Say goodbye to the days of mass marketing retail financial services. The new mantras of retail bankingu00e2u20ac”customer focus and customer relationship managementu00e2u20ac”are turning the bank marketing function on its ear. And in the process, an era of cooperation is emerging between bank marketing gurus and the techno-geeks historically found in the back shop. The result is a new sophistication in retail bank marketing, where, eventually, marketing banking services to “audiences of one” will be as ubiquitous as giveaway toasters were in the 1960s.
It all started with the drive to integrate information on customers and the transition from total reliance on passive customer information files (CIF) to the concept of marketing customer information files (MCIF), where data from various internal and external sources are culled to create mass marketing programs, u00c3u00a1 la credit card campaigns. Now, customer relationship management (CRM) is the name of the game, and some of the most innovative organizations in financial services are taking CRM to a technological plane where the gathering of information on customers becomes so discreetly pervasive that they can respond to customer demand well before it is articulated.
“The whole goal of technology is to help the organization recognize the individual, and his or her capability to pay for goods and services, with a minimum of intrusion,” explains Anthony J. deLeon, a partner in the electronic commerce practice at Andersen Consulting, San Francisco.
It’s a goal best exemplified by the emergence of new Internet super-retailers, where customers receive online pitches based upon past buying behavior and purchases are just a few mouse clicks away. “It hasn’t been lost on members of bank boards that Amazon.com has a substantial price-to-earnings ratio,” says William Clay, partner in the financial services practice at Deloitte & Touche, Atlanta.
Bank One Corp. is paying attention to the trend. Last fall, the Chicago-based banking company inked an agreement with Excite, a leading “portal” or entryway to the Internet, for exclusive rights to market Bank One products on Excite’s start page. Citigroup has a similar partnership with Netscape, which is about to be acquired by America Online (AOL). The idea is to build brand awareness and boost customer acquisition opportunities. Bruce Luecke, president, Bank One Interactive Delivery Services, says the partnership with Excite “certainly gives us the ability to be a national business.”
Initially, Bank One plans to offer traditional bank products, like checking and savings accounts, via the Excite arrangement. Ultimately, all manner of financial products and services will be hawked including other financial brands. It’s a trend Nalini Indorf-Katz, a partner in the San Francisco office of Deloitte & Touche, refers to as a “best-of-breed strategy, where banks are not just pushing their own products.”
Excite stands to earn as much as $125 million on the Bank One arrangement. Bank One gets to take its customer solicitations and sales on a national scale using a low-cost medium that also makes it easy to personalize messages. “Excite has done a lot to customize offerings to customers, and we will be taking advantage of that,” he says.
Leveraging technology power
Banks have always possessed a wealth of information on customers and their financial needs. But before the advent of CRM systems, leveraging that data to maximize marketing response rates was difficult at best. There was no way of understanding customer profitability, notes David Medeiros, director of the wholesale banking practice at the Tower Group, a Needham, Massachusetts-based research and consulting firm. “CRM allows you to understand which customers are profitable and which are not, so you can tailor specific services to each,” explains Medeiros.
U.S. bank spending on CRM technology is substantial. Tower Group predicts institutional spending at $10 billion next year, up from $6.6 billion in 1996. According to the firm’s estimates, most of that tab (71%) is being run up by banks with more than $20 billion in assets.
When combined with the investments Internet companies have made in online customer service technologies like collaborative filtering, which helps provide insights on customer needs and preferences, CRM becomes a potent weapon. “The ability to be accurate is dramatically enhanced,” says deLeon.
Paul Fiore, co-founder and executive vice president of Digital Insight, a Calabasas, California company that provides transaction services for financial institution websites, believes consumers are much more likely to provide information to banks than to other organizations on the Internet because of the “trusted relationship” they have with banks. Fiore says 78% of consumers who bank online through Digital Insight’s client institutions provide email addresses when asked. “That helps a bank do push marketing as well as target marketing,” says Fiore.
The concept of Internet-based target marketing is simple. A bank that wants to promote online bill payment, for example, checks its files to determine if a customer logging on to its website has registered for bill payment services. If the customer has not registered for bill payment, the Web page can be prompted to deliver a promotion for the service. If the customer already uses bill payment, the Web page might instead deliver a promotion for refinancing. Or the bank might ask Web customers a different question each time they log on, like “Do you plan on buying a car within the next year?” and, based upon the responses given, market products (like car loans) when the potential to buy is greatest. Furthermore, the bank can direct customers to outside resources, like an online auto buying service. “The goal is for consumers to view their bank as their portal, in a financial sense,” explains Fiore.
M&I Data Services, Milwaukee, is developing a similar capability for its clients to support one-to-one messaging to customers via their preferred delivery channelsu00e2u20ac”on the Internet, at the ATM, by telephone, or by mail. “It has tremendous ramifications on effective target marketing at a lot less cost to banks,” says Larry Hutt, vice president, relationship solutions division. Hutt claims the technology can support rates of return as high as 20% to 30% on target marketing campaigns.
Smaller financial institutions, by virtue of size, seem more likely to benefit from the personalization tools currently on the market. “Smaller banks have a big advantage in that they can get this up and running a lot faster and cheaper, and act upon it much more quickly than can larger banks,” says Hutt.
For Lilach Katz, director of Internet business strategy and marketing for e-Citi, a two-year-old unit of Citigroup, it’s a matter of scale. “Anything we implement has to scale globally,” says Katz of the megabank’s forays into personalized marketing. But Citi has other useful technologies at its disposal now. For example Citi can let consumers who visit its website literally try out its home banking product. “The response from consumers has been tremendous,” says Katz.
Personalized messaging needn’t be restricted to the Internet sales channel, however. Explains Luecke: “We need to take Bank One to wherever it is the customer wants us to be.” That may be at the ATM, or via a telephone, or in the branch.
Canadian Imperial Bank of Commerce (CIBC) has embarked upon a similar mission. Using a mix of proprietary and off-the-shelf software, the bank can score customers and aggregate them into groups for customized messages through virtually any medium. Eventually, says Jim Allen, senior vice president for customer marketing, messages targeted to the individual will be possible. “We have completely rebuilt marketing at CIBC, and we could not have done that without technology,” says Allen.
Right brain meets left brain
Yet Allen and other bankers who are helping to define the new bank marketing dynamic insist technology is merely a tool of change. A few years ago, when CIBC first embarked upon a program to rebuild the way it sold products, the project was heavily weighted toward technologists, Allen notes. But the bank’s technology mavens quickly realized they needed to partner with marketing experts to realize their vision.
“Nowadays, you would have trouble recognizing who of the people around the table came out of technology and who came from marketing,” adds Bob Carroll, vice president for customer infrastructure solutions at CIBC.
“I’m not a technologist; I’m just looking to use all the tools that are available to us to deliver what the customer wants,” says Bank One’s Luecke.
Katz portrays a similar scenario. While e-Citi had its origins in technology, providing a technological underpinning for the banking company’s existing business lines, Katz says it soon became apparent that e-Citi needed to provide a tie-in between marketing and product development. So the business unit staffed up with marketing and Internet experts from outside banking as well as additional banking insiders to help keep the focus on banking.
“The plus here is we’re organized around products,” says Katz of e-Citi, which operates as a profit center within Citigroup. “For us, the technology part is really just a way to deliver products.”
Chris Musto, senior analyst, Gomez Associates, Concord, Massachusetts, believes the lesson is one that has been driven home by the growing popularity of the Internet. “There’s a recognition by traditional firms that they need people who understand the impact of technology on marketing,” he says. “People who are capable of marrying the two are being put in the position of running the whole effort, online.”
It’s a trend best exemplified by companies that sprung up specifically to capitalize on the Internet, says Musto, pointing to E*Trade, the online discount brokerage, as an example. “It’s easier if you start out being attuned to the issues of online financial services and the Internet delivery channel,” says Musto. Still, he adds, “Banks are doing a pretty good job” of merging technology and marketing functions.
These marriages have resulted in several innovative offerings, such as CIBC’s venture with Canada’s largest supermarket chain, Loblaw’s Inc. The venture offers consumers reduced-fee banking and bill paying at special kiosks in Loblaw’s grocery stores, as well as discounts on transactions initiated by telephone, the Internet, at CIBC ATMs, or anyplace a debit card is accepted for payment. The service is marketed by Loblaw’s under the President’s Choice Financial moniker; President’s Choice is the name of Loblaw’s proprietary line of products. More than just tying in with the grocer’s brand identity, however, President’s Choice Financial also awards points toward free groceries every time a consumer transacts business with President’s Choice Financial. A mortgage loan, for example, earns 2,500 points (or $2.50 toward groceries) at closing for every $1,000 of the financed amount and 2,000 points ($2.00) annually for each $1,000 in outstanding balance. Each bill payment initiated electronically with a President’s Choice card earns 100 points (or 10 cents in groceries). The card also can be used to redeem points.
The President’s Choice program is one of several offerings to come out of the rebuilding of CIBC’s customer infrastructure. The rebuilding process, which Allen estimates cost the bank $15 million to $20 million [Canadian], required the integration of differing systems, databases, business processes, and skill sets. It affected the delivery of services to 7.3 million customers about whom CIBC is constantly collecting and updating information. “It cuts across all products and all customers, up to middle-market-level commercial customers,” he explains.
The $282 billion [Canadian] CIBC spent is in line with what Hutt estimates a U.S. bank of similar size would incur on a project of similar scope. The tab is a lot less at smaller banks. (Hutt says a bank in the $500 million to $10 billion asset range would spend “tens of thousands of dollars.”) He says a bank embarking on such a project can expect to spend a year gathering customer information and developing processes for cleaning and manipulating that information; putting together and implementing a definitive action plan takes another six months, he figures.
And although there are some “quick ways” to see payback in less than 18 months through better use of customer information, Hutt cautions bankers not to “expect a quick payback. This is a cultural change within the organization,” he insists.
The Tower Group research on CRM drives home this point. While information technology costs are the single largest component of retail CRM expenditures, at an expected $3.8 billion, those costs will constitute only 38% of the industry’s expected total CRM expenditures next year. Nontechnology costs that make up the bulk of retail CRM costs include training, organizational change costs, and revised customer service processes.
At Bank One, a lot of the focus has been on improved customer service, and the result, says Luecke, has been a reduction in operating costs while the bank continues to grow its customer base. Bank One is adding as many as 16,000 new online customers a month. “In the online world you can actually meet the dual goals of bettering the customer experience and lowering costs by doing certain things,” he explains. For example, Bank One keeps close tabs on customer service calls, attacking sources of problems before they result in a flood of additional calls. The result, he says, is a happier customer base and a smaller customer service staff.
And happier customers, notes Bill Storts, partner in charge of the Financial Ideas Exchange, a New York-based unit of Andersen Consulting, are apt to buy more products. Thus, he cautions bankers not to underestimate the role of technology in delivering on those needs. “We have an increasingly large amount of demand in the market, and that demand is requiring the kind of service that only technology can deliver.”
The returns can be handsome. Allen says CIBC has seen its payback in terms of better sales leads, higher response rates on direct marketing campaigns (upward of a fourfold improvement over the old days), and the elimination of back-shop duplication through better delivery channel connectivity. Allen also speaks of a “halo benefit” the bank gets from its marketing precision. “We’re seeing improved customer satisfaction due to less irrelevant messaging,” he says.
Andersen’s deLeon refers to this trend in banking as the emergence of a “customer-centric business model.” Banks in this new era of technology and marketing can’t just gather and act on customer information; they must encourage customers to help them manage that information, particularly in the online environment. “The bank deals with managing the data and customers manage their profile.”
Not only does the bank gain access to good information, this way, it also avoids the specter of invading customer privacy through its data gathering and marketing practices. “When you do it right, this type of marketing is absolutely aligned with customer privacy concerns,” says CIBC’s Carroll.
Despite the strides of banking organizations like CIBC, Bank One, Citigroup, and a smattering of others, Clay of Deloitte & Touche believes the industry still has a long way to go. Marketing and technology people in banking historically have been from “different planets,” he insists. “I think the paths they’re on are starting to intersect, but I don’t think they’re in alignment yet,” says Clay. He also insists many banks still are spending too much time and money on technologies that help them build massive data warehouses and not enough on the interpretive tools that help them direct the right messages through the right media to the right customers. “People will respond to a targeted offer that has real personal value to them,” says Clay.
Banks that treat technology and marketing as equal partners have discovered this to be a truism. “We look to this space [the Internet] and what drives customer value and we let technology design the answer,” explains Luecke. “Our business case is built on customer increases.”
“Technology is continually viewed as a tool, not as a driver of what we do,” says Katz of e-Citi. “Our primary objective at the end of the day is to acquire new customers, new accounts, new business.”