Relationship Management Y - Retail Banking Academy · PDF filereflection of a positive customer-bank relationship ... A close concept to relationship management is relationship

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RETAIL BANKINGACADEMYCourse Code 110 - Relationship Management

110.Relationship Management

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Course Code 110Relationship Management

Introduction

It is worth restating that the guiding philosophy of the Retail Banking Academy (RBA) is that retail banking should be a profession similar to accounting and law. Furthermore, retail banking is customer-focused and guided by the principle that is underlined by Stefan Kaminsky:

• Customersregardthemselvesaspossessingonesinglefinancialchallenge.Duringtheirlifetime,theywill askwhat, given the influences of various stages of life –marital status, number ofchildren,andmanyotherpersonalfactors–istheoptimumuseoftheirincomeandresources.This optimummust be reviewed periodically and the instruments that are used to attain itreadjusted. IntegratedConsumerBanking(ICB)isessentiallyaboutmaintainingarelationshipoverlongperiodsoftime

The implication is that a long-term, bank-customer relationship must be founded on professionalism and ethics. It signals the death of any impersonal, hard, sales-oriented marketing. It is the end of a ‘products-oriented’ culture predominant at present. The real asset in consumer banking is the customer relationship.

The key point is that products can no longer be of value in themselves. They are no more than instruments, subordinated to serve a higher goal.

Over the course of the previous nine modules of Retail Banking I, we have made several assertions that have an important bearing on the bank-customer relationship. These include the following:

• The prisoner’s dilemma shows that mutual cooperation between partners in a relationship leads to a better outcome than if each partner acted only to serve his own interests. (See Course Code 101, Business Ethics and Compliance.)

• The dimensions of customer service quality (reliability, assurance, empathy, responsiveness and tangibles) have a positive effect on customer satisfaction and customer loyalty – a reflection of a positive customer-bank relationship (See Course Code 107, Customer Service Quality.)

Course Code 110 - Relationship Management

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• Since prolonged waiting time increases customer regret, effectively and efficiently managing banking operations to achieve fast and consistent delivery leads to customer satisfaction. Operational excellence is necessary for a positive customer-bank relationship (See Course Code 108, Operations I)

• Effective services marketing is based on the correct assessment of customer long-term needs by bank staff and providing the right products to meet these needs. This is a necessary prerequisite for a mutually beneficial long-term customer-bank relationship (See Course Code 105, Marketing)

With this background, we now define ‘relationship management’. A close concept to relationship management is relationship marketing; we first discuss this concept before defining the former.

Traditionally, the central focus of relationship marketing is on customer retention* since there is widespread evidence that customer retention is less costly than acquisition. (See for example, Fornell and Wernerfelt 1987)† and even relatively small increases in retention rates can have a significant effect on long-term profitability (see for example, Reichheld and Sasser 1990).‡ Indeed, there is evidence showing that existing customers have a bigger effect on top-line growth than new customers (e.g., Rose 1990)§ and the average cost of dealing with existing customers is lower compared to new customers (e.g., Reichheld, 1996).¶

In the traditional definition of relationship marketing, the steps involved are:

• Match customer needs with bank products/services: This would be the stage after understanding the needs of the customer (existing or prospective)

• Retain customers through superior customer service, operational leadership and product leadership. Specific recommendations to achieve customer retention are made in several modules in Retail Banking I (e.g., Operations I, Products and Customer Service Quality)

Relationship management takes off where relationship marketing ends. The next step is:

• Build loyalty by developing a long-term relationship with the customer based on a strategy of customer intimacy while consistently delivering operational and product excellence. (See for example, Treacy and Wiersema 1993)**

However, the modern definition of relationship marketing is relatively more general.

Following Morgan and Hunt (1994)†† and Berry (1983), we define relationship marketing as all marketing activities that attract, maintain and enhance customer relationships. This implies that relationship marketing refers to all marketing activities directed toward establishing, developing and maintaining successful relational exchanges (Morgan and Hunt,1994, p22). Observe that this is not just about customer retention. It is about the management of a ‘customer relationship’, the full picture.

* J. Peppard, “Customer Relationship Management (CRM) in Financial Services”, EuropeanManagement Journal, 18 (3), pp 312-327 states that relationship marketing increases customer retention (2000).

† Fornell and Wernerfelt, ‘Defensive Marketing Strategy by Customer Complaint Management: A Theoretical Analysis’, JournalofMarketingResearch, 24 (November) 337-46 (1987)

‡ Reichheld and Sasser, “Zero Defections: Quality Comes to Services”, HarvardBusinessReview,12 (March) 495-507 (1990).

§ S. Rose, “The Coming Revolution in Credit Cards,” TheJournalofRetailBanking, 12 (Summer), 17-19.

¶ Frederick F. Reichheld, “TheLoyaltyEffect,” (Cambridge, Harvard Business School Press).

** M. Treacy and F. Wiersma, “Customer Intimacy and Other Value Disciplines,” HarvardBusinessReview, 71 (1) pp 84-93 (1993).

†† Robert M. Morgan and Shelby D. Hunt, “The Commitment-Trust Theory of Relationship Marketing,” JournalofMarketing, 58 (3) 30-38 (1994).


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Open Question #1

“It is not uncommon for banks to emphasise customer acquisition over customer retention and sometimes the reverse.”*

Given this statement, what are the implications for the profitability of a retail bank?

The rest of this module is organised as follows:*

Chapter1: A Theory of Relational ExchangeChapter2:Customer Relationship Management (CRM) and Customer IntimacyChapter3: Relationship Management in Retail Banking

This module concludes with a summary and review questions.

We now consider a theory of relational exchange that provides a foundation for relationship management in retail banking.

* Bolton and Tarasi, ManagingCustomerRelationships, Chapter 1.


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Chapter 1: A Theory of Relational Exchange

In this chapter, we develop a model that will identify the drivers of a long-term customer-bank relationship. This model of relational exchange was presented by Morgan and Hunt (1994) and is based on two mediating variables – commitment and trust. Before we get to the details, we present an explanation of the fundamental principles that underlie long-term relationships.

These are as follows:

• Social exchange theory (credited to the noted sociologist, George Homans) states that all human relations are based on subjective assessments of costs and benefits* by people who are involved in the relationship

• Relational exchange theory explains interpersonal relations in terms of the exchange of perceived benefits and costs

• Long-term relationships are based on continual mutual benefit. Mutual reciprocation is the most basic form of human interaction (refer to the noted sociologist, Peter Blau)

Note that there are two dimensions to relational exchange – exchange based on perceived net benefit and a frequency dimension wherein value is exchanged over time. This latter dimension is the basis for long-term relationships.

Indeed, the academic and professional literature has identified two types of value associated with relationship management. The first is called ‘episodic value’ which refers to mainly economic value derived by both parties when there is an exchange. It is mainly a transactional value whereby the bank presents offers for a price that is paid by the customer who obtains offers that match his/her needs. Episodic value is obtained by the customer either by increased benefits or reduced sacrifice and stimulates repurchasing which starts a relationship with the bank. Hence we can state that:

* The economics literatre has advanced a similar hypothesis. See Oliver E. Williamson, Marketsand Hierarchies:AnalysisandAntitrustImplications (New York: Free Press, 1975).


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Allcustomer-bankrelationshipsbeginwithtransactionalvalue–thatis,episodicvaluethroughanexchange.

The second type of value associated with relationship management is called ‘relationship value’. This value is created from the continuity of the relationship. Research has shown that credibility of bank staff is believed to reduce the sacrifice for the customer in a relationship and therefore leads to higher relationship value (Ravald & Grönroos 1996).* Furthermore, a long-term relationship provides bank staff with timely information about the customer’s changing demographic and financial condition that can help to provide a better service. This is another source of relationship value that accrues over time. A positive long-term relationship with the bank generates benefits for the customer. These may take the form of a sense of belonging and the emotional benefit of perceived fairness and equity from bank staff. For the bank, the relationship value arises from lower customer attrition rates and higher profitability; less investment in customer information gathering so as to optimise its product portfolio over time; higher social capital arising from positive customer referrals and advocacy. Finally, satisfied customers tend to complain with less frequency and less intensity. Hence we can state that:

Relationshipvaluearisesfromacontinuousprofitableexchangebetweenthecustomerandthebank.

At this point we can state that long-term relationship management produces two† sources of value – episodic or transactional value and relationship value. But these sources of value require a commitment from both the bank and the customer to the relationship. Indeed, as pointed out by Berry and Parasuraman (1991), for services marketing “relationships are built on the foundation of mutual commitment”.

What is the meaning of commitment?

Commitment is typically defined as the desire by a party to maintain the relationship (e.g., Moorman, Zaltman, and Deshpande‡ 1992; Morgan and Hunt§ 1994). Often it is also defined as a “pledge of continuity” from one party to another (Dwyer, Schurr, and Oh¶ 1987).

Now we have the elements of an operational model of relationship management. So far we see that a long-term relationship between the customer and the bank has the potential to create episodic and relationship value. But to derive the value, the customer and the bank must show commitment. Customer advocacy is also regarded as an important consequence of customer commitment (Morgan and Hunt 1994; Price and Arnould** 1999). Customers who feel comfortable in their relationships with service providers can be expected to act as advocates for the service organisation (Gremler and Gwinner†† 2000; Price and Arnould 1999). Now that we see that commitment to the relationship drives customer advocacy, we are faced with another question:

But what drives commitment to a relationship?

* Annika Ravald, Christian Gronroos, “The value concept and relationship management”, European JournalofMarketing, Vol 30, Iss: 30 pp 19-30 (1996)

† There is an additional source of value called ‘network value’ that is not considered in this module in that it is not relevant for a customer-bank relationship.

‡ Moorman, Zaltman and Deshpande, “Relationships between providers and users of market research: The dynamics of trust within and between organisations”, JournalofMarketingResearch, 29 (August): 314-328 (1992).

§ Robert M. Morgan and Shelby D. Hunt, “The Commitment-Trust Theory of Relationship Marketing”, Journalof Marketing, 58 (3) 30-38 (1994).

¶ Dwyer, Shurr and Oh, “Developing Buyer-Seller Relationships.” JournalofMarketing 51 (April): 11-27 (1987).

** Price and Arnold, “Commercial Friendships: Service Provider-Client Relationships in Context.” Journal ofMarketing, 63 (October): 38-56 (1999).

†† Gremler and Gwinner, “Generating positive word-of-mouth communication through customer-employee relationships” InternationalJournalofServiceIndustryManagement, Vol. 12 No. 1, 2001, pp. 44-59 (2000).


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The literature is clear about the answer to this question – it is trust.

Trust is defined by Moorman, Zaltman and Deshpande (1993)* as a “willingness to rely on an exchange partner in whom one has confidence”. Trust is the subject of extensive research in social exchange theory as well as in other fields. Social exchange theory explains this causal relationship through the principle of generalised reciprocity, which holds that “mistrust breeds mistrust and as such would also serve to decrease commitment in the relationship and shift the transaction to one or more direct, short-term exchanges.” (McDonald 1981, p834). In services marketing, Berry and Parasuraman (1991)† state that: “Effective services marketing depends on the management of trust because the customer typically must buy a service before experiencing it.” Berry (1993) states that trust is the basis of loyalty.

To sum up, following Achrol (1991),‡ trust is a major determinant of relationship commitment. Indeed, there is evidence of a positive relationship between trust and commitment. Moorman, Zaltman and Deshpande (1992) assert that trust is a driver of the quality of the bank-customer relationship. The reason is clear: the level of professionalism and ethical quality of bank staff influences how the relationship is perceived by the customer and this determines the degree of commitment the latter will give to the relationship.

Highlevelsofcustomertrustwillleadtohighlevelsofcommitmenttothecustomer-bankrelationship.§

The final step in our model is to render it operational from the bank’s perspective. What will create customer trust in the relationship?

The answer is provided by Omarini (2011)¶ who stated that “service customer intimacy may be interpreted as a requisite for establishing a relationship and is a relevant condition for mutually beneficial two-way communication between the service provider and the recipient.”

TrustEpisodic &

Relationship ValueCommitmentCustomer Intimacy

110.1:Creatingcustomertrust

The conclusion is that for the customer-bank relationship to reach its full potential and generate episodic and relationship value, both partners must be fully committed to the relationship, and this commitment is determined by trust. A prerequisite to trust is a bank’s strategy to create customer intimacy.

A path to customer intimacy is through Customer Relationship Management (CRM). We describe CRM and Customer Intimacy in the next chapter, and present issues dealing with Relationship Management in retail banking.

* Moorman, Zaltman and Deshpande, “Relationships between providers and users of market research: The dynamics of trust within and between organisations.” JournalofMarketingResearch, 29(August): 314-328 (1992).

† A. Parasuraman, Leonard L. Berry and Valarie A. Zeithaml, “Perceived Service Quality as a Customer-Based Performance Measure: An Empirical Examination of Organizational Barriers Using an Extended Service Quality Model,” HumanResourceManagement, 30(Fall), 3, 335-364 (1991).

‡ R. S. Achrol, “Evolution of the Marketing Organisation: New Forms for Turbulent Environments.” Journal ofMarketing, 55 (4), 77-93 (1991).

§ This is the key conclusion of Morgan and Hunt (1994).

¶ A. Omarini: BanksandBankSystems, Volume 6, Issue 3, (2011).


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Chapter 2: Customer Relationship Management and Customer Intimacy

The literature has not provided a universally accepted single definition of CRM. There are nearly as many definitions of CRM as there are software vendors and system integrators who specialise in the industry. In fact, this lack of clear definition is shown by the varying charters, roles and locations of CRM departments in retail banks today. However, one thing is for certain – CRM clearly is a strategy focused on evolving customer relationships.

That being said, we will provide a definition. One definition is: “CRM is a business strategy directed to understand, anticipate and respond to the needs of an enterprise’s current and potential customers in order to grow the relationship value.” For comparison, we refer to Payne and Frow (2005)* who state that “CRM is not simply an IT solution that is used to acquire and grow a customer base; it involves a profound synthesis of strategic vision; a corporate understanding of the nature of customer value in a multichannel environment; the utilisation of the appropriate information management and CRM applications; and high-quality operations, fulfillment, and service.” Note that this holistic view of CRM is apparently quite similar to the definition of relationship marketing proposed by Morgan and Hunt cited above.

We adopt the following observation made by Palmatier (2008):† “If relationship marketing is the science of relationships, then CRM is its application.”

A common misconception is the belief that CRM consists of software that will in and of itself achieve CRM objectives. CRM is not limited to application software but rather is a comprehensive and holistic customer focus that evolves with every customer activity. However, CRM software is important – it is necessary to achieve most CRM strategies and objectives. From an IT perspective, CRM business systems deliver customer information combined with operational, analytical and support tools that empower knowledge workers and provide a consistently superior customer experience.

* Payne, A, & Frow, P, “A strategic framework for customer relationship management,” JournalofMarketing, 69 (4), pp.167-176 (2005).

† Palmatier, R. W. “Relationship Marketing”. Cambridge, Massachusetts, Marketing Science Institute (2008).


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Open Question #2

In the Customer Service Quality Module, we showed that the five dimensions of customer service quality have a direct effect on customer loyalty – a key outcome of effective relationship management. The gap model shows that there may be problems in achieving the high levels of each of the dimensions that are required.

What are the implications of a customer gap on customer satisfaction? How is this gap related to an effective CRM strategy?

Customer IntimacyCustomer intimacy was first introduced by Treacy and Wiersema (1993). Customer intimacy represents the bank’s strategy to be customer responsive, which is accomplished by “segmenting and targeting markets precisely and then tailoring offerings to match the demands of those niches” (Treacy and Wiersema, 1993, p 84). These authors recommend that a bank strategy of customer intimacy must be coupled with a high level of product and operational leadership. This sentiment is echoed by Habryn etal (2010)* who state that customer intimacy is “not only about having a high-quality relationship with a customer: it is also about how an organisation and its members are able to leverage the knowledge acquired through this relationship in order to shape the offering and to achieve a competitive advantage”.

But customers’ needs change over time as they enter different phases of the life cycle. This presents bank staff with a significant challenge. They must be committed to a high-quality relationship with the customer, but must also understand that the nature of the relationship changes over time and their ability to adapt is important. For this reason, Habryn etal(2010) propose a two-dimensional model of customer intimacy. We present their model below:

Adaptable & Uncertain Future

Customer Intimate

In�exible &Uncertain Future

In�exible to Customer Needs

High

HighLow

Low

Quality of Relationship

Degree ofAdaptabilityBy Bank

110.2:Habryn’smodelofcustomerintimacy

Customer intimacy exists when there is a high-quality relationship (x-axis) and a high degree of adaptability of bank staff to respond to changing customers’ needs (y-axis). The implication for the bank is clear:

To create a strategy for customer intimacy which is a combination of a high-quality bank-customer relationship and a high degree of flexibility to adapt to changing customer needs, the bank must take steps to:

* François Habryn, Benjamin Blau, Gerhard Satzger etal. “Towards a Model for Measuring Customer Intimacy in B2B Services”, 1-14 ExploringServicesScience (2010).


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a) Create a high-quality bank-customer relationship (x-axis)b) Implement an effective CRM strategy (y-axis)

We now integrate the concepts and principles outlined in Chapters 1 and 2 to examine relationship management in retail banking. This is the focus of Chapter 3.


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Chapter 3: Relationship Management in Retail Banking

It is important to understand the history and evolution of relationship management in retail banking, not only to appreciate where we are today but also to determine where to go in the future. In this section, we will briefly explore the early days of banking through the 1970s and 1980s into the1990s where technological and channels transformation began, and then on to the state of things today.

The elemental phenomenon about the early ages of retail banking is that banks pushed products that they hoped customers would use. There was little or no discussion of whether customers needed the products the banks were selling – the fact remained that the banks needed the customers to buy and use their products, especially on the deposit side. Accordingly, the outcome for customers was an often disjointed collection of banking products in their personal portfolio with no appreciation of the value of those products in their personal lives. It is really necessary to understand this point to appreciate how customers have been conditioned to work with banks and the level of mistrust that currently exists.

This practice has not gone away entirely. See “Delivering Financial Services – Cost-effective Ongoing Customer Relationships” by Michael Lafferty (Lafferty Retail Banking Insights, March 2012), excerpted below.


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Sales-driven Retail Banking is an Abomination

“Of course sales-driven retail banking is an abomination,” said the obviously frustrated retail banking executive. “I hate it, but I need the job. I learnt how to put up with things I do not like doing when I was in the military,” he added despairingly.

The thought of a well-paid senior retail banker who goes to work every day to manage a team of sales staff who could not care less about their clients’ needs is depressing, to say the least. The staff he is talking about have backgrounds in furniture stores, car showrooms, in fact anywhere but banking - and they could not care less whether the products they push onto unsuspecting clients are good or bad for them. “Eventually people wake up, but the salesman has usually moved on,” he adds.

This Asian banker is passionate about his profession and gets great satisfaction from teaching students about how retail banking should function when it is done properly. “They identify with what I teach them, and then ask why retail banking is so different in practice,” he continues.

Our conversation turns to the country’s banks and their top management teams. It’s the same old story – investment banking culture pervades every bank and the regulators are totally oblivious to what this means for consumers.

Back in Europe in the wake of the release of the Liikanen Report on the future structure of European banking, I find bankers and regulators as confused about the topic of universal banking as the Liikanen Commission itself seems to be. Hardly anyone has read it and they have only a vague idea of what the earlier Vickers Report in the UK proposed. “Our universal banking tradition goes back generations and has nothing in common with the Anglo-American concept of recent times. Liikanen will not bring any change to our market,” an Austrian bank CEO tells me.

For the record, the German-Austrian version of universal banking is close to 100 years old and involves banks holding long-term stakes in industrial companies and sitting on their supervisory boards – as well as providing all the normal banking services. Now much less in evidence, it bears no relationship to the Anglo-American form of universal banking – which combines commercial and investment banking activities in one bank. The latter is what the Liikanen Commission was supposed to focus on.

The fact is that banks have had access to customer-relationship potential for decades. Unfortunately, banks have tried to impose their models on customers (instead of listening). Early retail banking was a collection of products and customers. Banks were content to serve a succession of strangers and be reactive versus proactive (“we have the money”). For the banks, it was just a collection of retail customers, with no strategic threads connecting their acquisition or growth.

Most banks were content with this arrangement, even though it meant that their employees’ days were spent serving a succession of relative strangers in their branch offices. Also, the industry ‘mystique’ of banks as being special organisations with unique access to knowledge and capital (most retail customers did not understand how banks worked or made money) gave customers little power in the buyer-supplier relationship.

As the second half of the 20th Century progressed, new recognition by banks of the importance of customer views emerged. Channels were expanding, and it was helpful to know how customers were using them. It was even better to know which customers were using which channels. Banks at this point were well known for inconvenience. Many had garnered reputations as non-customer-friendly organisations, often making it difficult for retail banking customers to do business with them. Those customers didn’t expect much in return for that business, and usually received it. The meagre offerings included:


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• Basic current accounts and a limited number of additional deposit products

• Perhaps the occasional opportunity to rent a safe-deposit vault

• A chance to apply for a loan, usually at the whim of the bank

• Overriding levels of inconvenience

But not for much longer. All of that began to change in the final quarter of the 20th Century. Customers began recognising additional opportunities afforded by new channels. As a result, banks looked for new incentives for customers to bank with them.

By the late 1970s, banks were beginning to consider the possibilities of relationships. Banks knew that their expanding menu of products could appeal to multiple needs. Recognising those needs helped banks to realise another important truth – that relationships with their customers weren’t just possible, they just might be essential for retail banking success. Banks were expanding their product offerings and, as noted earlier, were newly cognisant of customer needs.

The loaded term ‘cross-sell’ began to feature in banking vernacular. As the 1980s unfolded, banks were investing in new computer systems. The banks knew they needed additional functionality from their data systems – more immediate access to information, especially as it related to their customers. As functionality increased from enhanced data capabilities, it was a frustrating time for customers. They were on the cusp of tremendous leaps in telecommunications and personal computing.

These new approaches by banks generated by the investment in technology must have been quite confusing to customers, at least at first. Banks were suddenly bringing a lot to the table, and were even indicating that they cared about their customers’ financial lives.

As data became more accessible, opportunities emerged for banks to enhance their interaction with customers. The first data translations for relationship expansion occurred on the credit side. Credit card usage and spending behaviour gave banks an indication of customer behaviour and therefore a way to capture new opportunities. Also, expanding consumer lending increased household penetration for banks and provided new data points.

Following the lessons they learned from the burgeoning credit card business, banks began to track deposit-product usage and access patterns, exposing additional opportunities for relationship development. Nascent customer data systems were introduced, and so-called database marketing began in earnest. This database mining (a new concept) led to the development of marketing customer information files (MCIFs), providing new bases for banks to target marketing efforts toward specific customer segments.

Just as data showed promise, customer access channels grew (ATMs, phone) causing direct contact with customers to decrease. Banks reacted with more channels, and more data gathering (more ATMs, early home banking). Affinity credit card programmes and other schemes also appeared. The result: customers didn’t always know what to think or how to react and banks became more active in customer follow-up. ‘Selling’ became a key word in banking (marking a shift away from passive) and they started training their frontline staff on selling techniques – although these were product- not needs-based. Those efforts represented a significant cultural change.

In summary, increasing customer sophistication has led to technological innovations and new channels causing a shift in the ‘power’ of the customer-bank relationship towards the customer. The result: insertion of the relationship-management concept into retail banking, with more products, channels and choices characterised by a high-intensity, sales-driven, product-push industry. Where did relationship management go?

This means that today many retail banks have missed the opportunity to capture customer loyalty. Relationship management primarily flourished in the corporate banking business but failed to make it over to the retail side in its true form. Therefore, a big opportunity exists for those retail banking organisations that get it right and some examples exist today.


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One such example is HSBC. For a Premier (mass affluent) customer, relationship management is at the core of the value proposition. HSBC assures its customer: “Your dedicated RM is at the heart of your HSBC Premier experience. They are available to provide expert guidance whenever you need it. You can reach your RM by phone or email. Or if you would prefer, you can arrange to meet them in a branch, at your office or even at your own home. Alternatively, you can choose to use our telephone-based Relationship Management service – particularly useful if your schedule makes visiting a branch difficult or if you prefer to do your banking after hours. Whatever time you call, someone in HSBC Premier Direct will be on the other end of the phone to answer any questions you might have.

“Your HSBC Premier Relationship Manager is the key to making the most of your money, and the better they know you, the better they’ll be able to help you manage your financial arrangements. They will help you to assess your personal circumstances and your life goals.”

The things that really stand out are dedicated relationship management, 24-hour access, multiple channels, customer intimacy, and the long-term nature of the relationship (‘life goals’). If globally executed, this truly is relationship management in retail banking.

The Role of CRM

To recap, CRM is not confined to business processes within an information technology system. In fact, CRM can consist of virtually any front-office or customer-facing process designed to improve the company’s relationship with customers. As an example of a CRM business process that doesn’t require any technology, think of the old adage ‘service with a smile’ or ‘the customer is always right’ – these are examples of customer relationship management processes made popular long before the introduction of CRM software technology.

For this module, however, we will define it as a system. Therefore, there are two key elements: analytical CRM and operational CRM. Analytical CRM is the ‘calculation engine’ (e.g., the formula for predictive modelling, data mining) in the system used to create the opportunities for product sales based on the data input. A key output from the analytics is the leads generated for marketing campaigns. Operational CRM, on the other hand, is how the results generated by the system are used to deepen relationships – the business operations and tools. While both are critical to successful CRM, from a pure relationship management perspective, operational CRM has the greatest impact because it may be visible to the customer.

To provide more context on the roles of analytical and operational CRM, we can use the analogy of an automobile. The analytics is the engine (it determines how fast and how far we can go) while the operational piece is the driver (it determines our destination and ‘drives’ our ability to get there). The important point to understand is the relatively more recent focus on the operational aspect. This will become especially apparent as we examine the history of CRM. In the beginning, when CRM systems were first developed, it was all about the engine.

Lastly, the interconnection of relationship management and the role of the CRM system has an interesting twist. The greater the sophistication of the needs of the customer (sophistication equals the level of advisory, complexity of sale/products, average size of the transaction), the greater the impact of relationship management. In essence, the more profitable the customer, the more impact the process of relationship management has, and the less the system has.

History of CRM

As described earlier, marketing customer information files (MCIFs) were the initial incursions for most banks into the world of information management. As the name implies, bank marketing departments were the repositories of the customer information irrespective of ‘ownership’. Bank marketers began information-based campaigns as there seemed to be a tendency to jump ahead on the information train.

Marketers often proceed ahead of business line managers. There are reasons for this approach


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– marketers usually have more vision than line managers. A good example of vision that might have exceeded organisational capabilities was the proposal of predictive modelling for retail banking customers in the late 1980s. It sounded like a good idea at the time, but it was a classic example of theory overreaching execution; nearly a generation of retail banks are still trying to put effective modelling programmes in place, and trying to quantify results definitively from those programmes.

However limited those early MCIFs might have been, they did create an elevated appreciation of the value of customer information. As those MCIF systems became institutionalised, senior retail bankers grew to understand how they could support a growing customer-based effort to build the retail business.

The challenge still remained on how to close the deals – customer responses to somewhat primitive marketing efforts were okay, although not much of an improvement over data-based direct mail efforts. That proved to be quite a barrier to success, as customers demonstrated that they would not simply roll over for banks attempting to use information as a new currency in developing relationships with them. From both perspectives – banks and customers – it was becoming much clearer that relationships had to be better defined before there could be any thoughts of their being managed.

CRM emerges

The migration of the banking industry from the somewhat primitive grounding of MCIFs to the more sophisticated approach embodied in three letters, CRM, seemed quite short. But that is misleading. In fact, many of the elements contained in MCIF systems formed the basis of later CRM models, but those CRM structures were developed to extend far beyond the earlier capabilities.

The promise of CRM was intoxicating to the banking industry. After all, the MCIF approaches of the preceding several years had shown great promise. To have a new technology that indicated nearly limitless opportunities to control customer relationships meant a great deal to still largely tradition-bound retail banking executives around the world.

With any new technology, it is important not to let the ‘buzz’ outstrip reality. All new technologies must perform; they cannot be exempt from the types of metrics that apply to all business programmes. Banks are notorious for letting heightened expectations of technology overrun reality. However, the promise of more systems-based information management was intoxicating.

That is especially important because like many systems solutions, CRM demanded a healthy dose of human interaction to be integrated with operating systems. When CRM systems were introduced, there may have been some hope that the systems would produce what banking executives hadn’t been able to achieve: customer responsiveness to bank sales efforts. However, frontline staff still had to perform at a high level to produce results. If banks had realised the ‘human interaction element’ earlier, they could have differentiated themselves from other financial-services providers and would have made tremendous strides. That being said, were some of those steps, and the consequences, in this move to CRM really comprehended by banks and customers (e.g., telemarketing, junk mail)?

Banks kept going back to the CRM trough. Big-name solutions providers were making some big-time promises as they sold system after system to banking industry users.

These somewhat glitzy new partners for banks bore names like Siebel, Oracle and SAP, and delegates at banking conferences around the globe couldn’t ignore the splashy booths and sponsorship receptions that these and other companies put forth. These CRM-pushing firms actually became quite expert as marketing companies, selling capabilities that may have been attainable, but for the fact that most banks did not have the requisite skills to achieve the levels of success expected. Billions were spent in hundreds of markets. However, for the banking industry, billions of relationships didn’t result from those investments.


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In MarketingServices:CompetingThroughQuality, Leonard Berry and A. Parasuraman lay out a model that outlined the key characteristics of relationship customers. Those identifying features include the following elements:

• True customers (those seen as having a bona fide relationship with their provider) are glad they selected their bank (notice the affirmative nature of ‘selected’).

• Those customers believe that they are receiving value and feel valued by their financial-service provider.

• Relationship customers are likely to purchase additional services from their bank.

• These committed customers are unlikely to defect to a competitor organisation.

• Finally, these true relationship customers tend to be, unquestionably, the most profitable customers in the organisation.

With this information in hand, banks began rethinking their approach to CRM and began to focus not just on what customers wanted or needed to buy but also the entire customer journey. Needs-based segmentation occurred and operational CRM became as important as analytical CRM.

This was all well and good, but a simple fact remained: banks didn’t really have information managers on staff who could address all the issues that customer-information (and relationship) management raised. As new systems and their potential became evident, banks invested in the ancillary requirements of the new computing environment and in the people necessary to make the technology investments successful.

Now that retail banks had figured out the best ways to collect customer data, and had invested in the necessary people as well as putting customer needs to the fore, the next step was to discover the optimal methods of integrating pertinent customer information. Here’s a look at that process:

Customer-dataintegration

• Look at the opportunities for ensuring the right data gets integrated• Create a single, complete view of the customer • Create reliable customer data for enterprise use

Customer-dataintegrationplus

• Understand the true nature of customer relationships• Uncover the depth of customer interactions among staff• Establish an extended view of the customer as integral to a successful business

Visionarycustomer-dataintegration

• A single view of all customers and their relationships• Accurate visibility into the financial needs of customers• Greater knowledge interchange with customers

The evolutionary process had begun. Banks were moving from ‘sell what we want, when we want, to everyone’ to ‘offer customers what they need, when and how they need it’. Even today, many organisations are not yet there. Banks that truly want to move to a customer-focused CRM approach need to work out if they have both the system and the organisational will for such a transformation.


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Customer-needs-based sales and service-integrated campaign execution in all channels is a process endorsed by the highest levels of an organisation, embedded into the corporate culture and pervasive throughout the organisation. CRM is not a destination, it is a journey of continuous learning, process improvement, and customer-relationship evolution that is both flexible and dynamic.

Open Question #3

The 2011 Customer Experience Impact (CEI) Report by RightNow, conducted by Harris Interactive, shows that 86 percent of consumers will pay more for a better customer experience.

Doyouagreewiththisstatement?

The Role of a Customer Service Representative (CSR)

As discussed initially, there are several factors that affect how businesses define and execute relationship management and there are three big influencers. We have discussed CRM; now we will discuss the second factor – the customer service representative (CSR). A CSR ’s primary job is to sell by meeting the needs of the client. (Needs first, sales second). Remember, we mentioned that a CSR is more than a super salesperson. The difference between a standard salesperson and a CSR is the length and complexity of the sales cycle – and the ongoing nature of the relationship. Whereas a salesperson looks to only meet an immediate need, CSRs look to meet the immediate and long-term needs of a client.

A CSR has to provide solutions to the client. Many can sell a single product once (such as a television or car), but it requires the skills of a relationship manager to meet the varied needs of clients who are planning for retirement, trying to manage their wealth, and/or exploring options to sell their business – and turn that into a profitable relationship for a retail bank. Due to the long-term nature of not only needs but goals, a client must be able to trust the CSR.

A CSR is also different from a typical salesperson due to the difference in power structure. A salesperson is primarily hoping to make the sale. Although developing a long-term relationship would be beneficial, it is a secondary consideration. As a result, almost all of the power is with the buyer. A CSR, on the other hand, provides a valuable, intangible service because of his familiarity with the client’s historical needs, as well as the solutions provided over the years. This causes the power structure to be more balanced (higher ‘switching costs’ for the client) and more of a true partnership. The sales cycle is longer (to gain trust) but loyalty tends to be stronger.

All Customer Service Representatives share some key traits. These are: long-term focus, providing solutions – not just executing transactions, developing trust or partnership with the client, and creating high switching costs for the customer through the delivery of tailored (and effective) advice.

Though there are key common traits, there are different types of CSR roles in retail banking. This is because there are usually multiple roles involved in the initial and ongoing sales and service process for retail banking customers. Also, there are differing customer segments and business lines within retail banking. The complexity is increased depending on the product and channel. In addition to the CSR, there may be a branch manager, call centre representative, investment specialist etc. Also, resources involved in managing the relationship, as well as the overlap increase as you go lower in the segment pyramid (private to affluent to mass).

Given all the types of jobs that can ‘touch’ the customer relationship (in addition to the CSR), role clarity is important. Why? As we have stated, there are many roles involved in relationship management of retail banking customers and each time someone serves the customer, it is an opportunity to enhance or destroy value in the relationship. Also, complexity has been increasing over time, as we have seen in the history of CRM: more channels, products and contact. The


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bottom line is that role clarity equals happier customers and more satisfied employees.

As already mentioned, CSRs are in it for the long haul. Because CSRs clearly need to meet the current (transactional) needs of clients as well as longer-term goals, they must fight the urge to push products. Retail banking customers universally agree with this, and do not want to be ‘sold to’. Therefore, the formula is clarity plus relationships equals business success. The incremental growth of retail banks that operate this way show how powerful it is.

Since relationships are the way ahead for successful retail banks and many jobs affect the customer relationship (with the CSR at the centre), we can see why clarity is important. A retail banking business must have clarity not just internally, but also externally – with the customer. How is this achieved? By clearly understanding the entire sales and service continuum (‘mapping out’), and how ‘hand-offs’ are handled within this process. Relationship management is only as strong as its weakest link in the sales-process-value chain. Therefore, all resources have a stake in managing the relationship. Customer ownership and responsibility is a universal concept held dear by all front-office roles in world-class retail banks.

Turning information into relationships

Not only must CSRs be highly skilled in understanding the needs of customers but also in converting the information they receive from CRM systems (and other bank sources) into a product or service that meets customer needs. From an information perspective, relationship management equals gathering information to meet needs. Since CRM investments were producing limited returns on customer information tracking, it was time to insert a human element into the mix.

The principal challenge for retail banks is building and sustaining relationships on a needs basis, with information as a key business intelligence advantage. (Remember, it is all about discerning needs). Banks, as we have said, had more information about customers than most other types of organisations (except maybe tax authorities). Winning banks figured out the odds: to keep customers was better than to risk losing them. There have been anecdotal formulas put forth that indicate a five-fold expense of winning new customers over retaining existing ones. As the adage goes, “losing a good customer is one of the most expensive things a business can do.”

Banks continued to survey the landscape of their marketplaces, and calculated that information could be the key to gaining new customer relationships. The two-way aspect of the communications process was the most important revelation for banks. As discussed earlier in this module, banks had become accustomed to controlling the information flow to customers, and it took a real effort to change that course, and to begin listening and reacting to their customers. Also, there was a new twist that banks could not have anticipated – customers began talking to each other about their banks.

Delivering information is important, but it’s really just the beginning of a process. Banks must continually synthesise information into knowledge, and convey that knowledge to customers, thereby meeting their needs. The CSR is the conduit for delivering that information to customers, especially in complex situations.

New vehicles enabled more effective and expansive communications. As we have seen, retail banks began hearing over and over that it was relationships that mattered. Banks began learning how to communicate their way into relationships through the CSR role. Therefore, CSRs needed to ask: what do customers want and expect from their banks? In essence, CSRs needed to understand why customers buy and the decision process they go through. (The how is also important, and is discussed in the next section on channels).

To understand why customers buy, understanding the key customer touch points or stages in the process is critical. There is a progression that is usually seen as a funnel, with those touch points moving from one stage to another, and ultimately resulting in a positive outcome for both bank and customer. McKinsey and Co portrayed this process in an article titled “The Customer


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Decision Journey” in the April 2009 issue of McKinseyQuarterly. That progression is: awareness, to familiarity, to consideration, to purchase, and on to loyalty. Since it is a funnel, not all relationships make it to the loyalty stage. Therefore, understanding what motivates customers early in the relationship-management process is essential. A proficient CSR will know how this process works in the minds of their customers in intimate detail, so the funnel stays as wide as possible.

Loyalty, of course, is a much-pursued customer position. However, it is also important to note that customers are seeking that same quality in their banks. Too often they perceive that banks are only committed to the short-term contributions that customers can make to their bottom line (or individual bonuses). It is also important to note that the final trait in this progression prior to loyalty is purchase – and it does not mean a repeat sale. Banks and CSRs must always remember that the successful culmination of a customer interaction is the decision by a customer to continue to purchase over time. This moves the dynamic with the customer to loyalty and the ability to offer solutions.

If we drill down deeper, the process of purchase to loyalty – and the loop that occurs – is of key importance. By understanding the psychology of customers, we can see that the post-purchase experience is as important as the pre-purchase decision process. What does this mean? It underscores the importance of banks actively interacting with prospects, or customers, at every point along the way before and after the sale. Therefore, relationship management is about sales and service.

As retail banks began the tedious process of turning around years of ingrained behaviour of frontline staff, they realised that delivering information was important, but also that it was just the start of a long-term process. Banks must continually synthesise information into knowledge for their customers, adding obvious value to their relationship-building efforts at every step. They must also shift the perceptions of what customers think about the banking-customer process.

As Bain & Company pointed out in its 2010 research, one of the pitfalls for banks in trying to achieve value creation for their customers is having a higher opinion of their efforts than customers do. In comparing the perspectives of 400 companies and their customers as to whether those firms were providing superior customer service, the gap was stunning. Company opinions of their performance were 10 times higher than those of their customers. Therefore, in order to shift perceptions in a positive direction, retail banks must take steps to ensure that they are not disconnected from the opinions of customers. In fact, organisations that embrace a value proposition of customer intimacy actively involve customers in the solution-development process (i.e., they talk to customers). We will discuss this later.

We observed that CSRs must be highly skilled in understanding the needs of customers and in turning information into a product or service that will meet the needs of the customer. By meeting a customer’s needs (more than once), trust is earned and the relationship moves to that of meeting customer goals.

In a rapidly changing world of financial information, customers are seeking clarity – translating bank jargon into customer knowledge. Therefore, retail banking success relies on consistency of knowledge delivery. This develops into trust and a long-term partnership with the customer. Whatever the knowledge method, it’s incumbent upon banks to fashion it in customer modes (and involve them). CSRs have one full-time job: to remain relevant to their customers by establishing the bank and themselves as reliable sources of information, and turning that information into solutions. The result: retail banks produce fair returns for shareholders by creating and exchanging tangible value with their customers.

The Role of Channels

As mentioned earlier, an organisation’s choice of channels is a critical influencer on the way the process of relationship management is executed in any retail bank. Also, there are a great number of channels from which retail banks may choose – from branches to social media. The winning (and losing) factors are numerous and the interconnection complex.


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While the choice of which channel to deliver products and services to customers is a critical business decision, we have also seen there are different relationship roles by segment. Therefore, coordination of channels within each segment is necessary. As the trend to online (remote) channels is occurring (primarily from a transaction-processing perspective), the development of new business models and migration across channels is happening more often, increasing the complexity.

Internet banking is now a major delivery channel globally. Mobile banking is also increasing in relevance, even in many emerging areas, such as eastern Europe, where more people have mobile phones than computers. The internet and mobile channels provide retail banks with the opportunity to both sell to and service customers as well as a platform to acquire new customers.

They potentially offer a wide range of services, although both channels are still primarily transactions-and-payments vehicles. In places like the US, more than 70 percent of customers do many of their basic transactions (e.g., moving money around) through either internet or mobile banking channels. As this trend is increasing – even in emerging markets – the question for retail banks becomes‚ “How do you manage relationships when no live person may ever meet or speak to the customer?”

With branches, human contact is not the issue. While new branch formats and styles need to be constantly explored, as well as the effectiveness of branches within a network, customers simply need a comfortable and convenient place to do their banking; a place that provides them with choice and world-class service. The role of branch will increasingly move towards a place of advisory sessions, as well as complex sales and service transactions.

We have discussed two types of channels at opposite ends of the spectrum: branches – high-touch, sales friendly and expensive; and online – low-touch, transaction-focused and inexpensive. Given that cost is a factor in channel selection, as well as offering the best, most convenient service possible, a cost-effective delivery model is important for operating success. Therefore, migrating (directing) customers to cheaper alternatives for low-value transactions is an effective way to focus more resources in the branch on relationships and solutions.

As we have seen, coordination is critical for success in retail banking today. Understanding the intersections of products, segments and channels in a detailed way is essential to managing retail bank relationships effectively. Each retail bank must develop a process (guidelines, owners) for coordination (sales process as well as sales and service roles) among all channels. As stated previously: segments and products first, then make decisions about which channel to serve each specific segment, with any adjustment for different types of products. Remember, management of the relationship across channels may make or break the relationship (e.g., the customer is quoted one price in the branch and another on the website; or is sold one product over the phone and those in the branch have little product knowledge to service the transaction).

In summary, a retail banking business needs to determine the relationship role in each channel (and segment) and ensure that handovers among channels and roles are handled flawlessly. Also, communication across channels must be the same – same message and price – and service must not deteriorate at any point.*

Open Question #4

Blosch (2000)* argues that customer knowledge can be better understood by examining the points at which different customers interact with the organisation (e.g., points of contact with the bank or channels). He suggests that customers should be segmented on the basis of their points of interaction.

Doyouagreewiththisrecommendationformarketsegmentation?

* M. Blosch, “Customer Knowledge”, KnowledgeandProcessManagement,7(4), 265-268 (2000)


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Now that we have discussed the relationship management from multiple perspectives, we will conclude this module by asking how to bring this together in a high-impact retail banking operating model. The way ahead for retail banks has three key aspects:

1) Move from a narrowly defined customer-relationship management to a more general concept that also involves customer-experience management – or customer managed relationships (CMR)

2) Foster customer intimacy – this should be the bank’s value proposition

3) Ensure all employees are sensitive to customer needs – become local customer service representatives (CSRs)

As a new century unfolded it was becoming more and more apparent that CRM might be more accurately characterised as CMR – the path to success was not customer-relationship management but more properly called, the ‘customer-managed relationship’

As banks considered the idea, some forward-thinking banks proffered a corollary: were CRM and CMR mutually exclusive? The quick answer is of course not. They are to a large extent mutually reliant – in fact, CMR is an evolution of CRM. CMR is the output, CRM (data/information) one of the inputs. Overall, banks have been putting CRM systems to better use over the past few years. However, dealing with increased levels of information and enhanced levels of expectation has been difficult. Therefore, some change was needed.

Banks need to transform perceptions of customers and transfer/evolve delivery options. CMR indicated the shift of control from the bank to the customer. Are banks ready to cede that type of power to their customers? Are they ready to meet new demands from customers?

Customer expectations

Understanding expectations is critical for success, and the cornerstone of a relationship-management business model. (We have already discussed the more subtle concept of perception). Knowing what the customer-value drivers are, and performance expectations against those drivers, puts the customer at the centre of the customer-bank relationship. It is only natural that as information exchange increases and knowledge grows, customer demands will increase. Early CRM approaches by banks attempted to stifle that demand in favour of product pushes, (i.e., the transactional versus the solution). Customers didn’t react well to being told continually what was best for them.

In the Customer Experience 2010 Study, Forrester Research’s Bruce Temkin categorised businesses from industries into several groups (including banks), based upon rating the quality of their experiences. Corporate names like Barnes & Noble, Apple and Hilton Hotels were included. Only 17 percent of the firms rated as having an ‘Excellent’ or ‘Good’ customer experience were banks or other retail financial-services providers. In the ‘Okay’ category, one-quarter of the firms were banks and their retail financial brethren. And taking the ‘stale cake’, one-third of the companies ranked as ‘Poor’ or ‘Very Poor’ were retail banks.

These results were tallied after banks had spent the previous 25 to 30 years and countless dollars, pounds, euro and other currencies attempting to maximise the experiences of their customers. Considering that effort, attaining those levels of customer indifference was quite depressing. Customers continued to demand more from their retail banks, with new and expanded access to information empowering customers to follow through on those demands.

As a result of this performance, retail banks began speaking a better customer-based language. That proved to be more of a double-edged sword than expected. When you tell customers what you can do for them, they tend to believe you, unless you give them reasons that they should not. In the rush to improve customer ratings, banks exhibited tendencies to over-promise and under-deliver. That combination leads to no good on either side of the customer relationship.


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Retail banking success relies on the consistency of that knowledge delivery and tracking. Consistency must radiate and resound throughout the entire retail banking organisation, and continually be refreshed and recommitted. That commitment to advancing customer knowledge can assume many forms, but in today’s retail banking environment it is most often referred to as experience. According to Bruce Temkin in Forrester Research’s 2008 paper, The CustomerExperienceJourney, there are five stages of experience-based differentiation that companies can achieve:

• Interested In this stage, organisations recognise that the customer experience is important to their business, and take affirmative steps to address the situation.

• Invested Companies in this stage of experience-based differentiation know that they must make a significant investment in shifting their culture towards customer relationships built around customer experiences with them.

• Committed As the name of this stage implies, organisations at this level understand that the customer experience has direct and substantial results on profitability, and the experience focus must permeate all levels of the company.

• Engaged Customer experience becomes all-consuming at this stage of organisational maturity, and everyone in the company is contributing.

• Embedded Ingrained throughout the enterprise, the customer experience is owned by every employee, and each customer interaction reinforces the positive perception of the company’s brand.

Since retail banks saw the importance of transitioning from CRM to CMR, but had moderate success even in the CRM space, they realised the value of commitment: getting the organisation committed to the drive for customer excellence.

Customers were consistently demanding more from their banks. New and expanded access to information empowered customers to follow through on those demands. However, retail banks were not sure how to respond to this new value exchange with customer expectations rising. First came CRM, then came CMR – but what about CEM (customer expectation management)? CEM is an emerging concept that is gaining traction (not customer experience) as banks have the opportunity to modulate CEM across multiple channels, continuously. Remember our mantra of channel coordination.

JD Power and Associates is a US firm that specialises in providing quality assessments of providers in various industries. JD Power established its reputation in the automotive industry, and its quality rankings of US cars have become the gold standard in that business. In 2006, JD Power began rating retail banking customer satisfaction across a range of regional and national banks in the US. Within five years, these assessments have gained recognition.

As part of its 2011 study, JD Power dug a bit deeper to garner additional insights on how American retail banking customers were interacting with their banks. The results included some eye-openers. A primary customer-attrition level of 8.7 percent may seem low to some large banks measured in the study, as some regularly experience annual defection rates of 15 to 20 percent. However, the number is increasing as customer ‘stickiness’ is decreasing, and it is indicative of the lack of penetration strategies for retail banks.

That second statistic is even more telling on the relationship front, with fewer than half bank customers purchasing an additional solution from their primary bank. This makes one wonder


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how long banks might be referred to as ‘primary’ with those types of numbers. A quote* by Rockwell Clancy, JD Power vice president, describes the situation well: the reference to “indifferent customers” is troubling indeed. If banks have not engaged their customers by now, they might just deserve the consequences.

The culmination of this is simple: banks that understand and meet customer needs win. Therefore, retail banks need to step back and determine how they add value. One of the simplest ways of doing this is to ask your customers what their needs are. Remember we discussed how important this value exchange with customers is. Retail banking customers do not want to be sold to; they want to have their needs served. Banks that understand this challenge stand ready to prepare their staff with everything they need to answer the question all prospects and customers have – Why should I bank with you? – and develop an operating model around the answers. Also, banks need to develop a process in which a continuing effort is focused on what the organisation can do to arm their staff with the tools to deliver on rising customer expectations.

In looking at the customer-value drivers for retail banks today (in essence the answer to the why), customers consistently say the things that matter most to them revolve around customer intimacy. While products and convenience are important (as is pricing), they are less of a priority for customers.

CMR, customer intimacy and the CSR

The words easy, trust and service come out when we look at the customer value drivers. According to renowned customer-centricity advocate, Patricia Seybold, in her 2003 article “Beyond CRM to CMR”, customer messages to banks were clear:

• Make it easier for customers to buy your products

• Resolve each customer problem in a single interaction

• Provide a consistent and current 360-degree view of the customer

Information is the key. It is the new currency between banks and their customers, and its proper use helps banks to set realistic customer expectations and manage their own performance in meeting and exceeding those expectations. However, the customer is at the core of all CMR.

We have discussed CRM and how this has morphed into CMR. We also have discussed the role of customer expectations. However, to sum it up, it may be helpful to define CMR. Let us now explore a more practical definition. Here is a definition in the form of a short narrative†:

“About 10 months ago, Disney Destinations, the travel agency arm of Disney changed its ‘CRM’acronym to ‘CMR’ calling it a slight change in philosophy. The change went from ‘customer-relationshipmanagement’ to ‘customer-managed relationships’. Slight? I don’t think so. This isanimportantrecognitionbyDisney,whichalwaysseemstostayaheadofthecurve,thatthecustomernowdominatesthebusinessecosystem,andanybusinessthatwantstobesuccessfulneedstonotonlyrecognisethefactbutalsoactuallyrethinkitsbusinessmodelanditsstrategies.

“MostcompaniesarepayinghomagetotheCustomer2.0version...Butit’stheexecutionthatcounts,nottheaccolades.Inotherwords,customersdon’twanttohearfromthecompanythattheyareimportant,theywanttoactuallyfeelimportanttothecompanyandgetwhattheyneedfromthecompany.

“Don’t underestimate the use of the senses here; ‘feel’ is not a word I used lightly. Ultimately, ifcustomersdon’tfeeltheirpresenceisvaluedandtheexperiencestheyhavewith‘thecompany’don’treinforce that valued feeling, theywill take their business elsewhere–because they can. Toput itanothermoremetaphoricalway,youdon’thaveto‘haveluxury’,youhaveto‘feelluxurious’.That’swhyproductsandservicesdon’tdoitanymore.Successfulcompaniesarenowaggregatorsofvalued

* “Clearly, banks that are not providing a noticeably better experience are more likely to lose the business of indifferent customers who are more easily lured by the next attractive promotional offer to come along.” J. D. Power website <businesscenter.jdpower.com/news/pressrelease.aspx?ID=2011020>† Paul Greenberg, “Customer Managed Relationships”, CustomerThink (19 February 2007)


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experiences,ratherthanprovidersofgoodsandservices.”

There are some key points here including, how the customer feels (perceptions) and what his expectations are; these are critical to the value exchange.

What does this mean? It means that for a retail bank to create sustainable competitive advantage, following a customer value proposition is the (difficult) path that will lead to the best chance of success. Why is this? Because the customer-intimacy discipline most closely aligns with the key value drivers for retail banking customers. There are always exceptions to the rule. To be clear, what this does not mean is developing a customer-intimacy approach if you are not ready as an organisation (e.g., your IT infrastructure is not yet close to the ‘operational competence’ benchmark). In these cases, a multi-pronged approach across all disciplines must be established until the organisation is ready to leap ahead.

As with most business efforts, the most difficult is often the most rewarding. In 2006, research performed by IBM Global Business Services showed that companies pursuing a customer-focused business model outperformed companies that adopted either an operational or product-based model, and by a wide margin. The customer model produced relative operating margins more than 20 times those of a product model, while an operational excellence model actually put the company at a financial disadvantage.

As already identified, for most retail banking organisations, the way to sustainable competitive advantage is through adopting a value discipline (proposition) focused on customer intimacy. Therefore, the ultimate strategic goal is to develop solutions for customers, and not simply sell products and services. We mentioned in detail the necessity of developing solutions for customers versus meeting transactional needs.

The new value definition of relationship management constitutes a complete customer relationship – exactly as customers (and banks) had envisaged it. In this new proposition, retail banks have a chance to move beyond talk. Customers have been looking for more from their banks, and are now in a position to achieve it. Customers know that a relationship comprises more than a mere collection of products, and they expect the relationship to be progressive, not iterative.

Banks must nurture every aspect of the customer relationship, at every interaction point. As delivery channels increase, that becomes more challenging, but also more rewarding for banks that succeed. Where the relationship begins to wither, for whatever reason, the outcome will depend on proper perspective from both viewpoints. The window available for the bank is wide but limited; every opening must be exploited.

Retail banks have historically viewed customers as quasi-commodities, sources of revenue and nothing more. It is true that customers provide profits, but they cannot be viewed in such a simplistic manner. Relationships are partnerships that rely on contributions from both participants. Banks court prospects by promising that type of partnership. Customers are searching for answers to their financial questions and, ultimately, their goals. They will positively respond to banks’ solid responses to these questions. The relationship hinges on trust and solutions. To earn this and deliver to customers, retail banks require a CSR.

The central role of the CSR is to gain trust. What we mean by trust is value, transparency, honesty, perceptions (of the brand), delivering on promises etc. There is an inverse relationship between propensity to buy and propensity to leave. So, customers that are likely to buy are not ready to leave a bank.

There is also a direct correlation between the propensity to buy and trust. Therefore, the positive ‘delta’ between the propensity to buy and the propensity to leave can be referred to as the ‘RM effect’. CSRs are typically more expensive than normal sales-and-service resources, but the return on investment can be significant.

Since the role of the CSR is central to the success of a relationship-management business model,


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investing properly in the CSR is critical for retail banks. When looking at the type of investment needed, the following aspects are important:

• RecruitingClarify the role, skills and competencies, and hire competitively. The hiring process is the first link in the value chain to success. If a retail bank gets this wrong (e.g., under-hires to save on compensation), there is little hope of recovery.

• Training/ToolsGive the CSRs the tools (soft and hard) to be successful. Soft tools include relationship-selling skills, financial-advisory technical skills etc. Hard tools are things like contact-management tools, mobile phones etc.

• Incentives/Rewards Develop and reinforce a pay-for-performance culture. This means motivating and rewarding CSRs for excellence. This includes cash and non-cash rewards, including career progression and personal-development opportunities.

• BranchManager Win support from the Branch managers (BMs). The branch manager is one of the most critical roles in any retail banking business. Without support from BMs, branch-based CSRs cannot be successful.

• CommitmentBy this we mean commitment from all staff, including senior management. As with the branch managers, if senior managers do not support a customer-intimate approach with relationship managers at the centre, the model cannot work

Open Question #5

Law, Lau, and Wang* (2003) suggest that the CRM approach is dated and that customers should no longer be treated as passive groups and assigned to some predetermined category. Rather, customers should be the starting point. They seek a transition from CRM to CMR.

DoyoubelievethattheCMRapproachwiththecustomerasthestartingpointhasasignificantsimilaritytotheKaminskyphilosophy?

Summary*

This module integrated several issues raised in the previous nine modules of Retail Banking I. Relationship Management is based on the creation of an optimal long-term bank-customer relationship that serves the long-term needs of the customer and as a result, the long-term profitability of the bank. The operational model presented in Chapter 2 shows that a strategy of customer intimacy creates trust that leads to commitment to a long-term relationship. This creates both episodic and relationship value for both the customer and the bank.

Customer service representatives have a key role in creating and developing long-term customer relationships. CSRs include dedicated relationship managers (RMs) in private banking and lending to small and medium enterprises (SME). Chapter 3 presented a detailed discussion of the role of relationship management in retail banking. It is noteworthy that the Kaminsky view of a retail banking is based on the principle that a customer-bank relationship is the only true asset on a bank’s balance sheet and the only source of long-term value for the bank.

* M. Law, T. Lau and Y. H. Wang, “CMR: From Customer Relationship Management to Customer Managed Relationship: Unravelling the paradox with a co-creative perspective”, MarketingIntelligenceandPlanning 21/1: 51-60, (2003).


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Multiple Choice Questions

1.Whichstatementisincorrect?

a) Customer intimacy is determined by two factors, one of which is the bank’s ability to adapt to the customer’s changing needs.b) Customer intimacy reflects an emotional bond between the customer and the bank. c) Customer intimacy is a prerequisite for a long-term customer-bank relationship.d) Customer intimacy is a value proposition determined by operational leadership.

2.Whichstatementisincorrect?

a) Traditionally, relationship marketing focused on customer retention.b) Social exchange theory states that all human relations are based on subjective assessments of costs and benefits by those involved in the relationship.c) The quality of the bank-customer relationship affects the level of customer intimacy.d) Commitment to the relationship of a bank and customer leads to trust.

3.Thereareseveralstagesinthecustomerexperiencejourney.Thestatement“organisationsrecognisethatthecustomerexperienceisimportanttotheirbusiness,andtakeaffirmativestepstoaddressthesituation”describeswhichstage?

a) Embeddedb) Interestedc) Investedd) Committed

4.“Valueastrustforamutuallybeneficiallyrelationship”isanexampleof:

a) Episode valueb) Relationship valuec) Network value d) Transactional value

5.Whichstatementiscorrect?

a) Operational CRM is a calculation engine.b) Operational CRM is used for data mining and predictive modelling.c) Operational CRM is used to deepen relationships.d) Analytical CRM is used mostly for relationship management strategies.

6. There is evidence that trust determines customer commitment to a long-term relationshipwthbanks.Whichofthefollowingisamainfactorincreatingcustomertrust?

a) Bank’s innovative productsb) Bank’s extensive network of channelsc) Bank’s adoption of CRM softwared) Professional and ethical bank staff


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RETAIL BANKING I

7.AllofthefollowingwilllikelyleadtoafailedCRMsysteminaretailbankexcept:

a) Implementing a CRM strategy without having a clear customer strategy in placeb) Assuming that CRM is an IT issuec) Investing in CRM technology to increase positive customer experienced) Investing in CRM technology to promote bank offers

8.Allofthefollowingdescribetheroleofcustomerservicerepresentatives(CSRs)except:

a) CSRs utilise CRM systems to turn customer information into relationships.b) CSRs focus mainly on the immediate needs of customers.c) In Kaminsky’s view, CSRs deliver long-term value for the bank.d) By creating long-term relationships with customers, CSRs reduce customer attrition rates.

9.IntheKaminskymodelofretailbanking,theonlysourceofvaluefortheretailbankisderivedfrom:

a) Innovative productsb) Extensive network of channelsc) Customer-bank relationshipsd) Robust credit risk management

10.RelationshipManagementrequiresreliableandintegrateddata.Allofthefollowingareattributesofavisionarycustomer-dataintegrationexcept:

a) A single view of all customers and their relationships with the bankb) Accurate visibility into the financial needs of customers at each touch pointc) Greater knowledge interchange between customers and bank frontline staffd) An extensive network of bank channels

Answers:

1 2 3 4 5 6 7 8 9 10

d d b b c d c b d c


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Relationship Management Y - Retail Banking Academy · PDF filereflection of a positive customer-bank relationship ... A close concept to relationship management is relationship