Increasing Retail Banking Profitability through CRM: the UniCredito Italiano Case History

Increasing Retail Banking Profitability through CRM: the UniCredito Italiano Case History Giorgio Redemagni Marketing Information Systems Manager Paris, 2002 June 11-13

UNICREDITO ITALIANO GROUP OVERVIEW UniCredito Italiano UniCredito CRMItaliano Holding Italian Banks Wholesale Banking Foreign Banks Xelion Clarima RETAIL BANKING In Italy (2001): 1 st in Operating Income and Market Capitalization 2 nd in Interest Margin and Income from Banking Activities 7 Banks Full Retail & Corporate Banking services 6,5 millions retail customers 2,924 branches Credito Italiano ROLO Banca Cariverona Banca Banca CRT CassaMarca CRTrieste CARITRO Investment Banking UBM TradingLab Asset Mgmt. PIONEER Bank PEKAO BulBank Pol nobanka Splitska Banka In Europe (2001): 3 rd in pre-tax RoE (28.9%) 5 th in Cost to Income Ratio (55.2%)

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

CUSTOMER RELATIONSHIP MANAGEMENT: A DEFINITION Customer Relationship Management (CRM) is a business strategy aimed at Increasing customer profitability over time Maximizing customer satisfaction through a mix of Business Processes Organization Steps People s Skills ORGANIZATION TECHNOLOGY Enabling Technologies CRM Source: Gartner Group PROCESSES SKILLS

CRM PROJECT MISSION AND OBJECTIVES Mission To deploy a CRM System supporting UniCredito s CRM Business Strategy in Retail Banking for Italian Banks Objectives! To improve effectiveness of marketing campaigns through better targeting! To retain most profitable customers! To increase customers wallet share! To improve customer satisfaction by offering " The right product " At the right time " Through the right channel! To provide a customer-centric view throughout the organization Business Benefits! Increased Profitability! Improved Cross-selling! Decreased Attrition Rate! Increased Propensity-tobuy

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

ORGANIZATION SUPPORTING CRM STRATEGY Hence:! dedicated CRM Business Unit managing the whole strategy! specific functions of the Business Unit managing each phase of the CRM process CAMPAIGN PLANNING DATA MINING AND TARGETING CAMPAIGN MANAGEMENT COMMUNICATION CRM - Planning CRM Data Analysis CRM - Mktg Communication CRM - Marketing Information Systems

CRM PROCESS: CUSTOMER PROFILING! For each customer define predictive indicators and KPIs to track over time! Identify clusters of customers, having relevant business features, to consistently address High Profitability $++ Find Best Prospects (Top Customers- like) Prediction Fidelization Attrition Scoring Loyalty Programme Retention Loyalty Programme Lifetime Value Estimation High Attrition High Loyalty Customer Segmentation Attrition Scoring Wallet Share Estimation $-- Low Profitability Up-selling Cross-selling Multi-banking Scoring Propensity-to-buy Scoring

CRM PROCESS: CAMPAIGN MANAGEMENT! Bank defines contents, demands consultancy and decides! CRM Business Unit designs and plans marketing operations as well as defines related analytics, and eventually measures results CAMPAIGN DEFINITION SEGMENTATION & PLANNING CAMPAIGN EXECUTION ASSESSMENT Bank Define contents: Macro-target Budget Timing Media mix Target endorsement Planning endorsement Branches Account Managers Sharing of Results Business evaluation CRM Business Unit Verify consistency Analysis and segmentation Targeting Campaign Planning Target Selection Direct Mail Call Center Internet Ads... Evaluation of Results Learning from experience

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

THE MARKETING PROCESS: CLOSING THE LOOP What have we achieved? Measurement Marketing Operations Campaign Execution Source: Gartner Group Operational CRM Marketing Automation Execute Why are we here? Planning / Targeting Track Customer Intelligence Plan Analyze Analytical CRM Business Intelligence Data Mining Where are we now? What strategy?

CRM FRAMEWORK CUSTOMER RELATIONSHIP MANAGEMENT QUERY & REPORTING OLAP DATA MINING MARKETING AUTOMATION CUSTOMER DATA WAREHOUSE

CUSTOMER DATA WAREHOUSE # Overview Heart of CRM System Pre-defined Data Model for Retail Banking Light Personalization Data History: 24 on-line Monthly Snapshots # Size Current Size: 750+ GB Final Estimated Size: 3 TB # Monthly Records Customer Personal Data: 6 millions Checking Account Transactions: 13 millions Profitability : 14 millions Total: 95 millions # Facts Product Ownership Statement Balance Transaction Amt. Profitability Contacts (I/O) # Dimensions Customer Household Product Type Channel Geography Bank Organization Campaign

BUSINESS INTELLIGENCE OLAP, Query & Reporting Track! OLAP Analyisis: Drill down Roll up Slice & dice Execute Plan Analyze! Query & Reporting through Web browser! 11 OLAP Cubes, 30 business users! Support Marketing Product & Segment Managers in better business understanding and campaign macro-targeting WHAT S HOT: " Cross-selling Cubes

DATA MINING SAS Enterprise Miner Track! Brain of CRM System, turns data into valuable Execute Plan Analyze information supporting business decisions! Predictive Analysis and Market Basket Analysis through statistical modeling! Scoring of Customers based on their propensity-to-buy WHAT S HOT: " Attrition Analysis supporting Customer Retention Programme " Customer Lifetime Value Analysis " Multi-banking Customer Analysis

MARKETING AUTOMATION Campaign Manager Track! Support definition & management of multi-stage multichannel marketing campaigns Execute Plan Analyze! Definition of customer segments and profiles! Connect Target Information (Customer names & addresses) to multiple Touchpoint! Execute Response Analysis and compute ROI for each campaign WHAT S HOT: " Event - triggered Campaign Management " Life Cycle Campaign Management

LOGICAL SYSTEM ARCHITECTURE Legacy Systems Data Warehousing CRM Applications Channels Customer Data Deposit Accounts SAS Warehouse Administrator ETL EXTRACT TRANSFORM AGGREGATE CLEANSE OLAP Cubes OLAP Query & Reporting Web Brokerage Accouns BUILD HISTORY LOAD E-mail Loans Track Cards Transactions Profitability Operational Data Store Oracle Enterprise Server 8i Customer Data Warehouse Execute Plan Analyze Campaign Management SAS Enterprise Miner Data Mining Multi-channel Information Delivery Sys. Relationship Manager Call Center Contacts CRM Hardware Infrastructure Customer Relationship Gruppo Management UniCredito Italiano System Direct Mail

PHYSICAL SYSTEM ARCHITECTURE Legacy Systems Data Warehousing CRM Applications Channels IBM MVS MAINFRAME ETL 155 Mb/s ATM Operational Data Store SAS Warehouse Administrator Sun E5500 DATABASE SERVER 100 Mb/s LAN Ethernet Customer Data Warehouse HP NT Lxr8000 OLAP APPLICATION SERVER Execute Track Analyze Customer Relationship Management System Plan OLAP Query & Reporting Web Browser Campaign Manager HP N4000 DATA MINING APPLICATION SERVER SAS Enterprise Miner Data Mining Web E-mail Relationship Manager Call Center Direct Mail

THE ROLE OF SAS Legacy Systems Data Warehousing CRM Applications Channels Customer Data Deposit Accounts SAS Warehouse Administrator ETL EXTRACT TRANSFORM AGGREGATE CLEANSE OLAP Cubes OLAP Query & Reporting Web Brokerage Accouns BUILD HISTORY LOAD E-mail Track Loans Cards Operational Data Store Customer Data Warehouse Execute Analyze Plan Campaign Manager Multi-channel Target Delivery Account Manager Transactions Oracle Enterprise Server 8i SAS Enterprise Miner Profitability Data Mining Call Center Contacts CRM Hardware Infrastructure Direct Mail SAS Warehouse Administrator as ETL Tool Operational consulting activities for ODS Data Feed RME (Rapid Modeling Environment), application written in SAS, as flattening and scoring tool for Enterprise Miner s I/O SAS Enterprise Miner as Data Mining application

CASE STUDY SMALL BUSINESS PACKAGE CAMPAIGN CHAID Conversions from a traditional checking account to a small business package account Sample Average = 12,2 % Below Avg. COLOR KEY Avg. Above Avg. Number of Accounts < 1,5 >= 1,5 32 % Overdraft Profit Margin < 51,32 EUR >= 51,32 EUR Number of Monthly Transactions < 4,5 >= 4,5 37,8 % Number of Monthly Transactions Average Monthly Balance < 7,83 >= 7,83 < 6,5 >= 6,5 23,6 % 41,7 % < 5854,84 EUR >= 5854,84 EUR 27,6 %

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

PROJECT ROADMAP Profitability Phase 1: Proof-of- Concept Development in 6 months One bank Subset of Data Data Mining + Campaign Manager Early & tangible Business benefits Phase 2: Full CRM System One bank Data enhancement + Business Intelligence Complete Infrastructure: " Process Automation " Test Environment " Full System Mgmt. Phase 3: Enterprise-level deployment Integration of other banks + Web Channel Channel Integration UniCredito in 2002 UniCredito in 2001 UniCredito in 2000 Start date: July 1999 Customer Satisfaction

THE APPLICATION ICEBERG A risky trend in CRM is to mainly consider technology and front-end systems, disregarding the underlying components... Applications Data Processes Behaviour! Data Model consistent with business objectives! Proper Data Sourcing! Good Data Quality! CRM Processes Definition! Change Management! No shotgun approach! Consistent Organization

CHOOSING A PRAGMATIC PROJECT SCOPE Old approach: Broad Project Scope ( do everything ) Emphasis just on link between applications and data Applications Data Applications versus Processes Behaviour Data New approach: More restricted Project Scope We need to manage the integration of applications, data, processes and behaviour to achieve real business benefits!! Emphasis on: Fast delivery Match of applications, data, processes and behaviour

GROWING BY ITERATIONS Increased Scope in each iteration: One Business Objective New Subject Areas New User Requirements Design Pilot Analysis Implementation First Iteration Test Project Scope Review Second Iteration Roll-Out

CRITICAL SUCCESS FACTORS! ORGANIZATION Sponsorship from Top Management Dedicated CRM Business Unit! PROCESS Quick Wins: rapid prototyping able to produce immediate and tangible business benefits Clear definition of business objectives to be achieved and related metrics to track CRM results! TECHNOLOGY Approach: Buy versus Make Choice of Best-of-breed applications, having standard integration with Data Warehouse Metadata Data Quality / ETL Process ( garbage in, garbage out )! PEOPLE Marketing and I.T. skills in the same business unit On-going education of internal customers on CRM

AGENDA Business Objectives CRM Organization and Processes CRM Information System Project Roadmap and Methodology Achieved Results

KPIs TO MEASURE CRM SUCCESS If you can t measure it, you can t manage it (John F. Welch, Chairmain and CEO, General Electric, 1981 2001 ) Objective To improve effectiveness of marketing campaigns Key Performance Indicator Redemption Lift Campaign ROI To retain most profitable customers Retention Rate To increase customers wallet share Customer Net Present Value (NPV) Customer Lifetime Value (LTV) To improve customer satisfaction Customer Satisfaction Index (CSI)

REDEMPTION LIFT 1999-2001! Campaign Redemption increase from no CRM to Pilot CRM: 126 %! Campaign Redemption increase from Pilot CRM to Full CRM: 90 %! Total Redemption increase from no CRM to Full CRM: 329 % Redemption Lift Index 5,00 4,29 Lift Index 4,00 3,00 2,00 1,00 1,00 2,26 + 126 % + 90 % 0,00 1999 - No CRM 2000 - Pilot CRM 2001 - Complete CRM Year

ROI ON 2001 MARKETING CAMPAIGNS Campaign Year (2001) Overall Return On Campaigns (ROI): 375 % Return due to better targeting (CRM ROI): 75 % (*) Profit Increase due to CRM: X (millions Euros) Life Time A product sold in one year brings profits, due to its usage and yearly fee, also in the following years (until product life time) => CAMPAIGN LIFETIME VALUE Return due to better targeting: 540 % Profit Increase due to CRM: 7 X (*) CRM ROI = CRM Net Margin / Total Costs CRM Net Margin comes from a redemption increase due to better targeting made with Data Mining methodologies, as opposed to pseudo-casual Control Group data selection

CONCLUSIONS! CRM is a business strategy, and an effective implementation needs to be consistently managed through four layers: " organization TECHNOLOGY ORGANIZATION " processes " people s skills PROCESSES SKILLS CRM " technology Pilot Design Implementation Analysis 1st! Fast delivery of an incremental business-driven project Review Roll-Out Test 2nd! Focus on most profitable customer segments

THE ESSENCE OF CUSTOMER RELATIONSHIP MANAGEMENT Don t count the people you reach, reach the people who count

Thank you! Building a technological infrastructure may seem simply tricky. As a matter of fact, it is awfully more complex (IBM) Giorgio Redemagni +39-02-8862.3056 redemagnig@gruppocredit.it