community.

Chances are that friction will abound at the head office, too. In the survey, executives said the silo mentality still makes managers in one department - credit cards, for example - reluctant to share their data bases with colleagues assigned to build deposits or sell investments. And vice versa.

One solution is for top management to intervene, snuff out turf wars, and if necessary lop heads. Another is to reward true team players. People must see that those who get bonuses and promotions are the risk takers who struggle each day to transform the bank.

Ask any thoughtful banker about what happens next, and the response is invariable. In retail banking, this is do-or-die time, when everyone in the business is trying to get to the same place.

Customers who today divide their patronage among, say, four or five financial institutions may deal tomorrow with only one or, possibly, two.

In this scenario not everyone can be a winner. Many bankers could find themselves sitting in outdated facilities, waiting for customers who never come.

Better to be nimble than lonely. Mr. Boyle is a vice president at Gemini Consulting, Cambridge, Mass., and co-leader of Gemini's Retail Banking Center of Excellence. Mr. Gregor is a senior vice president at Gemini Consulting, where he is co-director of its global financial services practice.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.