For banks, the Internet is bringing greater urgency than ever to the notion that "the customer is king."

The Web is empowering people and businesses as they gain access to information and options previously unavailable. Like it or not, customers are comparing the level and customization of service they get from banks to what they receive from airlines, retailers, brokerages, and their other service providers.

As a result, customer expectations about how well their institutions know their needs and cater to them - whether via phone, Internet, or in person - are rising. At the same time their tolerance for poor service is rapidly diminishing.

Many banks recognize the challenge - and opportunity - in improved customer relationship management, or CRM. But most fall far short of developing a truly effective approach that builds loyalty, satisfaction, and revenues and profits.

CRM performance is crucial to the bottom line. This expertise accounts for a difference of as much as 50% in return on sales, comparing average with high-performing companies in the telecommunications and chemicals industries, according to recent research by Andersen Consulting. For a $1 billion chemical company, moving its CRM capability from average to superior could translate into a gain of as much as $100 million of profits.

There's every reason to believe banks could enjoy a similar profit windfall as their products become increasingly commoditized. The optimal CRM program has three parts: managing the customer experience, generating customer insight, and managing customer value. However, most banks focus on tackling the technology issues around just the first of these.

Though technology is vital to successful CRM programs, managing the customer experience should address broader questions about how banks are structured.

Traditionally, banks have managed the customer experience by creating lots of touch points - call centers, branches, direct sales, and more recently online operations for the purpose of selling products. But these are all separate solutions, with different technologies, information repositories, and organizations responsible for running them.

Reorganizing to optimize the customer experience offers the chance for significant improvement. Recognizing that customers value a common experience across these touch points, some banks are moving to integrate channels to deliver on the promise of seamless interactions.

At the same time building a complete view of how a customer interacts with the institution lets organizations spot cross-selling opportunities.

To succeed with this integration, banks must overcome substantial organizational, cultural, and technological obstacles. In some ways technology is the least problematical. The bigger hurdles are restructuring the bank around customers, rather than taking the traditional products approach; revamping compensation structures; and deciding the thorny question of who within the bank "owns" the customer.

Resolving these prickly issues only starts a bank down the road toward a potent CRM program. Once a bank consolidates data, a customer insight program would let it use information from each interaction to supplement its understanding of what customers want. Such analysis can help banks test or adjust their segmentation strategy, for instance. It also generates valuable insights on individual behaviors.

A customer value management program would let the bank apply these insights to improve its offers, revenues, and profits.

But first banks must determine what value each customer brings. It can do so by collecting revenue and expense data on fees and net interest margin, then factoring in the cost to serve and sell to each customer. It is also crucial to evaluate a customer's potential over a lifetime, not just in one snapshot.

Customer value management is a two-way street. The flip side of establishing a customer's profitability is understanding what value the bank offers. Banks generally have a good understanding of their value based on their products. But since many banking products are commodities, or quickly become so, customers use other attributes to choose a bank.

Time-starved customers are more loyal to institutions that help satisfy major needs, such as addressing all aspects of moving from one home to another. Fulfilling such a need would include providing or helping facilitate a mortgage, a real estate agent, homeowners' insurance, movers, and so on.

Banks and their competitors are beginning to respond to such opportunities. Hence, the movement to bundle complementary products and services. Yet those are small steps. With its speed, convenience, and price advantages, the Web accentuates the need to deliver what the customer truly values.

One bank taking advantage of the Web and the latest in CRM is Dresdner Banks Group's Advance Bank, a virtual bank that includes a customer interaction center accessible 24 hours a day via phone, fax, e-mail, and the Internet.

The center supplies live responses to all calls and uses sophisticated technology to transfer calls and data seamlessly among representatives. The highly trained agents can help customers pay bills, buy stock, manage household budgets, and get financial advice.

In its first nine months of operation in 1998, Advance Bank attracted 25,000 customers and $780 million of assets. Its 93% customer satisfaction rating ranked third out of 12 such banks in Germany.

Advance Bank shows the possibilities for state-of-the-art CRM. It also offers a glimpse into this future - which is now.

Unfortunately, too few banks understand the need to quickly build a robust CRM program and expertise. One telltale sign: Only a few actually do transactions on the Internet. Most still use their Web sites as little more than advertisements.

If banks don't move to strengthen customer relations, they will become increasingly vulnerable to those that do.

Mr. Tynan is a Houston-based partner in Anderson Consulting's financial services practice.

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