Customer Relationship Management(CRM) in Financial services

1. Customer Relationship Management(CRM) in Financial services JOE PEPPARD, Cranfield University School of Management, UK European Management Journal Vol. 18, No. 3, pp. 312-327, 2000 IE DJ Hong

2. Contents • Introduction • E-business • Channel Management • Relationship Management • Management of the total enterprise • Conclusions Contents

3. Introduction Change of The Marketing Paradigm

4. The most recent The traditional tradeoff Introduction The new economics of information • The new marketplace is characterized by a change in the economics of information. • The traditional economics of information can be represented by a tradeoff between the richness of information & reach of message • Reach is about access & connection: it means how many customers a business can connect with & how many products it can offer to those customers • Richness is the depth & detail of information that can be given to customers as well as the depth & detail of the information collected about customers

5. Introduction The narrow view of ECRM in financial service organizations • ECRM is a technology solution? • ECRM is driven by the requirements of one function rather than customer-centric strategy. • ECRM is just driven by the marketing department in ‘information of silo’ condition. ECRM • E business • The integration of e-business activities within the framework of all existing and future commercial activities • Channel management • The channel of greatest impact or economy anytime, anywhere, and anyone • Integrated and interactive channels of access and distribution • Relationships • Real commercial relationships built on service excellence, value and convenience • Management of the total enterprise • Total back-office/front-office process integration

6. Introduction E business R C elationship management hannelmanagement M anagementof total enterprise

7. E-business E business • Internal – use technology to reengineer business processes • External – use technology in how the organization interfaces with business partners whether they are customers or suppliers New business models • Establishing e-banks with no presence in the physical worlds • E-billing or electronics bill presentation • Banks establishing online purchasing sites • Issuing e-bonds • Virtual wallets eBusiness and Business • Ebusiness become an integral part of the business strategy. • After ‘e’ dropped, there will be no false distinction between business and Ebusiness

8. E-business Characteristics of E business • The new business ecosystem • Increase service levels • Reduce entry barriers • Extend global reach • Challenge brands • Bundling and unbundling products and services • Dislocation of location • Returns power and control back to the customer

9. E-business The new business ecosystem • Marketplace  Marketspace • A shift from conducting business transactions in the physical ‘Marketplace’ to the virtual or cyber ‘Marketspace’ • New opportunities are provided by new technologies. • Establishing e-banks with no presence in the physical world • E-billing or electronic bill presentation (EBPP) • Banks establishing online purchasing sites • Issuing e-bonds • Virtual wallets

10. E-business Reduce cost of business • Re-engineering their core biz processes • Though re-engineering their core biz processes, it still has a high cost-income ratio • From a customer perspective savings can be equally significant

11. E-business The new business ecosystem • Increase service levels • Reposition existing products and services, devise new offerings, increasing the quality of service : PC, mobile phone, pay bills, loan • Reduce entry barriers • ‘pirates’ can infiltrate the value chain of traditional players • Virtual banks can be established relatively easily • Uncalled expensive ‘bricks and mortar’ distribution • 3 Advantages of traditional financial organizations Brand, Capital, and Customer base • Extend global reach • A financial institution with a presence on the internet is a global player

12. E-business The new business ecosystem • Challenge brands • Strong brands instantly convey solid trust and trust is integral to effective customer relationships • Confidentiality and security • Bundling and unbundling products and services • Cross-subsidization of products and services – unbundled, competitive necessity, customer power • Dislocation of location • The concept of location is irrelevant • Returns power and control back to the customer • Rise in customer power

13. Channel Management Requirement for New channels to Market Channels & Customer Contact Point

14. Channel Management Channel Conflicts One suggestion to overcoming the channel conflict problem is for an organization to consider establishing a separate new business entity. Channels Integration • Channel integration is concerned with providing a common, consolidated and real time view of the customer across all channels. • The customer shouldn’t have to deal with the consequences of organizational complexity.

15. Relationship management • The premise being that existing customers are more profitable than new customers • The evidence of having superior customer relationships is overwhelming; • Relationship marketing increases retention • Relationship builds more easily when there is two-way communication • Retained customers are inevitably more profitable. • All customers cannot be treated in the same way • 80/20 rule  To discover loyal customers • Customers want to be treated like an individual each other. • Financial services organizations want to know • Who their best customers are • How to keep them • How to increase their ‘share of wallet’ by knowing what other service or product they can sell to them. • Have a customer-centric or one-to-one relationship • Increase shareholder

16. Relationship management • High levels of customer satisfaction are associated with increased retention of customers • Relationships builds more easily when there is two-way communication • By engaging in an interactive dialogue customer preferences can be determined • Retained customers are inevitably more profitable • The challenge for an organization in to move to a situation where the customer starts buying from you rather than being sold to • Require information that can help make the best decisions to create and manage the right relationships, risks, costs, markets • Redesign core product offerings • Devise appropriate channel strategies

17. Management of the total enterprise • It is imperative to have a total front-office/back-office integration • The systems, built as silos, do not have the ability to leverage shared information. The result is…… • Duplicated information problem • Conflicting information problem • Out-of-date information problem • Most organizations are moving from data-centric point solutions to customer-centric enterprise solutions • Customer-facing functions • sales, marketing, call centers and other on-line support • Become organizationally integrated with back-office processes • Run on separate mainframes and must be accessed through widely varying interfaces • Moving from data centric point solutions to customer-centric enterprise solutions

18. Conclusion An integrated Perspective of ECRM

19. Conclusion • Core problems • Banks are no longer gatekeepers but gateways to financial products • In the future… • Successful collaboration between financial and non-financial organizations • Speed is of the essence when competing in the new ecology and this has implications for the IT function. • Although technology and the new economy offer tremendous opportunities, there is the danger that the organization neglects the basics.

20. An application of DEA to measure branch Cross – Selling Efficiency Debbie Nash & Alicia Steran-Karwat Computers Ops Res pp 385-392 (2001)

21. Contents • Introduction • The data • Partial Measure • The data application • Conclusion Contents

22. Introduction Purpose • Application of the Data Envelopment Analysis methodology to measure financial product cross selling efficiency at the bank branch level Cross - selling • To the sales of a number of related products which can occur concurrently with the sale of a major product DEA • Method to measuring efficiency • Based on linear equation

23. Introduction Housing Loan • Type of product well suited to a cross selling campaign • Housing loan • Building insurance • Home contents • Insurance • Death cover The branch cross selling efficiency • Number of the product being sold per housing loan approvals • Those ratios are very useful in identifying branches’ strength & weaknesses • Those ratios do not provide the overall picture of a branch’s cross selling efficiency • Therefore, convert the 4 partial measures into a single index (Additive DEA)

24. Introduction Cross selling to customers Function of the relationship with customers Factor of success Factor of success Ability to identify customers’ needs Appropriately designed customer data base

25. The Data Four Products associated with housing loans Insurance Building insurance Death cover Home contents Insurance 75 branches 1 region 6-month period DATA Product

26. Partial Measures Partial measures Insurance Number of insurance / Number of hosing loan Building insurance Number of building insurance / Number of hosing loan Death cover Number of death cove / Number of hosing loan Home contents Number of home contents / Number of hosing loan

27. The DEA Application Trial Score  the efficiency score obtained from the first run of the DEA model The data base contained many zero entries -The number of the 4 products sold in relation to housing loan approvals -The number of different types of products sold Cross selling Score  the efficiency score obtained after a subsequent modification of original DEA model

28. The DEA Application

29. Conclusion • The general lack of cross selling was also reflected in the case of this study • Financial companies must focus attention to cross selling