Customer Relationship Management (CRM) the targeted application of customer data to critical business problems can provide substantial (more than 10% to 20%) performance improvements to many financial services businesses in less than a year. Often, it can be done by exploiting existing investments, an essential requirement given cost-containment pressures in todays environment.Is this just another in the litany of promises executives have heard about CRM in recent years? Absolutely not. Multiple banks, credit card issuers, and other providers have demonstrated that, in rethinking how to deploy CRM capabilities, companies can discover a potent weapon for enhancing profitability. While most executives think of CRM as a long-term strategic initiative, more and more companies are discovering that focused use of customer and process insights and tighter tracking processes enables them to quickly field more cost-effective customer acquisition programs, better target customers who yield maximum spend/wallet share, more precisely manage customer attrition or decreasing customer activity, effectively channel sales force energies, and allocate service budgets with greater efficiency.
In short, a significantly different approach which we call tactical CRM can enhance productivity across a range of key marketing, sales, and other functions. And its benefits can be realized in far shorter time frames than typically associated with CRM programs another critical advantage in a growth-constrained market.
Skepticism regarding CRM has grown among financial services managers and marketers, perhaps even more dramatically than the rate of CRM technology spend. In our experience, much of this wariness is well justified the linkage between CRM technology investments and economic impact is far less certain and observable than it should be. Frankly, if all of the business cases that cost-justify CRM expenditures were to be believed, most financial institutions would not lose another customer for the next decade.
Traditional CRM has grown less supportive of value creation for five reasons:
First, the continuous improvement processes inherent in CRM are not always focused on attacking critical near-term business issues of growth, productivity, and profit improvement. The efforts often fail to focus on the element with the greatest impact on the business system.
The ability to use existing (but untapped) data to address critical short-term issues is often seriously underestimated. The focus is often on creating new solutions, without attempting to leverage existing data and metrics.
The potential impact beyond service and marketing and sales functions is often overlooked. Indeed, functional and productivity applications that do not directly touch customers, but which can be improved through the use of more specific customer-related data (e.g., marketing productivity, collections management) are often ignored.
The results that these platforms were built to deliver are often not quantified and rarely tied to financials and budgeting processes via viable targets and key metrics.
Lastly, the CRM initiatives of the 1990s were typically guided by technologists building out elegant long-term platforms, not by business people seeking creative and quick-to-market solutions to pressing near-term issues.
Our experience over the past decade, working with companies that have succeeded in extracting value from CRM and those that have struggled to do so, reveals a significant pattern distinguishing the two groups. Many CRM initiatives foundered because financial services companies spent disproportionate effort and money on building the capability, and not enough on aiming it at identifiable profit opportunities. Winning firms adopted a tactical CRM approach which reversed this equation, identifying business areas in which CRM knowledge could translate into quick-to-market performance improvements. Over time, their tactical CRM approach demonstrated the potential payoffs to systematic CRM investments in a tangible and compelling way.
Tactical CRM achieves returns within compressed time frames because it uses existing or obtainable information, processes, and products, rather than inventing new ones. The new approach moves a company quickly toward positive results via a series of incremental steps, each of which rings the cash register, builds capabilities, and creates profits that can fund succeeding steps.
Our experience with tactical CRM, based on multiple financial services and other retail customer-based industries, underscores the opportunities inherent in different stages of the customer life cycle for distinct sectors. Accordingly, different tactical CRM levers provide the greatest impact for these situations. Industries such as credit card and property and casualty insurers, for example, have historically been marked by an intense focus on customer acquisition and, later, by retention/persistency concerns. In this era of consolidation, large retail banks have enormous customer bases, making customer loyalty and cross-selling their primary concerns. Wholesale bankers can use CRM to improve calling programs and provide deeper and more systematic linkages to their clients to share ideas, research, and information on an ongoing basis.
The tactical CRM approach uses the following rigorous three-step process to profitably cultivate these types of opportunities:
Identify and prioritize which life-style stage to focus on, leveraging senior management and frontline insights, as well as strategy. Do we need to cross-sell more profitably? Is silent attrition a critical threat? Can service queuing (i.e., giving best service to high-value customers) provide greater customer satisfaction at lower cost?
Assess existing information and processes to determine which specific opportunities within the customer life cycle stages can be addressed in the shortest time frame and with greatest impact.
Develop and implement quick-hit actions to immediately impact near-term earnings, without building extensive new technology. A disciplined and thoughtful approach can actually institutionalize key processes and capabilities while yielding short-term benefits, avoiding redundancy, and bypassing efforts that do not yield results.
We have seen the successful application of a tactical CRM approach at companies representing a variety of industries. In each case, a set of programmatic levers targeted approaches, tools, and metrics focused on tangible objectives such as reducing acquisition cost and reducing silent attrition were developed to produce the greatest impact. Following are two examples of this tailored approach:
Reducing acquisition costs in consumer credit cards: Acquisition was the greatest business system challenge to the credit card industry through the 1990s. Despite efforts to target offers based on creditworthiness, marketing costs continued to climb for most issuers given the flood of direct mail and declining response rates. In this demanding environment, acquisition effectiveness and cost reduction were our clients top priorities. Next, quickly assembling and analyzing solicitation data indicated a strong correlation between sales rate metrics and contact rate metrics. We then helped the company to quickly implement a solution that reduced over-solicitation, and used the savings generated to target other prospects with substantially higher response rates. These actions resulted in a 5% to 10% reduction in marketing costs within six months providing a significant boost to reducing acquisition costs.
The profitability of a commercial bank is driven by its deposit business, particularly from those customers who maintain large balances in their checking and savings accounts. As deposit margins were squeezed through the 1990s, deposit volumes became even more important to banks. While many banks therefore emphasized customer and deposit acquisition (for example, by promoting direct deposits, by work-site marketing to new hires), balance retention was typically overlooked. By first identifying key issues and analyzing customer data with one bank, we focused on enhancing profitability by stemming the silent attrition of balances. We then analyzed time-series data to identify high-risk customer groups and key drivers of balance reduction within accounts. Preemptive alerts were designed and tested to drive proactive and timely actions in response to the alerts. The estimated impact was a 10% to 15% reduction in silent attrition within six to 12 months, which should result in incremental profits of more than 30% for these high-risk segments.
