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Thursday, June 03, 2010
By Pritesh Y. Chothani, Arjun Siva & Lochan Naraynan
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Executive Summary
Consumers largely selected their banks based on how
convenient the location of bank's branches was to their
homes or offices. With the advent of new technologies in the
business of bank, such as Internet Banking and ATMs, now
customers can freely chose any bank for their transactions.
The pressures of competitive and dynamic markets have
contributed to the growth of CRM in the Financial Services
Sector.
5% increase in customer retention can increase profitability
by 35% in banking business, 50% in insurance and
brokerage, and 125% in the consumer credit card market.
Therefore, banks are now stressing on retaining customers
and increasing market share. Private Banks have traditionally
viewed themselves as exceedingly 'Customer Centric'
offering what they believe to be highly personalized services
to the High Net Worth Customers. The wealthier the
customers, the more demanding they are - and the clients
expect more and more from their banks, to understand what
their wants and needs are, so that the organization can be
built around serving those needs. The structured approach
to CRM provides various benefits to the bank, viz., a
distinctive and consistent customer experience, clear
identification of the organizational, technological and
process-related capabilities and prioritization of these
capabilities. The structure and hierarchy of the customer
experiences are discussed in the paper.
Introduction
Traditionally, few people changed their banks unless serious
problems occurred. In the past there was, to certain extent, a
committed, often inherited relationship between a customer
and his/her bank. The philosophy, culture and organization
of financial institutions were grounded in this assumption
and reflected in their marketing policies, which were product
and transaction-oriented, reactionary, focused on discrete
rather than continuous activities.
Today, financial institutions can no longer rely on these
committed relationships or established marketing techniques
to attract and retain customers. As markets break down into
heterogeneous segments, a more precisely targeted
marketing technique is required, which creates a dialogue
with smaller groups of customers and identifies individual
needs.
Also, before the Internet revolution, consumers largely
selected their banks based on how convenient the location of
bank's branches was to their homes or offices. With the
advent of new technologies in the business of bank, such as
Internet banking and ATMs, now customers can freely chose
any bank for their transactions. Thus, the customer base of
banks has increased, and so has the choices of customers
for selecting the banks.
This situation coupled with the pressures of competitive and
dynamic markets has contributed to the growth of CRM in
the Financial Services Sector.
Customer Relationship Management: The Concept
Customer Relationship Management is the establishment,
development, maintenance and optimization of long-term
mutually valuable relationships between consumers and the
organizations. Successful customer relationship
management focuses on understanding the needs and
desires of the customers and is achieved by placing these
needs at the heart of the business by integrating them with
the organization's strategy, people, technology and business
processes.
At the heart of a perfect CRM strategy is the creation of
mutual value for all the parties involved in the business
process. It is about creating a sustainable competitive
advantage by being the best at understanding,
communicating, and delivering, and developing existing
customer relationships in addition to creating and keeping
new customers. So the concept of product life cycle is giving
way to the concept of customer life cycle focusing on the
development of products and services that anticipate the
future need of the existing customers and creating additional
services that extend existing customer relationships beyond
transactions.
Need of CRM in the Banking Industry
A Relationship-based Marketing approach has the following
benefits: -
Ê ·ver time, retail bank customers tend to increase
their holding of the other products from across the
range of financial products / services available.
Ê ong-term customers are more likely to become a
referral source.
Ê The longer a relationship continues, the better a
bank can understand the customer and his/her
needs & preferences, and so greater the
opportunity to tailor products and services and
cross-sell the product / service range.
Customers in long-term relationships are more comfortable
with the service, the organization, methods and procedures.
This helps reduce operating cost and costs arising out of
customer error.
With increased number of banks, products and services and
practically nil switching costs, customers are easily
switching banks whenever they find better services and
products. Banks are finding it tough to get new customers,
and more importantly, retain existing customers.
According to a research by Reichheld and Sasser in the
Harvard Business Review, 5% increase in customer retention
can increase profitability by 35% in banking business, 50% in
insurance and brokerage, and 125% in the consumer credit
card market. Therefore, banks are now stressing on retaining
customers and increasing market share.
Private Banking and CRM
Private Banks have traditionally viewed themselves as
exceedingly 'Customer Centric' offering what they believe to
be highly personalized services to the High Net Worth
Customers. However, changes in the customer behavior and
accumulation of wealth are resulting in the needs of HNW
customers becoming more diverse and complex in terms of
the sorts of products they want, the channels through which
they want to access them and the associated range of
advice.
The wealthier the customers, the more demanding they are -
and the clients expect more and more from their banks.
Competition for "Supremely elite" is increasing.
Customer Experiences
The first step towards successfully winning, retaining and
growing the profitability of private banking customers is to
understand what their wants and needs are, so that the
organization can be built around serving those needs. ·nly
when an organization has done this and incorporated this
into its strategy can it start to design its value proposition
and a customer experience that will enable it to achieve a
differentiated competitive position in the private banking
market, and more importantly, do so in an economically
viable way.
The Basic Customer Experience
There is a basic 'generic' customer experience that many
private banking customers are seeking. To be a credible
player in the market, a private bank must be able to deliver
this 'base' experience. This represents a common set of
needs that are shared by most HNW customers. Therefore,
the private bank must have the capabilities required to meet
these needs for the majority of its customer base.
All customers, regardless of wealth levels, have similar
emotional needs, which drive their need for advice and their
purchase of products. Different wealth levels impose
different priorities on meeting these needs and open up new
avenues for doing so.
Take a simple example, HNW customers can afford on it to
fund their retirement, so their priorities may be associated
with growing wealth, rather than preserving it, allowing them
to choose a product option with a higher risk/reward ratio.
If this is true, it means all HNW customers start with a basic,
common set of what they want and need from a bank, which
might include: -
1.ÊPersonal, long-term relationship
2.ÊAdvice combining industry expertise and
knowledge of personal circumstances
3.ÊHigh quality, consistent quality
4.ÊSecurity, privacy, confidentiality
5.ÊAt this basic level, grouping together these core
wants and needs produces a set of generic
characteristics that an HNW individual seeks from
an organization before he or she will even
consider placing any of his or her wealth with it.
6.ÊUnderlying these generic characteristics is a set of
capabilities covering organization, process and
technology, which the private bank must process
to operate in the high net worth market.
The Segment-Specific Experience
To build this 'base' experience, private banks also need to
consider the segment-specific needs of their target
customers. This in itself requires a capability to identify and
justify target customers and understand their needs beyond
banking, to ensure that their emotional needs are met. It is
here that the customer is made to feel like an individual, but
it is also at this point that costs and infrastructure spiral, as
customers' needs start to diverge.
The segmentation process identifies groups of customers with similar wants and needs, who are
seeking a similar experience from the provider. Importantly, from the organizations' viewpoint, this
means that they can also be served by similar sets of capabilities.
The experience at this level is made up of: -
The channel preferences of each segment and associated channel experience - for example, a self-
directed group of customers will use internet for transacting, information gathering and even some
advice, whereas advice seekers and less financially sophisticated segments require more access to an
adviser / relationship manager and a more basic experience over the Internet.
The product and service preferences of that segment - for example, the more sophisticated customers
are more likely to demand more complex products such as alternative investments, whilst others may
prefer discretionary portfolio management.
The new components are added to the experience and the 'base' experiences elements become defined
in more depth, according to the specific needs of the customer segment.
·nce the segment experiences have been defined, the associated capabilities must again be identified.
The hierarchical approach to defining customer experiences helps filter these capabilities as: -
it is possible to identify experience elements that are common to more than one segment - this will
carry a higher priority for development as they will benefit more customers;
the segmentation exercise will provide comparative sizings for the target segments.
Capabilities required for the larger, more profitable segments take precedence over those needed for
smaller segments.
The ·rganisation-Specific Experience
Having identified the base and segment specific elements of HNW customer experience, the final step is
to identify how the experience that each organization offers its customers is distinct from other banks.
Now this would mean that one has to distinctly identify the components of the experience that are not
only associated with a particular bank but also be the key differentiator.
This process will define: -
Ê Elements of the organization style and culture.
Ê Products and Services to be provided.
Ê In the same way, every brand is different, so is the experience.
Conclusion
Banking can be mysterious for consumers and how they interact with their finances can be a complex
matter. The challenges faced by banks and their customers are many but the trick lies in de-mystifying
complex financial relationships.
Technical solutions deployed by banks today are flexible, user-friendly and meant to facilitate specific
workflow and requirements in implementation processes. In order to simplify lives, banks have begun
to implement end-to-end technologies through all departments with the intention of removing human
error from processes. Previously existing manual environments could not have been adequate for
future visions, growth plans and strategies.
In this day and age, customers enjoy complete luxury in terms of customized technical solutions and
banks use
the same to cement long-term, mutually-beneficial relationships.
Ê
Impact of CRM in Banking Industry
Thursday, April 08, 2010
By E. Jeevitha
Faculty,Department of Management Studies and research,Tamilnadu College of Engineering,
Coimbatore. read more
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CRM about a business strategy , which drives changes in the banking and work processes, enabled by
information technology
In the Post liberalization the banking industry was adopting push strategy in selling their products and
the importance is not given in serving the customers. But in progressive liberalization, the Narashima
committee has implemented sea-changes in the banking reform in 1991.
With sustained pressure on their interest spread, banks have been increasingly foraying into a host of
diversified activities so as to safeguard their bottom.
Banking Industry revolves around three basic features being:
1. Intangibility: Unlike a product which can be seen and benefits derived accordingly, the banking
industry thrives practically on the quality of the services rendered. The experience of the customer
determines the growth of the business.
2. Variability: The present day customer is impatient and is highly demanding and dos not compromise
on the quality of the service rendered, as he expects that high cost equals high quality and vice versa.
3. Satisfiers: Unlike the manufacturing industry that wholly depends on the tangibility and extrinsic
factors, the service industry is totally dependent on the intrinsic and extrinsic factors, which have a
close earring on the core benefits.
It is obvious from these features that the customer is the fulcrum for the banking industry and any
initiative adopted for its growth is to be aimed at, for and through the customer. And the banks to be
competitive it build up a strong CRM by convergence model in the financial industry and financial
liberalization.
CRM about a business strategy , which drives changes in the banking and work processes, enabled by
information technology. Banking institution must initially develop a strategy to understand and
anticipate the need of the current and potential customer base.
Benefits of Using CRM in Banking Industry
1.Ê Provide better customer balance
2.Ê Increase customer revival
3.Ê Discover new customers
4.Ê Helps sales staff close deals faster
5.Ê Making banking operation more efficient
6.Ê Simplify marketing and sales process
CRM Strategies Adopted in Banking Sector
·ne-Stop Financial Supermarket
Right service is offered to right customers. Faced with growing complexity in financial products ,more
and more customers are expressing a needed for a "trusted financial advisor" to help manage their
financial affairs.
As the primary financial services provides to most consumers, banks are particularly well positioned to
capitalize on this needed, which promotes a greater receptivity to the one stop shopping concept.
The ATM can be accessed around the clock and safety is also more. The number of customer
transaction is increased and it is used at any place. There are no of credit cards offering variety of
services according to their nature and it help them to raise easy credit facilities and proof to disputes in
legal case.
Master card is a card of master money card. Some banks issue one some the other. Banks are replacing
plain old ATM to this card which help the customer to use even in restaurants and gas stations.
Smart cards are a card with chip technology contains all the information about its holders. Smart card
replaces and does the work of all the cards. High memory, portability and reliability make the smart
cards more useful for the customers.
The stock exchanges dealing are done through Demat and Remat A/C. In the developing countries like
India the customer's awareness towards this product is in growing stage. Ancillary services like e-
broking. e-shopping and on-line ticket booking are also enjoyed by few customers.
Increasing the Number of Delivery Channels to the Customers
Banks have realized that shifting customer access to lower cost channels can help in bring down the
operating cost. These channels are used not only to improve service but also to divert traffic from
branches. It is a fact that the cost of the transactions over the delivery channel is lower than doing the
transactions through branches. The ATM and Net Banking Services enable Non-Stop Banking -
Convenience Banking -24 hrs access to cash -365 days of the year without any additional cost burden
to the customer.
The Real Time Gross Settlement (RTGS) Scheme is being implemented in a phased a manner after
which the collection of cheques will be smooth and quicker. The CBS (Core Banking Solution)
implementation will lead to instant collection of outstation cheques without delay. Customer to the
Branch is moved to Customer to the Bank in major cities and it has reduced time to non-entity. The use
of Plastic money has increased in sky rocketed pace as a result of which the transaction have become
easier and speedier without actual use of cash. The concept of Virtual Banking has also gained ground.
Customer Value Management
CRM solutions if implemented and integrated correctly can help significantly in improving customer
satisfaction levels with accrued benefits. Data warehousing can help in providing better transaction
experiences for customer over different transaction channels. The data mining helps banks analyze and
measure customer transaction patterns and behaviors'.
This can help a lot in improving service levels and finding new business opportunities. The main thrust
of CRM is to develop new products, render value creation, gain market leadership and spread risks and
vulnerabilities besides facing competition. Any bank would have a huge customer base that it would not
be able to monitor it manually in order to find out various customer behavior trends and patterns.
It is essential to attract, retain and grow customer base with effective management of the information
about the customers and enhance the relationship with them. The value proposition however a
significant increases in that intangible called customer satisfaction. The increase in customer
satisfaction has translated to loyalty those results in higher customer retention and growing franchise
value.
Unless the banks understand the needs of the customer, best technology products benefiting the
customer cannot be designed. Hence the CRM and technology go hand in hand supplementing each
other needs and convenience. ·nce the customer needs are understood and technology product
orientation becomes easy for value creation process.
As the banking industry thrives on the services rendered, it becomes necessary to imbibe the "PQRST"
strategy to maintain CRM, where
P: Peace of mind for the customer
Q: Quality of service rendered, which should commensurate to the expectations of the customer
R: Respect to be given to the customer irrespective of his economic background
S: Sincerity in the discharge of duties to the customers, with a personal touch
T: Time bound-which plays a vital role for the customer to have a pleasant experience
In experiencing "PRIDE" while dealing with customers where
P: Personal involvement is taken up by the agency
R: eading to responsibility for the actions of the team members
I: In
D: Delivering
E: Excellence in the service rendered
Still some drawbacks are in CRM implementation due to various reasons might not have the desired
results.
There could be a lack of commitment from people within the Banking industry to the implementation of
a CRM solution. Adapting to a customer-focused approach may require a cultural change.
There is a danger that relationships with customers will break down somewhere along the line, unless
everyone in the business is committed to viewing their operations from the customers' perspective. The
result is customer dissatisfaction and eventual loss of revenue.
Poor communication can prevent buy-in. In order to make CRM work, all the relevant people in your
business must know what information you need and how to use it.
Weak leadership could cause problems for any CRM implementation plan. The onus is on management
to lead by example and push for a customer focus on every project. If a proposed plan isn't right for
your customers, don't do it. Send your teams back to the drawing board to come up with a solution that
will work.
In the cut-throat competition,now the banks moved to the next era CRM+ which provides 360 degree
view of all customer data and customer interaction.
It automates the entire customer life cycle and the banks serve both prospect and current customers
equally effectively. It inputs powerful automatic up sell and cross sell capabilities and also includes
complete partner relationship management.
The day to day technology change enhances the customer satisfaction to customer delight and the
banks should make use of these strategies in an efficient way to retain it customers.
Conclusion
Hereby, we are able to get a clear idea as to how to effectively handle CRM due to the points discussed.
So, to retain the customers it is essential to have really service oriented people to be in the marketing
line and with good communicative skills that would exactly convey the necessities of the customers to
the producers and also benefit the marketers by way of attracting more valuable customers.
Thus, it should be in a position to benefit both the parties involved in the process. "If the buyer is not
satisfied, then how sales could be promoted and how could the wheel of marketing be set in to
motion?" Henceforth, I conclude my paper by stressing the point that "the motto of marketing should
not only aim at loyalty of the customers but also their convenience."
