Don't talk to Shauneen Bruder about mass markets. Her company, Royal Bank of Canada, serves one-third of households across eight provinces-a number sure to grow with the pending merger with giant Bank of Montreal.

But Bruder markets to those masses by breaking them into hundreds of finite segments with the objective of spending less to generate more profits. "We're spending scarce marketing dollars on the products the clients need, when they need it," says Bruder, senior vice president of marketing and planning at Royal Bank in Toronto.

So far, it's working. In the last three years, Bruder reports annualized double-digit declines in the cost of generating each dollar of direct marketing revenue. In 1995, for instance, that cost measure dropped 45 percent from the previous year. The next year, the cost per dollar of profit declined another 19 precent. And, in 1997, the cost per dollar of profit fell another 14 percent. Case in point: Six months ago, Royal Bank targeted an offer of a personal line of credit to existing customers. Twenty-five percent not only accepted the offer, but they also accessed $110 million in credit. In an industry where 3 percent acceptance is considered good, the fact that one-quarter actually drew down lines is phenomenal by any standard.

"We were pleased," says Jim Rager, executive vice president of Royal Bank's personal financial services division. "That is the kind of response we've come to expect."

Experts agree that Royal Bank is clearly ahead of other financial services players in North America when it comes to understanding how to wring greater results out of their marketing dollars. They note that the success the bank is enjoying began 20 years with a senior management backing for the creation of a massive data warehouse - a project which triggered a quiet cultural revolution within the company.

"Most organizations have developed the data first and then deal with implementing that information at the front lines," says Robert Hall, president of Dallas-based Action Systems, which began working with Royal Bank a decade ago. "They started with the idea of creating the demand and then improving the data. What others can learn is that the real acid test isn't how quickly you have the data and how good it is. The acid test is how quickly the data gets applied."

Bruder agrees. "We've had a generation that's come up through an environment where they have a complete view of the customer. This is part of our fabric."

Nurturing the right culture is especially critical today as financial services companies race to build a costly data warehouse which will help identify what customers want and how to sell it to them. Royal Bank offers many lessons in the cultural battles being fought as American banks try to change the way their product-focused companies think of customers. The first step is the battle for ownership of information.

"Information is a corporate asset, not a line of business asset," says Marty Lippert, who became executive vice president and CIO last summer at Royal Bank after 16 years at Pittsburgh-based Mellon Banking Corp. "Once they accept that, the rest of this starts to fall into place. If you look at it from a customer perspective, then that information asset component has to fall into place. The reason it becomes increasingly important, for us, and for the industry in general, will be because a lot of the channels that we are not providing product through really begin representing themselves much more ubiquitously to our customer base than ever before," he says. "Customers get very frustrated if there dealing in an online environment and we cannot provide them with a view of their entire relationship with us. When you are early into that game, it represents a strong competitive advantage for us. Our line of business managers are beginning or have recognized some of the power associated with that."

Still, moving to that level seems improbable for many banks. Convincing the head of credit cards to share customer information with the person in charge of home equity lending is met with resistance since home equity borrowers are often refinancing higher cost card debt. The struggle, experts say, is to convince line of business chiefs that they must risk cannibalizing their own customers internally before another financial services company does.

Lippert, who built one of the most respected IT efforts in American banking, has been through these battles before. He oversaw the integration of mutual fund giant Dreyfus Corp. He says a key is the backing of the executive suite to spend on projects when there is not always an immediate return.

"They can't be faint of heart. This is clearly a long haul game," he says. "Building the warehouse so you have enough information on your customers will take years and, in fact, doesn't end. There is an element of leap of faith in getting established initially."

Today, however, Royal Bank is clearly established. And, for the first time in 1998, the centralized segmentation staff has specific profit goals. Most institutions are still years away from even centralizing decision making on marketing segmentation efforts, let alone being able to measure the result. The key indicator, according to Bruder, is the increase in individual customer profitability.

But measures is one thing the company does not lack. Royal Bank today has a relationship with about one in three Canadian households. That represents 8.6 million customers. From that base, the company classifies customers by three sets of strategic criteria: current profitability, six lifestyle indicators and their current potential for product sales.

Next, they review the customer for a trio of tactical considerations: his or her most likely purchase based on predictive models; vulnerability of attrition; and channel preferences. All told, Royal Bank segments its customers into one of up to 1,600 groups, which allows them to design offers and develop products and packages which appeal to customer needs.

"As difficult as it is, it's worth it because your customer satisfaction grows," says Rager. "What it will take to succeed in the future is knowledge of the customer. Our ability to understand the needs of the customer and to have an acknowledgment of that through our marketing and sales is vital to our success."

The process starts with the company's seven terabyte datawarehouse, which Lippert estimates is growing at 20 percent a year. Much of the information is transactional, but Royal Bank is always expanding the data it collects today because it could be useful in the future. "What you try to do is make sure that those components you are capturing feeds back into your marketing strategy, those which help us assess channel preference, for instance," he says.

As challenging as collecting the right data can be, Lippert concedes that there also needs to be an emphasis on developing tools which make it easy for parties across Royal Bank to extract the information they need.

"It's one thing to have this data in a warehouse. It's entirely another to be able to get it out in a manner in which it is easily accessible, easily actionable. If I have to have a team of programmers on stand-by everytime we want to go through a marketing campaign, it makes it very cumbersome. Trying to develop intuitive tools we can put in the hands of the marketing people is a major component of the challenge."

Lippert also predicts that the next wave will be to push the information even further-back out to customers directly through non-human channels. "The next evolution is going to be automating the delivery of the knowledge we are generating in the warehouse through the different channels we have in place," he says. "What we are talking about is informed decisioning. We will be presenting the customer with information that really should be important to that customer, not just random calls or sales pitches. It is information that makes life easier for the customer so that they say, "Oh, yeah, I really do need to think about that."

One example: Reminding a customer that they have a certificate of deposit maturing soon, and then offering information or follow up on several options they have at the time of rollover. Lippert believes that being able to manipulate inform that way will be critical to winning the customer, especially in a self-serve environment.

While Royal Bank's plans have always provided a ready case study, its strategy has never been a threat to U.S. banks-until now. The company's pending merger with Bank of Montreal will give it a huge retail presence in Chicago that could grow through further acquisition. More importantly, in March, the Toronto-based financial services company announced plans to acquire tiny Security First Network Bank, the first Internet bank. Citing information from his vast data warehouse, Lippert notes that in February alone more than one million of the bank's customers exercised some type of transaction in the U.S. "What Security First gives us is almost a turnkey platform to begin immediately providing those services," he says. "The other thing that it gives us, as well, is some very strong technology that we have the ability to roll on a North American basis, including Mexico, with a very common look and feel from a customer interface perspective."

While the plan is to initially use the thrift charter and technology to serve an estimated two million Canadians who spend their winters in Florida, few expect Royal Bank's ambitions to stop there. "They have a mature model and they will bring it to the United States as they do acquisitions," says Action System's Hall. "And, you shouldn't doubt their ability to apply it here."

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