Customer Relationship Management

Transcription

1 Finance Industry White Paper Customer Relationship Management Attracting and retaining profitable customers in an increasingly competitive market

2 3 Introduction 5 Benefits of customer relationship management 7 Major activities, functions, and components of CRM solutions 11 Migrating customers between segments 11 Adding treatments to the marketing equation 12 Enabling CRM at customer touch points 7 Data sources in a CRM solution 12 Increasing quality of service 7 Householding and data cleansing 13 The Compaq approach to implementing CRM 7 Data storage methods 13 Approaches to CRM 8 Departmental functions and responsibilities 9 Extending CRM reach 10 Evolving to a customercentric and marketing segment based business 14 The Compaq solution 16 Solution partners 17 Summary 10 Householding the first step toward understanding CRM 10 Creating the customer profile 10 Adding profitability to the equation 11 Creating meaningful market segments

3 As customer dynamics have evolved across the decades, financial services institutions are realizing the strategic importance of moving from a product-oriented to a customer-oriented model. While the 90s has been the decade of reengineering to focus on the customer, the next step in business evolution is creating differentiation via service as well as establishing committed customer relationships. Most banks today, just trying to survive, need enhanced programs and tools that can help them target and retain their most profitable accounts and customers. This evolution will be no small feat for retail banks, which have firmly embraced the product as their primary organizational component. Product managers are the norm today, and they are supported by a legacy of productspecific systems, sales and marketing programs, and service channels. Multiple product pyramids have been created with very little integration, and they provide most bank managers with a limited view of their customer base. In recent years, however, some banks have been able to access accountspecific data, hold it, and answer the question: How profitable are my products and customers? The answer is helping drive the move to customer relationship management (CRM). Banks have learned that they lose money on more than 60 percent of their households. Banking analyst Donaldson, Lufkin and Jenrette reports that, in retail banking, the top 20 percent of bank customers contribute 100 percent to 200 percent of the profit.this wide variance in profitability is inconsistent with the product orientation of most banks, where product offerings, price, and service are largely undifferentiated. Customer Relationship Management 3

4 The Compaq Customer Relationship Management solution enables banks to shift from targeting every customer to identifying the most profitable and therefore most likely to be targeted by competitors portion of their customer base.the Compaq solution also enables banks to focus on expansion measured not by adding any customer, but by raising existing customers profitability levels by providing them with the right products, and by attracting new customers that match the high-profitability profile of existing customers. Finally, the Compaq solution provides the information necessary to manage costs by matching the customer s profitability potential to the appropriate marketing, sales, and service delivery vehicles. At the core of CRM is enterprise-wide access to information about current customers, their products, their product usage, and their sales and service behavior.this information must be available for analysis by customer contact points in the sales and service process.the difficulty comes from the historical product silos looking across legacy systems to view a customer s entire relationship with the bank and the inability to link into the bank s multiple service delivery channels.the Compaq Customer Relationship Management solution is a cost-effective, risk-reduced answer to these issues. As more banks and other financial services institutions invest in CRM programs and tools, they will achieve part or all of their goal to disproportionately attract and retain the more profitable accounts in the marketplace. This leaves the remainder to the financial services institutions without the resources to target, win, and keep the more profitable customers. Customer Relationship Management 4

5 Benefits of customer relationship management Customer relationship management is aimed at bringing the right product to the right customer, through the right channel, at the right time. CRM programs offer many qualitative benefits, but the primary benefit of CRM is increasing profit. This comes from expanding the use of a single product, extending the range of products used, retaining highvalue customers for longer periods, and optimizing service delivery costs to sell to and support a customer. A typical household uses 10 to 12 financial products, acquiring them from a variety of providers. Banks are facing increasing competition from nondepository institutions and are losing profitable market share at an accelerating rate. Today a high-value household may only use two or three of a bank s products. The dilemma retail banks face is that services to consumers and small businesses represent the most attractive growth opportunity. Yet, this segment presents the biggest challenge to a bank s ability to access information and proactively manage their relationships. The benefits to be gained from CRM will only be realized by successful informationbased program management and by development of a detailed understanding of the profitability of products, customers, and delivery channels. Once that profitability is understood, the incentive to leverage CRM s benefits becomes substantial. Increasing a household s product use from two to three products of the right type, for example, can move a customer from an annual loss of US$600 to an annual profit of US$1,500. Channeling a marginally profitable customer to an interactive voice response (IVR) system rather than a teller to obtain account balances can save around $3.00 per transaction. Moving only 1 percent of the lowvalue customer segment a year to a higher value segment can increase the profitability of an institution from 8 percent to more than 15 percent. Financial services used by a typical household Services Often provided Often provided by Provided with active by a bank other institutions competition between banks and other institutions Checking account X Savings account X Money market fund X X X Mutual funds X X X Credit card X X X Stocks X Bonds X Life insurance X Standard loan X Mortgage X Home equity line X Customer Relationship Management 5

6 Benefits of customer relationship management Sell additional products and services Develop new products Increase product utilization Reduce marketing costs Identify and retain profitable customers Optimize service delivery costs Retain high lifetime value customers Enable personal and relevant communications Given this profit potential, it is predicted that more than US$40 billion will be spent by financial services institutions in 1999 to pursue CRM solutions. This investment is aimed at the strategic imperative of moving from a product-based organization to a customer-based organization. The Compaq Customer Relationship Management solution offers a way to make this transition using a predefined process that incorporates predictable results. Improve customer loyalty Improve response rates to direct mail Increase product profitability Respond quickly to market opportunities Acquire new, profitable customers Customer Relationship Management 6

7 Major activities, functions, and components of CRM solutions The goal of the most advanced banks is to extend the benefit of CRM beyond traditional marketing programs. To do this, CRM results must be available to various groups throughout the institution. Data sources in a CRM solution Traditionally, CRM users spend an inordinate amount of resources obtaining, cleansing, and building storage for customer data. Several types of data sources are included in a CRM solution: Legacy data the information in the financial institution s legacy systems, including customer account, billing, and usage data (for example, credit card usage and payment history). Often an individual has several different accounts that are not linked by personal identification. These accounts are viewed as belonging to separate customers. Acquired lists qualified lists of prospects that meet a variety of criteria. These lists are often placed in data warehouses for use in direct mail or outbound-calling campaigns. Demographic data data that provides information based on demographics (for example, postal code based qualifiers, number of children, home ownership, or mortgage status), which is used to narrow the selection of marketing program recipients. Psychographic data data that provides hints about interests and possible buying patterns of a household based on magazine subscriptions, lists of commercial accounts, job roles, and other information. Householding and data cleansing Householding and data cleansing are processes used to transform product-based legacy system information and marketing lists into a customer-based or household view. Householding pulls together all the data on any given customer, creating a single view of that customer. Related individuals and accounts are linked, creating a logical entity for direct marketing and analysis. Data cleansing resolves conflicting data elements (for example, multiple addresses or spellings) about an individual or household. Data storage methods An evolving set of techniques has been applied to the problem of holding and making large amounts of data available for CRM. The most common are Data warehouse a large SQL database or a flat file that accepts queries, either of which holds all of a financial institution s information about its customers from the many legacy systems across the business. The creation of data warehouses using SQL technologies has been difficult and expensive. Also, the data warehouse is rarely designed to support real-time queries. Customer Relationship Management 7

8 Data mart a function-specific database, holding a selected set of data in SQL format, which is culled either directly from legacy systems or from the data warehouse. Data marts usually support a particular product group s marketing programs. There may be many data marts across a financial institution. Customer data repository a large information repository that holds detailed household account information, contact history, profitability information, and marketing program scores for each customer and household. The customer data repository is a valuable resource for various departments for processing or analysis. Data analysis software specialized statistical and pattern recognition software products and techniques that analyze customer buying patterns, help create defined groups (such as market segments), and attach scores to each customer s profile. The scores may identify likelihood to buy, channel preferences, spending goals, or a range of other qualifications. Departmental functions and responsibilities Marketing and product management groups are usually responsible for creating detailed marketing programs with a set of goals, messages, collateral, and advertisements or other communications tactics. When planning a marketing program, these groups use the data repository to select the customers and prospects to address. The next step is to execute a set of marketing campaigns, collect the results, and analyze each campaign to determine how to improve on the results. This process called adaptive refinement allows a financial institution to obtain better predictive results over time. The effectiveness of adaptive refinement increases with the use of modeling tools, which provide pattern recognition and statistical analysis. Modeling tools can be used to predict such things as the profit potential of customers, what products a customer is most likely to need, and which behaviors indicate likelihood to buy. Modeling provides feedback to help the marketing group further refine the next step in targeting the marketing program. Customer Relationship Management 8

9 Extending CRM reach The goal of the most advanced banks is to extend the benefits of CRM beyond direct mail, advertising, and bill stuffing to every contact a customer has with the bank. This can be accomplished by enabling CRM results to be made available via real-time links to each production system supporting customer contacts. These systems include Customer service center systems. Customer service centers have taken over most of the service-driven contacts with banking customers. Interactive voice response (IVR) system interactions represent 70 percent to 80 percent of these contacts. Service representatives handle questions that cannot be handled by the voice response system. Routing software. Using a customer profile, routing software directs a customer to the skill set needed for marketing or fraud prevention. The customer profile database is queried, in real time, for data and instructions. The routing script uses this information to instruct the call center telephone system how to route the customer. Voice response applications. The most advanced banks are experimenting with customer-specific scripts and messages. They are finding that the quality of service is significantly improved and that costs actually decline because the callers receive what they need in less time. Customer service representatives. Providing service representatives with customer profile and marketing information in addition to account information enables them to focus on supporting a customer s needs, while advancing the relationship goals identified by CRM. Direct mail and bill stuffing. Direct mail and bill stuffing are the focus of most current CRM programs since they can be managed and executed by a single marketing department and the results are easy to measure. Website. Financial services institution websites have become very complex, making it difficult for a customer to pursue particular needs without dedicating an inordinate amount of time to browsing the information. The goal of linking CRM customer profiles to the Web is to guide customers to the information most pertinent to their needs. ATM network. One of the dominant contacts with customers is the ATM transaction. By linking CRM customer profiles to the ATM, this contact can be used to deliver customer-specific information. The link is provided between the mainframe ATM software and the customer profile database. Branch offices. By providing branch personnel with better information about the marketing goals for a customer, bank employees can pursue these goals more specifically. Customer Relationship Management 9

10 Evolving to a customer-centric and marketing segment based business CRM enables a financial services institution to better understand its customers and prospects by using its significant information resources to develop a factbased marketing strategy, detailed to the individual customer level. CRM goals are best achieved by following a set of steps, each step improving the financial institution s understanding of its customers and prospects. The most important steps along that path are outlined in the sections that follow. Householding the first step toward understanding CRM To move beyond product-based marketing, it is necessary to understand the scope of a customer s relationship with the financial services institution. In most institutions, each division has its own production systems, customer IDs, and other resources that equate a customer with a product. Linking separate divisions product data together through householding creates a single view of the buyer. This enables a financial services institution to understand how to move customers from two or three products to four or five products. Creating the customer profile With householding, it is possible to create an enriched view of the overall customer relationship with the financial services institution and the data needed by the various departments. Each household view may hold A map of the customer s relationship with the institution Product and usage summary data Demographic and psychographic data Profitability measures Contact history summarizing the customer s contacts with the institution across most delivery channels Marketing and sales information containing programs received by the customer and the customer s responses Adding profitability to the equation As the data about a financial services institution s market expands, the addition of profitability measures to each prospect or customer data record enables a marketing group to focus on customers who will reap the greatest return on investment. The measure of profitability is best when based Customer Relationship Management 10

11 on the specific products purchased by a customer and the customer s use of those products. Broad-based (divisional), fully allocated average cost methodologies do not provide the quality of results that are available from activity-based costing, since the impact of channel usage and customer behavior is not obvious. By adding the profitability measures to the data about each customer, it is possible especially with the use of modeling tools to sort through the prospect base to better target those that are most likely to meet profitability goals. Creating meaningful market segments A financial services institution may effectively define customer segments if it has householded customer profile data, including products and product usage summaries, revenue and profitability measures, demographic and psychographic data, contact histories, and responses to marketing programs. These segments can be defined to focus on business goals, such as optimizing Profitability levels, either percent or amount Number, types, or usage of one or multiple products Total revenue, as long as profit is greater than a specified amount The anticipated length of the relationship of the customer with the financial institution The likelihood that the customer may be managed from a low profit and revenue relationship to a high-quality relationship The likelihood that a customer will acquire a new product the financial institution is introducing Migrating customers between segments With the combined approaches of adaptive refinement, customer profiles, and market segmentation, marketing groups may begin to address how to move customers into one segment, serve them, and as the customer s needs change, migrate them to the next market segment. Each market segment provides bundles of products and services, with associated revenues and profitability, that match the customer s needs at a particular stage in their financial-needs life cycle. Adding treatments to the marketing equation The effectiveness of marketing campaigns is often determined by the way the message reaches each customer. Some people throw away all junk mail, others don t. Some people dislike receiving telemarketing calls, others respond to them. Some people call the service center to obtain service and are Customer Relationship Management 11

12 pleased to talk about their account and other options, others are not. Some will spend time on the Internet, browsing and learning about opportunities, others never will. These different methods for delivering messages and marketing campaigns to different individuals are called treatments. With the customer profile resource and modeling tools, a financial services institution can determine which customers respond best to various treatments. These can then be added to their individual records or can support the creation of different market segments. Enabling CRM at customer touch points Financial services institutions have active touch points with their customers. Many of these touch points, such as ATMs, IVR applications, or websites, are used several times a month to obtain account balances. Others, such as account, loan, mortgage, and credit card statements, are monthly. Some customer contact, such as visits to the branch office or calls to the service center, is occasional. Increasing quality of service With the customer profile that includes information about the range of products and services used by a customer, the customer touch points such as IVR applications and websites can be modified from a general-purpose interface that supports all customers to an interface that presents information specific to individual customers. The advantages of such customer-specific touch points are many. In particular Quality of service improves significantly. Productivity increases dramatically. For instance, an IVR application using only the menus specific to a caller takes half the time typically saving a financial institution US$0.30 per IVR conversation. For a financial institution with 100,000 IVR conversations a day, this will save US$9 million per year. The customer is more likely to listen to marketing messages within the session, since nonessential information is minimized. For a financial institution to take utmost advantage of multiple touch points with its customers, the customer profile holding this information needs to be available, in real time, to the systems and processes supporting every customer contact. Treatment analysis helps determine which touch points work best for what messages. Customer Relationship Management 12

13 The Compaq approach to implementing CRM Employing an innovative approach to assembling customer data, Compaq reduces this task to a manageable effort, accomplished in months rather than years. Approaches to CRM CRM projects are often complex, risky to cost and schedule, and fraught with hardto-quantify business benefits. The primary challenge is assembling relevant, accurate, and complete customer information. Until now, two approaches have been used. The first is to create a single, large, corporatewide SQL data repository. This approach promises to link selected corporate information about a customer into a single SQL data resource to support a multiproduct CRM set of business goals. Though occasionally successful, this approach has the poorest track record. The second is the department- or productspecific data mart. Under this approach, the marketing group chooses a particular focus on the customer, such as selling home equity lines of credit, and does not tackle the wider ranging opportunities available from CRM. The advantage of data marts is that they can be implemented in reasonable time frames and tied to specific business benefits and goals. Compaq offers a new approach, which incorporates the benefits of both the corporate-wide data warehouse and the departmental data mart. Under the Compaq approach, all of the corporate data is made available in a compressed data repository, from which departments or corporate marketing programs decide what data is needed and have it exported to the appropriate data mart platform. Factor to consider Central SQL database Departmental data marts Compaq solution Need to predetermine data elements Yes Yes No, holds all legacy data and structure to create data repository Flexibility to address unanticipated Poor Poor Excellent questions from business users Ease of implementation Very difficult Moderate Easy Time frame for production 1 3 years 6 12 months 3 6 months Cost to implement system High; difficult to control Moderate; cannot be leveraged Moderate; can be leveraged Accessing data from legacy systems Moderately difficult Easy Very easy Real-time support for customer Poor to moderate Good Good delivery channels Extracting and creating data marts No No Yes for special purposes Operational issues Difficult Good Good Customer Relationship Management 13

14 The Compaq CRM architecture. The Compaq solution The Compaq Customer Relationship Management solution is designed to enable a financial services institution to take advantage of leading-edge CRM tools quickly and cost-effectively. Compaq, with its partners, offers a CRM information architecture that accelerates benefit from analysis of customer data. The diagram, which is an example of the Compaq solution, focuses on two major parts of a financial services institution. At the top are the customer touch point systems, which can link into the CRM resources and take advantage of the additional information to modify every contact with the customer. The CRM resources include links to legacy systems, the data warehouse, spawned SQL servers, and the management and reporting facilities. A unique approach to CRM Many CRM projects collapse under the massive effort required to predefine the data warehouse content required to feed all CRM analyses, now and in the future. They also have been known to fail to provide the breadth of data necessary for fact-based decision support. Compaq s CRM architecture incorporates all of a financial services institution s internal and external data, merged and householded in a compressed data repository. It supports production of purposebuilt data files, data sets, or data marts for application-specific analysis. Marketing departments can quickly decide what data they need and have it exported to the appropriate platform in the appropriate format. Customer Relationship Management 14

15 Accessing essential data when needed Experienced project managers know that business requirements change as a project moves forward and as participants begin to understand their needs. SQL database design requires that the data elements be predetermined in order to implement the data warehouse. The need for flexibility in data warehouse and data mart content may be even more demanding, especially when adaptive refinement and data mining activities determine whether data is useful or not. New data from legacy systems or external sources must be added continually if a financial services institution is to move quickly in learning how to increase marketing effectiveness. The Compaq Customer Relationship Management solution does not require data elements to be known before establishing the data warehouse. All legacy and external data source information is placed in the warehouse. Due to the solution s high performance, data extraction methods, and data compression, a complete customer data repository with all the financial institution s data can be created in several weeks. It can then be updated periodically, or re-created overnight to keep data current. As a result, business and technical managers do not need to guess what data elements will be important to them in several months. It will all be there, ready to use within several hours of the decision to select a different set of data for analysis and execution. Householding and creating unique customer IDs As part of the acquisition of data from the legacy system, householding is performed across all of the data sources. The householding extends beyond several comparisons such as names, postal codes, and social security numbers. It can compare multiple data elements to increase reliability. A unique customer ID, household ID, and product ID are assigned. Tables are then established to link individual products to product divisions for summary. Queries on the system may use any of these IDs to obtain information. Making data available to users The Compaq Customer Relationship Management solution holds all corporate data in a compressed, non-sql format. Any part of this data may be extracted and made available as an SQL data mart, a flat file, or even a spreadsheet. The business analysts determine what data they need and use the query language to specify how the data should be extracted. The actual extraction can occur in several hours, enabling analysts to use their favorite environment and data structure to accomplish their work. Customer Relationship Management 15

16 This approach enables different departments and marketing groups to quickly obtain the information they need, populated in their own data environment on their platform of choice. It also means that individual CRM applications do not have to be selected in advance, based on their file structure or data requirements. One type of data mart is the marketing data mart, a prepackaged SQL database extracted from the compressed customer data repository. This specialized data mart holds summary information about the customer available for producing lists, storing responses to campaigns, and supporting queries from real-time customercontact production systems, such as call centers. The contents of the marketing data mart may include Household summary data Data mining scores Products used by the customer Market modeling scores Product usage summaries Profitability scores Sales and revenue history Potential value ratings Contact history Customer issues or problems Solution partners Compaq s partners have provided expertise and software to complete the Compaq Customer Relationship Management solution. Each of these components is available to plug in to the CRM architecture. Norbert Technologies supplies the foundation for a complete, enterprise-wide customer information repository by providing extraction, aggregation, and householding of detailed customer transaction histories. The repository enables financial services institutions to hold all internal and external data from across the enterprise in a centralized, compressed database. Profit Management Group specializes in the design and implementation of profitability systems and methodologies for the financial services industry. PMG provides actionable profitability analysis, including product contribution and development of segmentation and behavior modification strategies based on customer value. Cogit Corporation provides predictive modeling software products and expertise. Cogit products perform microsegmentation based on propensity to respond, matching the most effective treatment to each audience segment, and automatically adapting to changing market conditions and consumer preferences. Exchange Applications delivers campaign management software and services to help financial services institutions maximize the profitability and value in all of their customer relationships. Their marketing automation software automates campaign planning, execution, and assessment and refinement. Customer Relationship Management 16

17 Summary Compaq has assembled a set of products, skills, and expertise that changes CRM solutions from complex, expensive, risky projects to manageable projects with breakeven returns on investments available in 6 to 18 months. Compaq has done this by prepackaging the most problematic and risky elements of CRM, eliminating the risks, and compressing the implementation time. Compaq CRM feature Compressed data repository holding all legacy data. Can be populated overnight and updated regularly. Technology provided by Norbert Technologies Prepackaged demographic and psychographic data Packaged integration with specialty tools from Cogit, Profit Management Group, and Exchange Applications CRM SQL data marts spawned quickly to support departmental applications and corporate data mining analysis and list creation Predefined data extracts for CRM applications Application programming interface (API) to production systems supporting real-time customer contacts Reports Predefined configurations, based on different database sizes, tested to ensure that they perform well and can be managed easily Consulting and systems integration personnel, ready to begin installation, enabling a customer to start production quickly Benefits to the customer All customer data, from internal legacy systems and external data sources, is held in a large compressed data warehouse, ready to use. Business users do not need to decide what data they need before beginning data warehouse implementation. Householding is included in this process. If a customer does not already have outsourced data about households, this may be made available as part of the solution. Integrated leading-edge applications supporting CRM analyses are available. This accelerates users ability to take advantage of CRM technology and reduces implementation costs. Departments and managers determine what information they need using an interactive point-and-click interface. This results in a purpose-built data extract of the data elements and table structures needed to support production systems or data mining/list creation software. The CRM solution includes predefined extracts to analyze profitability and to create the initial marketing data mart. This helps a financial services institution to get started faster and realize results in a reduced time frame. APIs are available, enabling customers to link customer profile databases to call centers, voice response units (VRUs), Web pages, ATMs, branch offices, or any other contact point. This makes the CRM technology more valuable to the organization. Prepackaged reports focus on generic issues (e.g., profitability results, market segment descriptions). Compaq is benchmarking production system examples and providing preconfigured solutions to support CRM. Experts are available through Compaq to implement the systems. The skills include CRM expertise, project design and management, systems integration, and business consulting. Customer Relationship Management 17

18 For more information Access the Compaq website at For sales offices worldwide, access Compaq s website at Compaq and the names of Compaq products referenced herein are either trademarks and/or service marks or registered trademarks and/or service marks of Compaq Computer Corporation. All other brand and product names are trademarks or registered trademarks of their respective companies. Technical specifications and availability are subject to change without notice Compaq Computer Corporation. All rights reserved. November K ARBN Order number