CUSTOMER PROFITABILITY AND CUSTOMER RELATIONSHIP MANAGEMENT (ABRIDGED) RBC FINANCIAL GROUP
Gupta Prasanna. S Janani. K Mohd. Rahees Srinivas. S
Ankush
TO BE CONT
RBC Group: RBC Royal Bank, RBC Insurance, RBC Investments, RBC Capital Markets, RBC Global Services. RBC Royal Bank is accounted for 50% of RBCs cash net income. 20% of RBC customers are responsible for 100% profit of RBC. CRM to gain competitive advantage and to increase customer profitability.
CRM AT ROYAL BANK
1997,
A study was conducted to find out what aspect of banking, customers value most. Involving 2000 customers in that study.
It
encompassed issues such as trust, reassurance, a feeling that the bank knows them, understands their needs, recognizes who they are and values their business. Conversely, banks offered more concrete things like large branch and ATM networks, convenient hours, and easy access to accounts. (Exhibit 1)
MARKETING STUDY RESULTS
REORGANIZATION AROUND CRM
Primary customer segmentsKey, Growth, and Primewere used to realign Royal Banks business . This friendly competition was designed to foster close collaboration between functional areas, product and segment managers, and centers of expertise (such as marketing, CRM, and SMR&A).
Bank to centralize sales lead generation, locating the sales and marketing groups. current and future customer profitability to determine targeted direct marketing campaigns, levels of
customer
service other customer-oriented decision-making.
CRM, THEN WHAT?
Through CRM, one can get customer profitability data, personal details like needs, expectations and preferences. Now what to do?
What do we do with this information? How can the Bank derive value from CRM and customer profitability? How can we turn unprofitable customers and products into profitable ones? Is there a way to enhance the Banks value in the eyes of the banking public? How can we put the whole picture together and make decisions that work for both the Bank and our customers?
CUSTOMER PROFITABILITY & POTENTIAL MEASUREMENT @ ROYAL BANK
To find out the potential customers, Royal Bank segmented its customers into 3 buckets 1. A Most Profit Generating Customers 2. B Some Profit generating customers 3. C Broke even or lost money It helps the Royal bank to align the sales force & to fish out the New Customers.
VALUE ANALYZER
Few time later of some instances, customers were started to be treated without consideration of potential business they could contribute. Many bank requires Raw data to be processed within few hours, when customers doing transaction. Banks required high processing power. This problem is solved by adopting Value Analyzer, which it is used to calculate the customer profitability as fast as it required. Value Analyzer was developed by NCR Group.
OUTPUT FROM VALUE ANALYZER
By using Value Analyzer, bank found profitability ranking changed at least 70% of rankings changed by 1. More accurate separate information 2. Customer specific risk assessment 3. Transactions based fee 4. Cost element
Later NEXUS was developed to nurture the relationship with potentially profitable customers. NEXUS starts to develop a model tree, which develops a profitability models of customer. Profitability model designed by using 1. Detailed & accurate data of customers 2. Activity Based Costing (ABS) of customer Using these datas, Royal Bank calculate current & future profitability position of the customer & its Life Time Value.
ACTIVITY BASED COSTING
LIFE TIME VALUE
Conditions & Steps calculate Life Time Value of the customer. 1. Assume current profitability percentile of the customer would remain constant for projected life time. 2. Calculate the present value of profits 3. Collect the variables such as i. Age ii. Tenure with Bank iii. Number of products held iv. Profitability & Acquisition Life Time Value can be calculated individually and could be aggregated up to segment level.
CUSTOMER PROFITABILITY FOR CUSTOMER DECISION
Customers decision depends upon 1. Customized marketing campaign 2. Alignment of pricing discretion 3. Alignment of level of service Based up on the depth & potential of a relationship. Customer decision refer to customer strategies that are build in decision engine. Engine contains a multitude of category trees. Depends up on the category tree 4 Strategic predictive models are framed 1. Profitability 2. Client Risk 3. Client Vulnerability 4. Life Time Value
Based on how people rate on each model they are classified into 14 categories, for which banks have a specific objective: 1. Retain 2. Grow 3. Manage Client Risk 4. Optimize Cost These categories are used for 1. Marketing Effectiveness 2. Courtesy Overdraft 3. Allocation of rate discretion 4. Differential Servive
CUSTOMIZED MARKETING CAMPAIGN
SMR&A conducted a study customer segment depend as 1. Goals 2. Needs 3. Likes & dislikes 4. Types of product customer prefers
9 million customers are segmented into discrete segment based on 1. Attitudinal & Behavioral factors 2. Current & potential profitability 3. Expected purchasing behavior 4. vulnerabilities 5. Channel preference
BANK CLIENT CARD
SMR&A comes with a smart card for all account holders with Royal Bank. It includes all the client information such as 1. Age 2. Address 3. Who product the customer holds. 4. Targeted for particular lone of credit product. It emphasis branches to make better informed decision because they hold good information at finger tips.
LEVEL OF SERVICE
1. Customer Treatment Strategies To offer pre approved credit for credit lines Length of wait Type of customer service Can ensure best client in-terms of profitability of profitability & life time value How to retain customers..??
PRODUCT DESIGN & PRICING
CRM system used as profitability & future potential calculations to give pricing parameters to account manages.
PACKAGE VS FEES
Customer profitability data was used to make decision on whether to charge for services using FLAT RATE packages or to charge fees based on the amount & type of transactions the customer was generating with bank.
OLD VS NEW CUSTOMER PROFITABILITY
INPUT OUT MODEL NEW MODEL
Interest Revenue
Avg. Revenue by product
Actual net interest revenue by account, using internal transfer pricing
Actual fee by a/c Transaction level cost, rolled up to individual a/c & customer Allocated across products
Fees & Commission Direct Expenses
Avg. fee per product Avg. ABC
Indirect Expenses
Allocated across products
Risk Provision
Avg.Risk per product
Expected risk score by a/c
