EXECUTIVE SUMMARY

Customer relationship management in Banking sector

EXECUTIVE SUMMARYNowadays, many businesses such as banks, insurance companies, and other service providers realize the importance of Customer Relationship Management (CRM) and its potential to help them acquire new customers retain existing ones and maximize their lifetime value. At this point, close relationship with customers will require a strong coordination between IT and marketing departments to provide a long-term retention of selected customers.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. 10% 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., and 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, needs an objective of CRM in banking sector, emerging trends in banking sector, and need for better customer services are discussed in this project. 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 Entities situation coupled with the pressures of competitive and dynamic markets has contributed to the growth of CRM in the Financial Services Sector. Net 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.To grow their business and solidify customer relationships, financial institutions must understand customer needs and preferences and respond with the appropriate products and services. Banks have to take a customer-centric approach that recognizes customer segmentation and enables the bank to get to know its customers. This is vital to providing the appropriate products and services and maintaining regulatory compliance. The key to success is having integrated CRM capabilities that bring information from disparate systems together and enable decisioning to support a single, personalized relationship with each customer that works across all layers of their operating models.

CRM is a sound business strategy to identify the banks most profitable customers and prospects, and devotes time and attention to expanding account relationships with those customers through individualized marketing, repricing, discretionary decision making, and customized service-all delivered through the various sales channels that the bank uses. The model developed here answers what the different customer segments are, who more likely to respond to a given offer is, which customers are the bank likely to lose, which most likely to default on credit cards is, what the risk associated with this loan applicant is. Finally, a cluster profile analysis is used for revealing the distinct characteristics of each cluster, and for modeling product propensity, which should be implemented in order to increase the sales.Building meaningful experiences is a daunting challenge in this environment, particularly given the sheer number of customer interactions any one company must address across many different businesses within an organization. A new perspective is needed for delivering customer experiences one that builds a competitively superior experience while prioritizing a companys resources and investments. The core of this view is defined by three simple guidelines that apply to each and every customer interaction:

Delight customers when it makes sense (and cents)

Fix where the company fails on its promise

Right-size delivery when an interaction doesnt matter. 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.

Customer relationship management (CRM) has been a hot topic in industry for a relatively short period of time. It formalizes best practice into a strategy that enables a firm to identify its customers and target them in a way which will make them more profitable and loyal. Fairhurst (2000) [4] argues that the best examples of CRM still remain the one-to-one services provided by shopkeepers who know their customers personally. The topic has thus been around for centuries, yet it is only in recent years that computing technology has been developed which can go some way to replicating this kind of customer management. The power of computers allows large firms to apply these techniques on their many customers. The definition of CRM that we shall use is that of Dych (2002) [3]: The infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal indeed to buy again. This can be broken down into two specific types; analytical and operational. The distinction is that operational CRM occurs at customer touch points (i.e. where the customer and firm interact) and is thus concerned with collecting data and practicing strategies. Analytical CRM occurs in the back office and is concerned with processing data and forming strategy. Figure 1 shows how the two forms go hand in hand with one another. Operational CRM produces customer data which can be analysed in the back office. Using the findings from this, a new strategy can be developed and operated on the customers, which in turn produces data. This cycle is continuous with each type of CRM hopefully building on the output of the previous.

Figure 3.1: The relationship between operational

And analytical CRM

The ultimate goal of CRM is to provide a one-tone personalized service to each customer preened post-sale. If a firm can identify its customers, it can gain data on them individually. Using the individual data it can compare them with one another. These comparisons give an insight into each customer. As a result, the firm becomes more aware of customer needs and can change their marketing strategy moving away from mass marketing towards database marketing. It is apparent that it would be easier to implement a CRM strategy in an industry where the firms already have much information on their customers such as banks and insurance companies. These have information on the customers, their family and spending habits. Consider also online mail-order retailers such as Amazon.com which require customers to register before they buy. The

Company can then track the purchases and browsing habits of every customer and tailor their service accordingly. It is however much harder for the traditional bricks-and-mortar retailers to achieve the key ingredient of CRM customer data. Customers can visit the shops virtually anonymously, purchase the goods and leave. This paper investigates strategies which could be implemented by such companies in order to better manage their customer relations. Specific reference shall be applied to the extremely competitive sector of retail sectors, where in recent years the big players have taken very different routes to obtain customer information.

NATURE AND SCOPE OF CRM

The Customer is King! This credo is more powerful, relevant and true today than ever before. In a truly customer driven economy, success depends on a company's ability to be with the customer on a round the clock basis satisfying all their product and service specific needs. Simply stated, Customer Relationship Management (CRM) is about finding, getting, and retaining customers.

Customer Relationship Management is one of the hottest and most talked about topics in the industry today and for good reason. Industry analysts recently reported that CRM expenditures will grow from $2.8 billion in 1999 to $11 billion by 2003.

CRM is all about building long term business relationships with your customers. It is best described as the blending of internal business processes: Sales, Marketing and Customer support with technology. CRM solutions empower businesses to more efficiently and effectively manage the activities that affect their relationship with their customers. The ultimate goal of CRM is to meet and exceed customer expectations, create a positive customer experience and build customer loyalty.

CRM changes all of this and represents a continuing evolution in managing front office operations. With CRM, traditional departmental applications for sales, marketing and customer service are consolidated into a single unified system capable of managing the entire customer life cycle. This approach allows employees throughout an organization to have immediate access to a complete profile of important customer information. Organizations who are implementing CRM solutions feel confident that providing access to this level of information will assist their sales and support staff in better understanding the needs and buying patterns of their customers.

CRM (customer relationship management) is an information industry term for methodologies, software, and usually Internet capabilities that help an enterprise manage customer relationships in an organized way.

CRM is at the core of any customer-focused business strategy and includes the people, processes, and technology questions associated with marketing, sales, and service. In today's hyper-competitive world, organizations looking to implement successful CRM strategies need to focus on a common view of the customer using integrated information systems and contact center implementations that allow the customer to communicate via any desired communication channel.

What exactly is the definition of Customer Relationship Management? Ask a dozen professionals, get a dozen different definitions. Here's a general overview:

CRM is used to learn more about your key customers needs in order to develop a stronger relationship with them.

Customer Relationship Management can be defined as a companies activities related to increasing the customer base by acquiring new customers and meeting the needs of the existing customers. CRM is about building partnerships with your customers. It uses internal business processes from Sales, Customer Service and Marketing.

The philosophy of CRM is the recognition that your long-term relationships with your customers can be one of the most important assets of an organization, providing competitive advantage and improved profitability

The most important part of CRM is the "customer-focus".

CRM uses technology, strategic planning and personal marketing techniques to build a relationship that increases profit margins and productivity. It uses a business strategy that puts the customer at the core of a companies processes and practices. It requires this customer focused business philosophy to support effective sales, marketing, and customer service and order fulfillment.

Regardless of company size or industry, businesses have begun to recognize the value and importance of customer retention and are embracing new technology for automating customer service and support. For the new millennium, it seems that the customer has finally become King!!!

4.1Why CRMKeeping in mind the pace at which technology is changing today, any company which is a step ahead of others because of some web product or service will not be able to hold on to that advantage for long. Key to stability in today's dynamic marketplace is forging long-term relationships with the customers.

Customers can be divided into three zones:

1. Zone of defection where customers are extremely hostile and have the lowest level of satisfaction.

2. Zone of indifference where customers are not sure. They have a medium level of satisfaction and loyalty towards the company.

3. The third level of customers is in the zone of affection described as "Apostles". CRM focuses on bringing customers from level 1 to level 3 and retaining apostle customers.

A customer demand for customization is increasing with every passing day. This has made companies shift their focus from "mass production" to "mass customization". The present scenario of companies using "poorly implemented" multi channel strategies for living upto the expectations of customers is bringing both customer satisfaction and customer loyalty down the ladder.

Today any company can copy products or services offered by other companies. If the new entrant adds features like less order turn around time and direct communication then established players are bound to have sleepless nights. Organizations that implement CRM and turn their business into e-businesses will find their competitors' customers ready to welcome them with a "smile".

Take the example of a small enterprise. Here hard work reaps high quality service and over the years develops a database of loyal customers. In this enterprise computers are optional. Then why is the CRM industry attracting investments of millions and billions of dollars? The reason is simple. The concept of "Seller's Customer" has just rotated 180 degrees to become "Customer's Seller". This simply states that, now the customer is more powerful than the seller. Options for customers have increased with the cycle of innovation-to-production-to-obsolescence gaining momentum. On the other hand companies are finding it difficult to differentiate them in the marketplace. These factors are pushing companies into taking a closer look at their customer relationships.Organizing business to satisfy customer demands organizes/simplifies internal functioning of the organization. Implementing CRM brings to the front the "pits" that the organization had dug over the years, passing work from one pit to another. Workflows are reduced, cycle times become shorter, information flow of non-productive things gets eliminated and the most important thing - "pits" get covered automatically with all the positive features. Compact sized organizations get into a position of making more money. This in turn enables them to please more customers.

For large enterprises, CRM has become a strategic initiative because of its potential for increased revenues and improved customer service. Smaller businesses are forging ahead as well, and are using CRM solutions to capture and share customer information across multiple departments and job functions.

The top four reasons for implementing CRM are:

gaining customer confidence and loyalty

providing personalized service to customers

acquiring better knowledge of customers and their buying habits

differentiating themselves from the competitionBIRTH OF CUSTOMER RELATIONSHIP MANAGEMENT

Throughout the 90s businesses were focused on improving internal operations. CEOs tried to distinguish their company through operational excellence and product innovation. Middle management focused on automating departmental functions such as sales and help desk support. They believed that automation and better management of their sales and customer service process would lead to increased revenue and customer satisfaction. Vendors were all too happy to support this belief and raced to the scene with independent solutions for sales force automation, help desk and customer service functions. While many of these applications provided increased productivity, the approach of using independent solutions to address departmental needs served only to created islands of information and database duplication. Furthermore, the lack of system integration and workflow between these departments meant that vital customer information was unavailable to sales and support personnel without jumping from system to system. This did little to support cross selling opportunities or increase customer satisfaction.

By the time customers walk into your business - or log-on to your website or call your sales center - most already know what they want and how much they're willing to pay. With easy access to mountains of information, today's customers do their homework, and they now have the upper hand in most purchase transactions.

In response, sellers are bending over backwards to improve offerings and services. However, rather than adopt a streamlined "you-want-it-we've-got-it" approach, sellers have created a marketplace where products and services are sold, serviced and marketed in an increasingly fragmented and ultimately frustrating way.

Never before has so much "clutter" bombarded consumers from so many online and offline sources. Trying to be all things to all buyers, sellers face a harsh reality that brings an old adage to life: You can please some of the people most of the time and most of the people some of the time, but you can't please all of the people all of the time. It wasn't supposed to be this way. Customer Relationship Management (CRM), which swept through the business landscape in the early 1990s, brought the promise of helping sellers please most of the people most of the time. Riding the coattails of customer satisfaction would come increased organizational efficiency and, better still, increased revenues.

That dream has been slow in coming. While incremental improvements have occurred, CRM has not yet delivered its ultimate promise - the transformed customer experience.

Yes, companies have implemented call centers and sales force automation software and customer sales representative training. However, while improving the sales and service components of customer transactions, companies have largely ignored the very piece required to attract customers in the first place. It's the piece that ensures sales and service efforts are effective and integrated. It's the piece that allows sellers to segment and analyze their customer information in order to create a more personalized, long-term relationship. It's the piece called "marketing" (see Figure 1).

Figure 5.1 - Completing the CRM vision

We're not saying that the last decade's investment in CRM has been wasted. Quite the contrary: what began as a solution for providing more efficient customer transactions evolved into a process by which companies could foster more meaningful customer interactions (see Figure 2). This was the right direction to take. However, companies haven't reached the end of the CRM road. Today, the challenge is to take this evolution one step farther - to focus on building lasting and profitable customer dialogues at all interaction and transaction touch points to build customer and brand value.

Figure 5.2: Evolution of CRM

As CRM evolved, many companies assumed that just bolting on new technology (e.g., client/server, call centers, sales force automation software, data warehouses, etc.) or adding new services would enhance customer relationships. This assumption was as pernicious as it was false. After all, you can't sell what people don't want to buy, no matter how efficient and service-oriented your sales channel. And as for gathering customer insights, be careful what you wish for. Many companies faced the unsettling paradox of having advanced data availability and analytic techniques that quickly outpaced their ability to absorb and apply the information. They were left with sophisticated tools that offered little real value.

The belief is that the third wave of CRM will bring about the ultimate transformation of customer experiences - not just by strengthening sales and service or even promoting interactions with your customers - but by creating a series of "intelligent conversations" that build over time into a long-term, meaningful dialogue.

ROLE OF MARKETING IN CRM

To continuously attract and retain the most valuable customers, companies must act aggressively to increase the economic value of both their brand and customer relationships. In addition, they must sustain bottom-line performance in the face of skyrocketing marketing costs. To realize these goals, companies must continue their efforts to maximize their investments in the sales and service technologies that help reach, understand and interact intelligently with customers. But they must also extend this traditional scope of CRM to reach a higher standard of excellence in three distinct disciplines: analytical, creative and operational marketing.

Figure 6.1 -The revitalization of marketing

Once these improved marketing processes are linked with core CRM capabilities, companies will be able to drive seamless, consistent and real-time response across marketing, sales and customer service. The result will be a sustainable process that not only enables lasting customer relationships but also harnesses that elusive construct: superior brand value.

Analytical Marketing drives market segmentation and identifies your most profitable customers. Information from each customer interaction channel is collected, analyzed and used to develop predictions of your individual customer's behaviors.

Analytical marketing utilizes those processes and sophisticated technologies that allow businesses to direct their overall marketing investment across the brand and customer. In a sense, analytical marketing tools are the "nuts and bolts" of the marketing engine.

Specifically, analytical marketing converts customer data, gathered at various touch points, into relevant insights that direct market segmentation activities and feed into more effective campaign design. Through predictive modeling, analytics lead to a more robust understanding of customers and markets and an improved ability to make strategic and operational decisions about customer treatment. The ultimate outcome is increased profitability, based on customer differentiation, and more informed decisions related to the development of product, pricing, promotion, packaging, and channels.

Without analytics, companies will keep investing in CRM without ever knowing where their money is having the greatest impact. In short, analytical marketing puts customer insights to work for the organization and prevents the company from delivering the wrong content to the wrong person at the wrong time.

Creative Marketing relies on analytical tools and customer insight capabilities to improve marketing programs, optimize the overall marketing investment and deliver the brand promise. As the number of customer channels has exploded, so has the need for creative marketing, which involves all the activities associated with building and sustaining a compelling brand and ensuring that customer interactions reflect a satisfying brand experience.

In the past, creative marketing efforts have been applied to CRM efforts in much the same way as technology. It's been far too easy for companies to develop a host of messages - from ad campaigns to customer service representative scripts - that are unintentionally inconsistent. Such inconsistent messages delivered via a number of different channels - when coupled with poor understanding of why brand and message consistency is so critical to the customer experience - often produce fragmented experiences that frustrate the customer who probably won't come back.

Fortunately, companies are changing the way they approach creative marketing. By integrating its processes with those of analytical and operational marketing, and by focusing on the total customer experience, creative marketing can now be used to build a unified brand across all of a company's online and offline channels. In other words, creative marketing is no longer considered an "afterthought".

Operational Marketing relies on customer insight information to personalize interactions, differentiate sales and service across segments, drive continuous improvement across customer interaction processes and generate revenue lift.

When these marketing disciplines work in tandem with your existing sales and service capabilities, your entire CRM effort becomes revitalized. Information becomes dynamic. Insights become powerful barometers of customers' likes and dislikes. Comprehensive marketing campaigns become targeted and compelling. The result is a customer base that is pleased with the unique and personalized interactions you provide. Customer loyalty rises, as does your brand value and, ultimately, your revenue.

Its efforts encompass all the activities of data mining and data warehousing, which continuously harvest customer information from a variety of contact points. Leveraged by creative and analytical marketing capabilities, this information is assessed and converted into meaningful insights that drive ongoing, personalized marketing efforts. The goal of operational marketing is to enable ongoing "conversations" with individual customers across all channels.

What is going against CRMCRM has been in India for over seven years now. But its penetration in the Industry in general and that in the financial services market has been rather uninspiring despite its professed advantages. The surprising aspect that came out from the study was that though the banks were aware of the CRM' benefits, they are skeptical about its applicability to their organization. The root cause for this is the astonishing growth that the banks are experiencing at the moment. Most of the Retail banks are witnessing a tremendous expansion in their customer base: one bank even claim to be adding over 100% customer on y-on-y basis.

Apart from this, there are many other factors that have undermined the acceptance of CRM. The chart shown below enlists the various factors (and their relative weight ages on a scale of 5) that are believed to have played a role in the sluggish penetration of CRM in the retail-banking sector:

Figure 7.1 the various factors (and their relative weight ages on a scale of 5) The above chart clearly shows that it is the implementation time that has had affected the way people in banks look at CRM the most. In order to further CRM in this segment, it is of paramount importance to reduce the implementation time to minimum possible. This factor makes CRM on Demand (web based CRM services offered by service providers) a particularly attractive alternative. The second important parameter that came out from the study was the cost. To sum up, Indian retail banking players want less risk and faster returns at lesser costs.

Hence, from a CRM service providers' view, there is a need to find means to enhance the appeal of CRM to these prospective firms. There can be many factors, which when properly fine-tuned, can go a long way in convincing retail-banking institutions to embrace CRM. But not all factors are similar: changes in cost incurred can't be expected to have the same appeal to the customer as the changes in the implementation time. And more often than not, these factors are mutually contradictory. So, software service providers need to prioritize their specific offerings depending upon the relative weight age accorded to these factors by the interested firms. The retail industry, on an average, believes that the following are the parameters changes in which will have most prominent bearing on the CRM adoption. The percentage values give the relative weight ages of the individual factors.

Since, companies generally cant do with an investment that takes a long time to get running, implementation time figures as the top-most criteria closely followed by initial costs and training required. Training requirement factor figures prominently in the case of mid-market banks due to the fact that these firms generally make do with just the required amount of manpower and it is very difficult for them to spare them. That will immediately start affecting their operations. Current customer attrition level is surprisingly lowest in priority. This might be due to the fact that most of the banks surveyed are undergoing tremendous expansion in terms of customer base and hence are really not that concerned about customer attrition.BANK MARKETING: A TWO PRONGED APPROACH

Bank marketing in general and Customer Relationship Management (CRM) in particular are of vital importance for Indian banks, particularly in the current context when banks are facing tough competition from other agencies, both local and foreign, that offer value-added services.

Competition is confined not only to resource mobilization but also to lending and other revenue generating areas of services offered by banks. Under the circumstances, it has become essential to develop a close relationship with valued customers and come out with innovative measures to satisfy their needs. Customer expectations for quality services and returns are increasing rapidly and, therefore, quality in future will be the sole determinant of successful banking corporations. It is, thus, high time that Indian banks organically realize the imperative of proactive Bank Marketing and Customer Relationship Management and take systematic steps in this direction.

8.1 Marketing ApproachBanking industry is essentially a service industry which provides various types of banking and allied services to its clients. Bank customers are such persons and organizations that have surplus or shortage of funds and those who need various types of financial and related services provided by the banking sector. These customers belong to different strata of economy, different geographical locations and different professions and businesses. Naturally, the need of each individual group of customers is distinct from the needs of other groups. It is, therefore, necessary to identify different homogenous groups and even sub-groups of customers, and then with utmost precision determine their needs, design schemes to suit their exact needs, and deliver them most efficiently.

Banks, generally, have been working out various services and products at the level of the Head Office and these are traded through their retail outlets (branches) to different customers at the grass-roots level. This is the so called 'Top to Bottom' approach. However, bank marketing requires a change in this traditional outlook. It should be 'bottom to top' approach with customers at the grass-roots level as the focal point for working out various products / schemes to suit the needs of different homogenous groups of customers. Thus, bank marketing approach, in general, is a group or "Collective" approach.

Customers Relationship Management, on the other hand, is an individualistic approach which concentrates on certain select customers from the homogeneous groups, and develops sustainable relationships with them for adding value to the bank. This may be termed as a "Selective" approach.

Thus, bank marketing concept, whether "collective" approach or "selective" approach, is a fundamental recognition of the fact that banks need customer oriented approach. In other words, bank marketing is the design and delivery of customer needed services worked out by keeping in view the corporate objectives of the bank and environmental constraints.

The following chart gives an overview of the Two Pronged Approach to Bank Marketing. Figure 8.1Bank marketing

A two prolonged approach

Design and delivery of customer needed service worked out by in keeping view corporate objective and environmental constraints

Selective approach

Collective approach

To devlop sustainable relationship with selective high value customer and making efforts for their retention for added value to the bank.

To satisfy all customer of bank and to develop positive image of the bank in terms of quality of service.

To concentrate on selective valuable customer through CRM to find out their latent and felt needs and to develop ways and means to satisfy them to ensure sustainable relationship.

To introduce system of objective assessment of the standard of customer service to find out areas and causes of deficiencies and take appropriate corrective action.

1. definition of target groups of customer and their needs

2. development of proper marketing mix in terms of product, price, place and promotion

8.2 Principal Aspects of Bank Marketing Customer Oriented ServicesServices offered by the banks are to be worked out in such a manner that they fulfil the needs of the customers. Traditionally, bankers have been accustomed to think in terms of what banks can offer and not what customers want. However, bank marketing concept requires them to change this orientation, and start working out schemes and services by keeping changing customer needs as the focus of their new and novel products. In order to design and deliver customer needed services, the banks must learn to seek information about the existing and potential customers, and their perceived and latent needs on a regular and systematic basis. Design & Delivery of Such ServicesThe word design implies that good marketing services need to be properly designed and painstakingly crafted so as to suit a particular well-defined group of clients. They do not just emerge effortlessly. Moreover, such properly designed services must be properly traded. In fact, poor delivery of smartly designed services is just as bad as smart delivery of poorly designed services. The quality of delivery is to be ensured not only through focussed advertisement, but also through proper customer services offered at the bank's retail outlets. Customer satisfaction is a dynamic process and it is necessary to keep pace with rising expectations of the customers. Further, the development of IT and spread of Internet are opening up newer mechanisms of customer contact and services. Corporate Objectives of the BankThe corporate objectives of the bank are to be worked out within the broad framework of the national policy. The corporate objectives are of two types, Short Term and Long Term.

The Short Term Objectives could be of the type: -

a) Increasing profitability of the bank next year,

b) widening customer base by offering new services,

c) increasing growth rate of credit next year, etc.

The Long Term Objectives could be: -

a) To rise to number one position in five years,

b) to become the universal bank over the period of next 3 years, etc.

Once the corporate objectives are clearly spelt out, various schemes can be designed to fulfill the needs of the customers within the framework of the chosen corporate objectives. Further, the resources made available for systematic marketing efforts are also constrained by policies, vision and attitudes of the management.

Environmental & Other ConstraintsEnvironmental and other constraints play an important role in bank marketing decisions. Generally, the environmental constraints fall into four categories: Economic, Cultural, Legal and Political.

A thorough understanding of local and national economy is essential for taking effective decisions about what product to be offered, where it is to be offered, at what price it is to be offered, and how it is to be offered?

Banking schemes which are suitable for a developed economy might not be suitable for a developing economy. It is essential to have intimate knowledge of income pattern of potential customers, population growth, nature of industrial and trading activities, extent of agricultural development, employment levels, wage structures, and other relevant factors, in order to make decisions about services to be offered.

The cultural environment in which the bank operates also has a bearing on bank marketing decisions. This includes attitude of local people about saving, borrowing and spending, and also their traditions and values. The schemes suited for urban sector would be different from those suited for rural sector.

Legal and political environment mainly constrains the decisions about the price of product to be offered and the place for offering the product. For example, price of deposits and various types of advances is constrained by the interest rate policies of the regulators.

Thus, the knowledge of environmental constraints is an essential factor in the designing and delivery of various types of customer-oriented schemes and services.

8.3 Marketing StrategiesThe marketing strategy consists of a very clear definition of prospective customers and their needs and the creation of marketing mix to satisfy them. A recent development in this regard is Customer Relationship Management (CRM). It is a business strategy to learn more and more about customer behavior in order to create long term and sustainable relationship with them. It is a comprehensive process of acquiring and retaining selective customers to generate value for the bank and its customers.

Under CRM, acquisition of customers is done through personal visits, media advertisement or word of mouth from existing customers. Customer retention is carried out through data warehousing and mining tools, customer service and call services, and improved customer value is obtained through cross-selling and upselling to the retained customers.

Identification of Target Customers & their NeedsThis is an important area in formulation of a marketing strategy. Unless the bank has clear idea about the customers it wants to serve, it is not possible to work out products to satisfy their needs. This identification process involves: -

Finding out profile of present customers in terms of their education, occupation, income, geographical location, population group, age, sex, marital status, products and services they purchase, their habits, tastes and preferences, their businesses and future prospects, etc. Finding out opinions of existing customers about the services provided by the bank and their suggestions for improvement in present services and introduction of new services.

Collecting such information from the persons who are not currently customers of the bank.

All this can be done by conducting a survey of customers and non-customers of the bank. Moreover, this process of seeking information about the market must form an integral part of the system and must be done on a regular basis. The survey would give valuable information about profiles and opinions of customers and non-customers of the bank, and it can be analyzed to find out the target group of the customers and their felt and latent needs.

The concept of data warehousing and data mining used in CRM helps in seeking information about individual customers and their needs on a regular and systematic basis. Data warehousing builds customer wise data by mapping it from various services and products used by the customers such as deposits, credits, foreign exchange, e-business, safe custody, lockers, bill collection, etc.

Data mining carries out various types of analysis on collected data to determine customer behavior with respect to product, price and distribution channels, and offers a holistic view of every customer at a given point of time. The customer information gathered by the bank in their day-to-day banking operations is often sufficient for effective data storage. However, many times, it needs to be supported by data collected from outside sources and agencies.

Further, the Customer Relations Management focuses on customer classification by classifying the customers into: a high value (a more profitable) customer and a low value (a less profitable) customer. Once bank differentiates the customers in terms of their profitability and other traits, it becomes easy for the banks to customize their services and products to maximize overall value of their customer portfolio.

Marketing MixThe second element in formulation of marketing strategy is development of proper marketing mix, so as to satisfy the needs of the target group of customers. This would involve decisions regarding product, place, price and promotion. Decisions about product would answer questions about the design of the services offered to suit customer needs, the desirable hours for offering such services, the attractive names of such services and so on. Various alternative ways to provide the basic services might have to be worked out depending on the needs of the various target groups.

Decisions about place should answer questions about location of the prospective customers and, therefore, location for offering such services.

Decisions about price should answer questions about right price for services offered, worked out by taking into consideration the cost of such services, competitor's charges and other factors.

Decision about promotion answers questions about communication with the customer. After getting information on needs and location of the prospective customer and after designing schemes to suit their needs, it is necessary to take decisions on making schemes known to the prospective customers through proper communication media and through proper words, so as to bring out the salient features of the scheme. Actual delivery of the schemes at the counters and at the manager's desk also plays a vital role in determining the success of the scheme. Expectations of the customers in post-reforms period have been changing very fast and customers have started shifting loyalty to better banks. It is, therefore, all the more necessary to ensure that not only the felt needs but also the latent needs of the customers are foreseen and satisfied.

A very good example of formulation of a market strategy under the "collective" approach is development of the product, "Kisan Credit Cards". The target group identified for this was farmers with the purpose of dispensation of agricultural and rural credit to them. Agricultural credit cards and cash credit facilities which were niche-marketed and were exclusively preserved for the privileged class of farmers were, thus, extended to the small and marginal farmers since 1999.

Keeping this need of target group in mind, the decision on product was made. This product decision involved questions regarding types of needs to be covered, number of withdrawals and repayments to be permitted, basis of determination of limits, validity period of the cards, its re-scheduling, the name of the product, and so on. The place decision answered questions about the location where the KCCs can be obtained. This involved all branches engaged in agricultural lending. Price decision required answering questions on margins, collateral, interest rates to be charged for different slabs, and so on. The promotion decisions answered questions regarding mode of advertising the KCCs so that it becomes widely known. These methods included radio and TV commercials and personal contacts by the employees of the bank apart from news paper insertions.

An example of marketing strategy under "selective approach" is selecting a depositor with good track record and offering him services for "car loan", "housing loan", etc., by personal contacts or through tale-marketing or selecting a valuable borrower, keeping track of his interests and offering him some surprise gifts to ensure manifold increase in his satisfaction. This approach requires thinking ahead of time to find out what customers might need in future and fulfill these needs. Promotional Strategy for Bank MarketingEven if a scheme is properly developed and designed to suit customer needs, it will not pick up, unless it is properly marketed at all levels. Some of the strategies which would help banks in their promotional efforts are given below: -

To promote "Personal Selling", whether performed by counter clerk, bank officer or customer service representatives of the bank.

To ensure "Proper Knowledge and Awareness" of various schemes of the bank among the employees of the bank.

To make efforts so that the "Selling Attitude" becomes part of the "Corporate Culture" of the bank.

To impart "Sales and Product Training" including tele-banking and net-banking concepts to employees of the bank. One of the ways of doing this is to organise periodical in-branch departmental meetings of the employees addressed by Branch Managers / Departmental Heads.

To develop incentive programmes which reward good-customer oriented selling behaviour. The incentives need not be necessarily in terms of a cash payment but several other alternatives can also be thought of, e.g., if a particular employee brings certain minimum amount of business to the bank, he/she should be eligible for certain special leave or they can be made members of a special club called "Chairman's Club" for a particular period. Several other such ways giving cashless incentives to the employees can be worked out.

To ensure conversion of the entire employees organization of the bank into a well-informed, disciplined and professional force committed to the corporate values and objectives.

To make effective use of the large network of the retail outlets of the bank visited by a large number of customers every day. A typical bank customer visits his/her branch two or more times a month so one can imagine how many customer visits each branch will have per year. The use of "In-bank Advertising" would, therefore, help a lot in marketing bank services. In this connection the bank may have to think of retail shopkeepers' strategy of exhibiting their products in an attractive manner. This would include: -

Careful physical layout of the branch and creation of inviting environment.

Exhibition windows as found in many departmental stores displaying various products of the bank in an attractive manner. Attractive table with glass box on top exhibiting literature on various products offered by the bank to be kept at an appropriate location on the branch floor. Creative ideas to exhibit "intangible products" in "tangible manner", e.g., visual images, small models / photographs of life style, customer could achieve with the help of proper financial planning done through bank schemes. Creation and updating of literature on various schemes and services offered by the bank and ensuring its availability at each branch. Specially designed in-branch video visuals exhibiting various products and services of the bank. Public sector banks with a large network of branches have an excellent opportunity to expand customer relationships and provide them with additional complementary services. Personal contacts in any case are much better as compared to contacts through phones or Internet.

In Customer Relationship Management (CRM), results of data warehousing and mining must be made available to all the concerned employees so that they have complete knowledge about the value / profit each individual customer adds to the bank, their future needs and ways and means to satisfy them

DATA WAREHOUSE AND DATA MININGThe Data warehouse is the core of any decision support system and hence of the CRM. In implementing Data Warehouse, Bank has selected an incremental approach; here the development of information systems is integrated with the business strategy. Instead of developing a complete design of a corporate Data Warehouse before implementing it, the bank has decided to develop a portion of the Data Warehouse to be used for customer relationship management and for the production of accurate and consistent management reports. The Data Warehouse has been designed according to the IBM BDW (Banking Data Warehouse) model, which has been developed as a consequence of the collaboration between IBM and many banking customers. The model is currently being used by 800 banks worldwide.

Figure9.1. the process of Relational MarketingIt includes customers' demographic data, product ownership data and transaction data or, more generally product usage data as well as risk and profitability data. As new data are produced they are placed temporarily in an intermediate, from which they are preprocessed and transferred to the warehouse. The importance of the Data Warehouse stems from the analysis of Figure 1. As a result of strategic decisions customer analysis is carried out by using data continuously updated as well the analytical methods and tools to be described later on. The CRM group analyzes results obtained and designs action plans, such as campaigns, promotions, special marketing initiatives, etc. Plans developed are then implemented by means of the several channels used by the bank to reach customers. Evaluation or results completes the cycle. The results become an integral part of the description of the bank-customer relationship in the warehouse. The learning cycle is thus complete and results obtained can be reused in future analyses and in future marketing plans. It is easy to understand that the Data Warehouse cannot actually be built 'once for all' but is a kind of living structure continuously enriched and updated as the Relational Marketing activity develops. OLAP (On Line Application Programming) analyses are developed by means of Business Object in its web version. CRM analysts use this tool to issue complex SQL queries on the Data Warehouse or on the Analytical Data mart and carry out mono and bivariate statistics on the whole customers' population or on selected groups. Figure 2 shows general structure of Relational Marketing Activity.

Figure9.2.The Relational marketing process is supported by a computing infrastructure where many software packages are integrated with the bank's information system.Data Mining analyses are not carried out directly on the Data Warehouse, but on the Analytical Data mart by means of the software package IBM Intelligent Miner [Cabena et.al. 1999], using as a computing and data server the same mainframe where

The Data Warehouse resides. Now days Bank believes these tools and methodologies are a powerful competitive weapon and is investing heavily in the human resources needed to develop these analyses.

The Analytical Data mart is derived from the Data Warehouse through the following steps: 1) Raw data processing: data selection, data extraction, and data verification and rectification 2) Data modeling and variable preprocessing: variable selection, new variable creation, variable statistics, variable discrimination. The above processing, based on traditional data analysis, is strictly dependent on the investigated process; new variable creation, for instance, is intended to aggregate information contained in the raw data into more expressive variables. A simple example is the number of credit transaction on current account that contains much of the information contained in the individual transactions, but is easier to analyze and represent. Variable discrimination, based on the distribution of the original variables, is intended to generate categorical variables that better express the physical reality of the problem under investigation. The Analytical Data mart is customer centric and contains the following data:1. Demographic (age, sex, cultural level, marital status, etc.)

2. Ownership of bank's product/services

3. product/services usage (balance, transactions, etc.)

4. Global variables: profit, cost, risk, assets, liabilities

5. Relationship with the bank: segment, portfolio, etc.

Figure 9.3. The marketing campaign process and the software supporting it.9.1 Marketing CampaignsAfter analyzing strategic and analytical CRM bank concentrate here on the equally important operational aspects. Marketing Campaigns is the first method that Banks normally used to test the above described analyses and techniques. The overall campaign process is reported in Figure 3, which shows that propensity determination and targeting are the first step of the whole activity. A number of experimental campaigns have been designed and carried out to test the soundness of the approach by banks before attempting a large scale roll-out. An education process has been started by meeting sales forces in the branch offices, by distribution of an explanation booklet and by publishing on the Intranet a note explaining the whole process. System interfaces have been modified in order to track the customers under promotion, as well as to enable salespeople in the branch office to complete the sales on promoted customers as well as to record the fact that the sale was a consequence of the promotion. The bank has so far used for promotion two channels: the salespeople in the branches and the call center. Each channel was used in four different campaigns.Emerging trends in CRM IN Banking Sector

The biggest management challenge in the new millennium of liberalization and globalization for a business is to serve and maintain good relations with the king-the customer. In the past, producers took their customers for granted because at that time customers were not demanding nor had many alternative sources of supply or suppliers. Since he was a passive customer, the producer dictated terms and had little customer commitment. But today there is a radical transformation. The changing business environment is characterized by economic liberalization, increasing competition, high consumer choice, enlightened and demanding customer, more emphasis on quality and value of purchase.

All these changes have made today's producer shift from traditional marketing to modern marketing. Modern marketing calls for more than developing a product, pricing it, promoting it and making it accessible to target customers. It demands building trust, a binding force and value added relationship with the customers to win their hearts. The new age marketing aims at winning customers for ever, where companies greet the customers, create products to suit their needs, work hard to develop life time customers through the principles of customer delight, approval and enthusiasm.

Customer focus in banking service

As the intense competition becomes a way of doing business, it is the customer who calls the shot in deciding the nature of products and services offered in the market. The customers are becoming demanding, dominant and selective. In fact the perceptions and the expectations of the customers have undergone a sea change, with the availability of banking services to the customers at their door steps through the help of technology.

Marketing of customer services aims at two important goals: prosperity to the bank and satisfied customers. Banks offer tangible services like loan schemes, interest rates and kinds of account and the intangible services like behavior and efficiency of staff, speed of transactions and the ambience. The banks may need to include customer oriented approach or customer focus in their five areas of businesses such as Cash accessibility, asset security, money transfer, deferred payment and financial advices.

There are four strategies available to customer relations' managers:

To win back or save customers

To attract new and potential customers

To create loyalty among existing customers and

To up sell or offer cross services.

The future of banking business very much depends upon the ability of the banks to develop close relationship with the customers. In order to develop close relationship with the customers the banking industry has to focus on the technology oriented innovations that offer convenience to the customers. Today customers are offered ATM services, access to internet banking and phone banking facilities and credit cards. These have elevated banking beyond the barriers of time and space.

Marketing of banking servicesMarketing of banking services means organizing right activities and programmes in rendering right services to the right people at the right place, at the right time at the right price and with right communication and promotion. Marketing of banking services embrace the following unique features.

There are four distinctive characteristics of service, which create challenges and opportunities. They are commonly known as the four Is namely:

1. Intangibility

2. Inconsistency

3. Inseparability

4. Inventory

Technological Advancement

The advent of technology both in terms of computers and communications has drastically altered the methodology of banking business. In the banking sector, the technology has opened new vistas and in turn has brought new possibilities for doing the same work differently and in a most cost-effective manner. Technology helps to have 24 hours a day banking, all seven days in a week. Tele banking, Internet banking and E-banking have opened new business potentials and opportunities which hither to remained unexplored. All these technological advancement may pave the way for home banking rather than branch banking. Innovation

Another important force of change in the Indian banking sector is innovation. Banks are innovative, pro-active now-a-days and offer top class service to customers. They play a dynamic role not only as a provider of finance but also as a departmental store of finance. As a result of this, new products like merchant banking, mutual funds, leasing, factoring, forfeiting, corporate advisory services and venture capital are emerging. These innovative services may augment revenue with cost effective measures. Development Of The Skills Of Bank Personnel

To meet the new challenges, banks have to devise novel ways of meeting the customer's demands. To help the banking staff to get sufficient exposure to technology, suitable packages relating to hardware and software applications in relation to their works are to be provided. Further, a separate marketing wing may be created in every bank to market their banking services. They must be trained suitably to keep pace with the changing environment. In order to meet the challenges, the Human Resource Department in banks have to prepare appropriate manpower plans and strategies.

GOOD CUSTOMER SEVICEWhen we are asked to define good customer service what are the first thoughts that come to mind? The ability to supply your customers' wants and needs, whether they are new or existing customers.

Providing exceptional customer service centers around ensuring our customers are happy. Our overall objective is to ensure that they are coming back for more or referring our services. By doing this we will be ensuring our continuing lively hood in the business that we have chosen to create.

There are several points that need to be considered if we wish to provide exceptional customer service these are a must for all businesses.

Supply our finest service and ensure that it is provided on time. If we promise a product at a certain time ensure that it is delivered then. If for any reason we have to delay delivery, be honest with our client and inform them of the situation. Compensate or alleviate the problem if it causes your client any inconvenience. Listen to what our client wants and needs. Work with your client to provide them with the product that they need. Provide the advice that they need but also listen to their suggestions. We never know when what they suggest can help us improve our own business. Keep up with technology. Always strive to improve our services. With technology advancing at the rate it is we need to be sure that our skills are up to date as well. Enhancing our services allows us to offer more to our clients and thus keeps them happy.

There is nothing like a guarantee. This is an important point of exceptional customer service. When a customer is 100% happy with what we have provided for them they are the biggest asset to our future. we will find that referrals come from their happiness. If they are not happy ensure that it is fixed right a way.

Provide prompt responses to all communications & inquiries. There is nothing a customer hates more than being kept waiting. If we have to get back to a customer do it with 24 hours. The longer we leave to respond to an enquiry the greater the chance the client will move onto another business.

Don't forget our manners - Always say thank you! How good do you feel when someone says thank you to you? Send out thank you cards to those who request a quote and when a new client comes on board. To save costs, send e-cards or emails of thanks.

So if we had to define good customer service it should be easy. Keep your clients happy by adding value to your business and the services you provide. And if all else fails think on how you would like to be treated if you went into their business.

Important factors for better customer service in banking"There is only one boss-The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else." - Sam Walton

The success of any business depends on how well it treats its customers. Customer service refers to the ability of an organization to consistently give the customer what he or she wants and needs. Following are the factors which help to improve the level of customer service in banking sector and boost its image.A. Stay in contact

Asking customers if they want to be updated on developments that might interest them. If bank product is sophisticated and does not fall into the "impulse buy" category, chances are that bank will need to adopt a counseling approach to sell. In such a case, after every sale, follow-up with the customers to see if they are satisfied with their purchase.

B. Creating a customer focus group

Get ten to twenty of most loyal customers to meet regularly. Encourage them to give ideas and inputs on how to improved bank customer service levels.

C. Resolving customer complaints quickly

Answer all customer complaints, whether through e-mail, in person or by way of a phone call, at the earliest. If possible, bank should personally take care of the problem.

D. Be easily available

Give customers as many ways to contact bank as possible. Allow them to reach bank 24x7 via e-mail. Offer toll free numbers for phone and fax contacts.

E. Treat clients well

E-mail online greeting cards on holidays or birthdays. Be flexible about the way bank deal with every customer; each one has different concerns, needs and wants.

F. Be polite to clients

Bank employee should be polite to customer even if they are annoyed with them. A smiling face and comforting words will go a long way in soothing frayed nerves. Admit bank mistakes quickly and always apologize.

G. Building strong relationships with customers

Invite customer to bank meetings, luncheons, workshops or seminars. It will make them feel important when bank will include them in regular business operations and special events.

H. Listen to customers

Hear what they have to say. Sometimes, customers may say one thing but mean another. Employee must pay attention to their body language and tone of voice, not just the words.

I. Always keep promises

Make promises sparingly, and keep them faithfully, no matter what it costs. Bank should not promise anything that they cannot deliver to customer. J. Never forget what it's like to be a customer

The most important factors is to always remember that bank also are a customer to another party! Treat customers as bank would like to be treated. One satisfied customer is equivalent to many marketing dollars in terms of favorable word-of-mouth!

What Can CRM Do For banking sectoR? CRM are some well-proven and documented models that support the argument for putting resources behind better customer relationship management in banking sector.

Objectives

Methodology

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