Relationship Banking: Grow and Retain Valuable Customers

1. Relationship Banking:Grow and Retain Valuable Customers March 22, 2007

2. Shea Long Shea is the Vice President of Sales and Marketing for Maritz Loyalty Marketing. He is responsible for developing new services and solutions for clients, which includes 19 of the top 20 banks. Prior to joining Maritz, Shea worked as a Sales Leader for Unisys. He also has experience creating strategic relationships with select business partners for Wiltel Communications. Shea holds a B.S. from the U.S. Air Force Academy.

3. Keith Hendrick Keith is a Manager of Business Analysis at Maritz Loyalty Marketing. His diverse background includes More than 27 years of experience in data analysis, strategic planning, operations and production. As a member of the Business Intelligence division within Maritz Loyalty Marketing, Keith leverages his broad knowledge of finance, technology, and analytics to specialize in financial services equity programs.

4. Presentation Outline • The Relationship Banking Environment • Overview of an approach to CEM • Program Design Framework • Best Practices and Trends • Financial Oversight • Critical Steps in the Relationship Banking Process

5. The Environment – Overview of Issues • Increased awareness by consumers makes them less loyal and more receptive to competitive offers • Some banks are already offering relationship programs and they’re targeting your customers • Lack of knowledge of customer attitudes and behaviors across the institution complicates cross-selling/up-selling efforts • Improving the customer experience will increase the incremental financial impact

6. The Environment – Insights • Nearly half of U.S Households have switched their financial provider at least once1 46% of consumers cited “I already had a product account with them” as the most important influencer in their most recent financial purchase2 • 42% of “very satisfied customers” will consider their bank for three or more products2 • Internal bank issues can be the greatest obstacles changing employee behavior (60%) • Gaining alignment with other silos (57%) 2 1 American Banker, August 19, 2003 2 Forrester, Customer Experience in Financial Services, March 4, 2005

7. The Environment – Trends • Shift in focus • Retention is being prioritized over acquisition…at least in words • If you haven’t made the transition, then now is the time • Question: How do you make the transition? • Increased demand to justify marketing $ • Measurable initiatives are getting more support • Targeted, metric-driven, ROI/NPV/IRR • Caution: Over-analyzing can lead to inability to act • More pressure to deliver now • Patience is waning and short-term promotions are popular • Generates immediate impact, although not sustainable • There is a strong need to get customers engaged quickly • Long-term systemic growth should be the goal

8. The Environment – Evolving to Future State Current Trends: Historical Barriers: Several Top 20 banks and many regionals are creating an internal executive level owner No single corporate loyalty owner Increased focus on customer experience management, and working across silos to better manage client relationships and increase product penetration. Siloed organizations with competing objectives Banks are either building new or reconfiguring existing databases; or forming strategic partnerships Lack of systems capabilities Incremental launch beginning with DDA and cards; Strategically expanding across product lines Problem was TOO BIG to solve

9. An Approach to CEM

10. CEM – 4 Most Important Things to Consider • If Customer Loyalty is only in the hands of the marketing department…you’re missing out. • Your points-based loyalty program isn’t enough. • Hard measurements don’t tell the full story. • There’s no product that one of you can sell that most everyone else can’t match…Customer Experience will be your differentiator.

11. Why Manage the Customer Experience? Most companies are still struggling with driving real change in their people.

12. Why Manage the Customer Experience? 43% of customers who defect, do so because of service.

13. The Bar Continues to Rise- Standard Approaches Will Not Keep Up! 96% of financial services executives agreed that customer experience is either very important or critical to their success.

14. Traditional Approach- Lackluster Performance Over 50% of all new customer initiatives fail to deliver expected results… Why? • Insufficient Depth of Insights • Inability to Scale Training Effectively • Limited Loyalty & Motivation Programs • Lack of Integration Across Silos

15. Traditional Approach- Lackluster Performance • Companies very often underestimate the difficulty in changing behaviors on their front lines. • Complexity of multiple customer touch points, a dearth of real CE insights, brand new skills and expectations of front-line staff, conflicting motivators that determine behaviors, lack of consistency across the organization…all lead to very high failure rates in CE programs. • Loosely aligned, sub-optimized customer experience efforts will not live up to expectations.

16. CEM Evolved Approach – Performance & Lessons Learned • UNDERSTAND By Measuring Better • ENABLE New Behaviors with Localized Engagement • MOTIVATE Real Change with Customers and on Front Lines • INTEGRATE For Sustainable Growth

17. CEM – Points of View • Know your customers and manage their experience • Look at them beyond a product perspective • Create dialogue to engage your customers • Build customer biographies • Communicate often • Utilize surveys • To gather attitudinal information • Obtain competitive insights • Generate leads for cross-selling efforts

18. CEM – Points of View • Align with Operations & Channel to deliver true CEM • Understand what is needed to alter their behavior • Provide training and instruction • Institute rewards and recognition that ensure they deliver the experience your customers want and that drives profit • Customer-centric is the best approach • Break down the silos to drive product penetration • Must be pushed from the top down • Return on Relationship is more valuable than ROI • Attitudes, Brand Awareness/Preference, Advocacy…plus Behaviors, Incremental Profit =Customer Engagement Indicator

19. CEM – The Truth… In today’s fiercely competitive marketplace, typical customer experience initiatives that operate independently of customer loyalty, marketing, and other operational initiatives WILL NOT drive the growth you need to succeed. So, what can you do? Align and Integrate

20. Program Design Framework

21. Program Design – Relationship Banking Creating relationships with consumers that: • Allow the financial enterprise to increase product penetration and usage • Provide a better overall value to the customer • Maintain those relationships over time • Create advocates for the brand that resist competitive pressures

22. Program Design – Overview Retail The DDA Relationship can be the hub of the program. Debit Card/ ATM CreditCard Investments OnlineBanking DDAAccounts ConsumerLending SmallBusiness Other Services

23. Program Design – Earnings Example Online Banking EarnTotal/Yr 1) Activate acct. 250 pts. 250 2) 6 mos. w/ 5+ trans. 50 pts. 300 3) 1 yr. active Bill Pay 250 pts. 3000 Total Pts. Earned = 3,550 Debit Card (DDA) EarnTotal/Yr 1) 10 purchase/Mo. 3 pts. 360 2) ¾ off-line 3 pts. 270 3) 1 purchase of $300 10 pts. 120 Total Pts. Earned = 750 Customer Engagement EarnTotal/Yr 1) Survey Responses 1000 pts. 2000 2) New Cust. Referral 2500 pts. 5000 3) Anniversary Bonus 1000 pts. 1000 Total Pts. Earned = 8,000 New Product Activation EarnTotal/Yr 1) Credit Card Activation 5000 pts. 5000 2) Balance Transfer 100 pts./K 500 3) HELOC Activation $1,000 min. 1000 Total Pts. Earned = 6,500 18,800 TOTAL PTS. ACCRUED FIRST YR. = $188.00

24. Program Design – Best Practices • Average balance needs to be a driver • Transactions (only) do not drive more profitable behaviors • Product penetration is not enough • Remember: some balances are meant to decline • Employees should be enrolled • Better understanding of the program/benefits • Great advocates of the program and brand • Enabled to deliver the best customer experience • Make it possible for all customers to participate • Tiered benefits/privileges • Fee for less profitable segments, allowing them to opt-in • It’s about the customer • Focus on customer needs, not the product • Compensate employees based on improving customer experience…and value

25. Program Design – Relationship Banking ResultsIn Aggregate • The following results have been achieved: • Increased Incremental Average Balances • Program members total balance increased an average of 7% compared to non program members • Product Consolidation • Activation/usage of existing products • Increased Retention • Program members have a churn rate of less than 7%, compared to non program members with a churn rate of approximately 22% • Increased customer lifecycle • Maximized profits to the banks • Increased Product Penetration • From 1.9/HH to 2.7 products/HH Growth opportunities exist…when you Align and Integrate!

26. Financial Oversight

27. Financials: Investment Categories • Business Intelligence • Strategic consulting • Program performance analysis • Advanced analytics • Program Communications • Welcome Kits for launch • Ongoing customer messaging • Financial Center enrollment brochures • Operations and Infrastructure • Program management and operations • Program website and call center • Rewards Investment • Reward Cost and Fulfillment • Benefit Investment • In-kind, logoed items • Employee Engagement • Training and Incentives

28. Financials: Proforma Analysis • Utilize financial modeling to predict business results • Determine the effects of your Relationship/CEM initiative • Use when considering multi-component initiatives • Identify levers to be adjusted based on your specific circumstances and data set • Typical objectives to be projected/measured • Incremental revenue/profit • Reduction in attrition/longer customer lifecycle • Improved acquisition/program engagement

29. Financials: Proforma – Credit Card Only Program members Measurable behaviors Margin

30. Financials: Proforma – Credit, Debit & Mortgage

31. Financials: Proforma – Credit, Debit and Mortgage + Employee Engagement for CEM

32. Financials: Liability ForecastingRedemption & Breakage Analysis by Year • Use historical trends to project future redemptions, forfeitures and expiration • Optimally manage your accrual rate • Utilize estimated breakage factors to forecast point liability • Understand and manage the impact of cost-per-point on your financials

33. Summary With this powerful integrated approach you will: • Establish your relationship banking initiative as a true competitive advantage • Understand your customers more fully so that you can enable them to have a relationship with your brand and motivate profitable behaviors • Motivate employees with effective incentives and recognition programs aligned with customer experience goals to maximize business results • Extend and maximize your brand reality in the eyes of your customers • Drive top and bottom line growth through increased customer retention, share of wallet and financial management

34. Questions?

35. Thank You.For more information, visit: www.maritzloyalty.comor call 1-877-4MARITZ