According to recent projections, financial services companies will spend almost $7 billion this year on customer relationship management, and that amount will increase by 14% each year for the next several years.
Bankers at all points of the CRM spectrum are looking for a way to quantify the return on their CRM investment - what its value is or, if just starting out, what it should be, and over what period of time the value should be realized.
Ironically, the answer to this question may lie in a simple review of a few known quantities generated from historical innovation.
For example, look at automated teller machines. Many bankers were driven to invest in ATMs by the promise of reduced branch costs - customers would conduct transactions through the machines instead of at a branch.
Banks discovered that the marginal gain in fee income generated by ATMs was substantially offset by cost of processing the higher volume of customer transactions. However, there was also a significant rise in that intangible called customer satisfaction. The increase in customer satisfaction has generated loyalty, which has resulted in higher customer retention and growing franchise value.
Guess what? Internet banking, a product of the 1990s, shows similar characteristics.
As they did with ATMs, bankers invested in the Internet because they believed that it would be a lower-cost delivery channel and a way to boost sales. However, studies have shown that the primary value of offering Internet banking services lies in the increased retention of highly valued customer segments. Again, the intangible called customer satisfaction drives the value proposition.
Now we explore CRM, which is different from ATMs, Internet banks, checking accounts, stocks, or mortgages. In fact, CRM is not anything a customer should even know about! You will never sell your customer your CRM, so one can conclude that it is an intangible.
If this is so, can it be expected to produce a tangible return? Probably not, or at least not with any direct financial value that can be exclusively linked back to the investment in CRM.
Is CRM another innovation, or the result of innovation? I think it is both.
CRM is primarily driven by the innovation of technology, but unlike other technological innovations, it has the power to help bankers quickly and directly improve customer satisfaction. It is an added dimension that helps ensure that what the customer expects is consistent with what the bank is prepared to deliver.
One expert in bank CRM initiatives recently said that it is an approach that is less focused on providing the right services to the customer than attracting customers who are the right fit for what the bank has to offer.
Further, the primary value of CRM is its potential as a retention tool. People are starting to measure CRM in terms of increased customer satisfaction rather than return on investment.
How much of a return can you expect from your CRM investment, and when can you expect it? Refer to your reasons for continuing to offer ATM and Internet banking services. The answer for CRM is the same.
Mr. Keene is the director of the banking practice for Robert E. Nolan Co., a Simsbury Conn., management consulting firm that serves financial services companies.
