Customer Value Drives Growth at Nordea Bank

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1 Case Study Customer Value Drives Growth at Nordea Bank The multinational financial services firm uses a relationship banking model to unify its operations and ensure it s long term success.

2 Customer Value Drives Growth at Nordea Bank The multinational financial services firm uses a relationship banking model to unify its operations and ensure its long-term success. by Elizabeth Glagowski Multinational corporations with numerous operating groups can all too easily adopt disparate cultures, processes, and technologies over time. Creating a common strategy and rallying point is essential to maintaining a unified, holistic enterprise that will thrive and endure and is exactly the approach Nordea Bank took to ensure the success of the merger that launched the organization, and that it uses to this day to assure its long-term business success. Nordea provides corporate merchant banking, retail banking, and private banking to approximately 9 million customers, including 5.9 million e-banking customers. It operates more than 1,400 branches in Sweden, Denmark, Finland, Norway, the Baltics, and Poland, and a 24/7 call center. As of September 2009 its assets were 488 billion. The company was born from the mergers of Merita Bank in Finland, Nordbanken in Sweden, Denmark s Unibank, and Christiania Bank og Kreditkasse in Norway in Nordea s executive team decided Challenge: Nordea Bank that the company s growing pains wanted to differentiate would be diminished by developing a common customer-centric how it treats its most valuable customers. focus among all the branches in Solution: Customer centricity and a relationship banking model, the lynchpin of every country. It built a relationship banking model guide the which is a tiered segmentation corporate culture and strategy based on customer value. help build strong and We have been on a journey profitable relationships based on customer value. toward being a customer-centric bank with a customer-centric strategy, says Claes Tell, head of sales and development for Nordea s retail banking division. That is a strong inheritance from the banks within the merger. The starting point was to take the customer-centric view to create our operating model. That is, of course, not easy. Our bank, like many other banks, has very strong product units that are still eager to push their products to customers. Therefore, we needed to set up an organization and operating model to support our customer-centric view in the way we treat customers. That is done at a central level, but also in how we treat individual customers. Customer value tiers Robust customer data and advanced technologies afford the bank endless segmentation possibilities. However, for that segmentation to be understood and acted on at the branch level, it must be a simple model that is easily communicated. It s difficult to talk to the line organization when you have many layers of customers that are constantly changing, Tell says. Consequently, every Nordea retail banking customer is assigned to one of three customer value tiers: Gold, Silver, or Bronze. The segments are based on volume of interactions and number of products owned. An active customer with at least one product is automatically placed in the Bronze segment. Customers with at least 6,000 in interaction volume and more than three products are part of the Silver segment, and Gold customers are those whose interaction volume is greater than 30,000 and who have purchased more than five products. We cover large markets and we have a large customer base, says Tell. It s important from a growth perspective that we focus on the right customers and retain the right customers. That s the foundation for the segmentation. By doing so we make sure to allocate our most valuable resources Personal Bank Advisors to the right customers, according to the value they bring and the size of their business. We are very much 2

3 focused on addressing the right customers with the right resources. As a result, each value tier has a specific treatment strategy that is adhered to in each interaction channel, Tell says. Bronze customers receive simple service at a fair price, according to the company s annual report. Silver customers, meanwhile, receive favorable pricing on products and personal service when needed. The top-tier Gold customers are offered the best prices for products, priority access in the branch and call center, and are assigned a Personal Bank Advisor (PBA) who meets with them individually at least once a year for 360-degree meetings to review and update their financial portfolio. Tell says upwards of 30 percent of Nordea s retail banking customers fit into the Gold customer group. He says the bank employs approximately 4,000 Personal Bank Advisors across its branch network, with at least one advisor per branch. It s very easy to capture customer insight and do targeting, but to have real effect we very much rely on the efforts of PBAs out in the branches, Tell says. We give them the tools and messaging they need to meet and treat the right customers. Relationship banking in action Even in these days of high-tech self-service, nothing can replace the benefit of an in-person meeting. Our foundation is that of a relationship bank, Tell says. Our belief is that the Personal Bank Advisor is really key to having a close relationship with the customer. We have the Web and the contact center, but in the middle of this it s very good for the customer to have a personally assigned bank advisor there when needed. Personal Bank Advisors identify Gold customers and high potential customers in the lower tiers to arrange a 360-degree meeting. Customers are asked to prepare information about their current financial situation and future plans both with Nordea and other banks. The PBA reviews the customer s situation and makes recommendations about products and services. This is a quite strong value proposition, Tell says. We do not take a productoriented approach when it comes to meeting these customers. We approach them to give them advice. Nordea created tools to help the PBA work with specific topics at a 360-degree meeting. For example, if a customer is interested in opening a savings account, the PBA can work with the customer to access modules within the bank s proprietary customer management system that help explain risk and establish savings targets. There are also modules for categories like life and pensions and investing, and for other banking services. Depending on the number of high-potential customers in each branch, a PBA could be responsible for as many as 500 customers over the course of a year. There is an obvious need to help prioritize who to meet, Tell says. Stats & Facts: Nordea Bank Headquarters: Stockholm, Sweden CEO: Christian Clausen Assets: 488 billion (as of September 2009) 2008 operating profit: 3.3 billion Customers: More than 7.7 million retail bank customers; 700,000 corporate customers Branches: 1,400 in 19 countries, primarily Sweden, Norway, Denmark, and Finland Employees: 37,000 Customer areas: Corporate merchant banking, retail banking, and private banking Product areas: Capital markets products, savings products and asset management, life and pensions Transparent segmentation strategies While segmentation is not unique to the financial services industry, Nordea made the unique decision to externally communicate to customers the segments they are in. This creates an aspirational relationship for those in lower tiers, and helps Gold customers feel they are part of something special. The communicated benefit to customers is that we can give you our best advice through assigning you to a PBA, Tell says. Secondly, there is the pricing issue, where they know they will get the best prices if they are in the higher segments. In addition to the externally communicated segments, Nordea created internal contact policies for certain subgroups, as well. Gold customers, for instance, are divided into two groups: care customers and balance builders. By putting those labels on the customers, we have a way to communicate to our PBAs and the branches that some customers need more attention than others, due to the fact that they are building balances and have a greater need for banking services, Tell says. Balance builders are considered to have more potential value, and are treated with the highest priority. Care customers, while still important, are considered a group to maintain instead of grow. We of course want to focus our resources on where we can find the most potential, Tell says. Nordea also uses customer insight modeling based on behavior information and other legacy data available to create other target subgroups. It s a way for us to be more focused in our ambition to meet and treat the right customers with the largest potential and also, of course, work with customers with the largest need. We hope that their needs coincide with our ambition to do sales. Nordea uses its proprietary customer management system to run its customer insight analysis, predictive modeling, and other analyses 3

4 The Ongoing Journey Toward Great Nordea In early 2008 Nordea Group CEO Christian Clausen laid out a vision of what he called Great Nordea. It is a long-term strategy with four components: Profit orientation: Keep a laser focus on cost, risk, and capital. Ambitious vision and targets: Realize the potential of both new and existing customer groups. Clear growth strategy: Expand its physical presence in the Northern European market while strengthening relationships with existing customers. Strong customer-oriented values and culture: Use customer centricity as a competitive advantage for customers and a cultural foundation for employees. The turbulent economy of the past 18 months created some roadblocks. Weak economic activity and low interest rate levels, combined with economic uncertainty, make targets harder to estimate. In addition, there is a higher risk for loan losses and increased funding costs, as well as higher capital requirements than ever before, all of which work against an aggressive growth strategy. Not surprisingly, in the 2008 annual report Clausen said, Nordea sticks to its organic growth strategy and keeps up the strong business momentum, but adjusts the speed of execution. The way forward will follow the middle of the road with cost, risk, and capital management receiving higher priority. While the idea of Great Nordea is that of a never-ending journey, the company has achieved results from its 2009 plan to do more business with existing customers, selectively capture business opportunities with new customers with solid credit profiles, and rein in costs. On the cost side, the company accelerated efficiency programs in the branches and reduced staff by 2 percent, primarily through retirement and voluntary exits. The company also put a firm grip on the growth of risk-weighted assets through the application of caps in business units and close monitoring of the gap between lending and deposit volumes. As a result cost/income ratio was down to 48 percent in Q from 53 percent in Q On the customer relationship front, Nordea s customer focus produced a record high level of 360-degree meetings, up 100 percent from the year before. In addition, Nordea reported that the number of Gold and private banking customers increased by 158,000 in In the midst of financial instability, the company continues to grow. Nordea s income was up 11 percent and risk-adjusted profit rose 22 percent for Nordea is preparing a prudent growth strategy for , launching a number of initiatives to contribute to its long-term financial goals, including growing income, improving efficiency, and enhancing IT performance. Nordea came out of 2009 in an even stronger position, despite one of the most challenging years for decades, Clausen said. Our customer-oriented values and relationship banking strategy have stood the test of the difficult market situation. By moving even closer to customers and helping them find solutions in the recession, we strengthened our reputation and improved customer satisfaction compared to competitors. at the corporate level. Customers are placed in the correct segments and contact policy groups within the system. Nordea then pushes that information to individual PBAs through the common front-end system at branch. The information in the system also becomes leads for front-end staff in the branch or contact center, as well as individual sales messages in the online banking platform. This integrated data approach helps keep Nordea on its customercentric journey across all of its touchpoints. We have found that it s very important that we re working in the same way, because that is how we can benefit from the common framework for how to operate in the different markets, Tell says. Employee relationships drive customer relationships Nordea s customer relationship strategy impacts employees as well as customers. The program would have stalled if not for the buy-in from employees in every region and every channel. That buy-in starts at the top. The reason for us being successful in having our customer-centric processes implemented in every branch in every country has been due to a very high-level commitment from the CEO of retail banking, Tell says. And that has been cascaded through the line managers. Buy-in happens in the field because employees input is valued as an integral part of the programs continued evolution. Best practices 4

5 from individual branches in all markets are shared throughout the organization to help make improvements. Additionally, employee incentive schemes are tied to customer satisfaction, sales, balanced scorecard, and the implementation of the processes. The main thing has been to make sure everyone works in the same way, Tell says. Nordea s top executives receive weekly and monthly reports from the branches to monitor progress and performance. We have been very firm on following up, and have been walking the talk when it comes to implementing any updated processes at every branch, Tell says. The bottom line Nordea s journey toward customer centricity has already produced impressive bottom-line impact. Income per Gold customer is three times higher than Silver customers, which ties revenue directly to customer relationship strategy. In addition, more customers are moving into the Gold segment. New Gold customers increased 5 percent from Q to Q3 2009, even during the brunt of the global recession. Customers in the higher value tiers are also more satisfied. In one market, for example, Gold customers on average rate Nordea a 79 in customer satisfaction, compared to 75 for Silver and 70 for Bronze. Gold customers with an assigned Personal Bank Advisor on average rate Nordea higher than other customers in specific areas such as price/value, loan products, and savings advice. In addition, customers who have met with their PBA rate Nordea higher than the Segmentation and Value Proposition Household Customers Segment Private Banking Gold Silver Bronze Customers, 000 s 100 2,600 1,300 3,600 Criteria Assets > 150K Volume > 30K No. of products<5 Volume > 6K No. of products < 3 Active customer Value Proposition The best Nordea has to offer Named advisor; priority in access; guaranteed best price Personal service when needed; favorable price Simple service; fair price ones who have not. In one market, Tell says, general satisfaction for Gold balance builder customers who have met with their PBA was 77 compared to 67 for the control group. Tell admits that there is still much more to do to become a truly customer-centric organization. In the short term, next steps include bringing new customers into the program and improving customer intelligence. Tell s advice for others looking to improve customer value and segmentation: Don t make it too complicated. You need to be down-to-earth and concrete in your strategy and in your execution, and it must be in line with the organization s maturity level. You need to be committed to the strategy you have chosen. > Elizabeth Glagowski is managing editor, interactive, at 1to1Media. Contact Elizabeth at elizabeth.glagowski@1to1.com 5