®

The Frontline FactorDevelop Long-Term Customer

Relationships in 3 Months

February 9, 2005

®

Develop Long-Term Customer Relationships

in Three Months

February 9, 2005

David KlebbaVice President

Financial ServicesOracle Corporation

The Front-line FactorStudy Background

• Banks have made enormous investments in relationship-based strategies in recent years, hoping to bolster profitable revenue growth through improved customer interaction

• But major initiatives – such as customer relationship management, needs-based selling and segmentation – often fall victim to front-line execution in the branch, causing potentially huge opportunities to be lost

• Fresh insights were needed so that customers, financial institutions and solutions providers can experience the maximum returns from relationship strategies

Oracle teamed with BAI to launch The Front-line Factor to explore why the front-line implementation of relationship-based strategies have failed to yield

anticipated results — and provide insights on how performance can be improved

The Front-line FactorStudy Highlight

• From the time a new account is signed until that customer is secured for the long term, you basically have three months in today’s economy.

• Today we’ll discuss– What metrics are contributing to improved customer

satisfaction– What management techniques are making several

banks’ front lines formidable– How to maintain a solid bottom line throughout the

transformation of your team

The Frontline FactorOur Panelists

Paul D. McAdam, Managing Director, Strategic Research, BAI

Robert Kottler, Senior Executive Vice President, Chief Sales Support Officer, Hibernia Corporation

Paul J. Olivier, Group Executive Vice President, Frost National Bank

The Frontline Factor examined banks’ current priorities and performance in a range of relationship management initiatives

New accountopening

Relationship expansion

Customerservice

Retentionmanagement

Needs-based profiling at account openingWelcome & switch kitsOnboarding program

Book of businessContact strategiesUtilization of cross-sell & purchase propensity leads Proactive account upgrades

Differential service & loyalty programsNeeds-based assessmentsCapitalizing on service requests to upgrade relationshipProblem resolution processes

Problem resolution protocolsAttrition drivers & intervention programsSalvage processesAccount closing protocols

People: Skill sets, training/coaching, role clarity, incentives, turnover

Process: goal setting, activity planning, measurement, capacity & coverage

Technology: Branch automation, predictive modeling, lead management

Source: BAI

Best practice account opening and onboarding framework

Onboarding timeline

Set internal expectations

Open account Orient / follow-up Quality assurance & up-sell

ProductManagement • Simplified,

customer-focused products

• Clarified pricing• Trained sales/

platform reps• Consistent ads,

collateral, promotions

Branch• Prioritize/triage

treatments• Needs-based

sales/profiling• Right products for

customers• Immediate fulfilment• Switch kits• Purchase receipts• Welcome gifts

Branch orCall Center• Thank you letter• Follow-up calls• Additional data

collection and needs analysis

• Quality check up (check order, ATM card, etc.)

Branch or Call Center• Quality check up

(online banking, bill payment, etc.)

• Problem resolution• Activation &

utilization incentives• Additional needs

fulfilment and cross-sell

Proc

ess

Cha

mpi

onEn

able

rs People: organizational alignment with onboarding objectives

Process: mechanisms that install and sustain onboarding practices

Technology: customer contact management

Technology: predictive modeling

First 1-2 weeks

Customer Strategy: objectives and prioritization of customer treatments

First 2-3 monthsFirst day

Source: BAI

High-performing banks leverage onboarding to define immediate customer needs and future relationship treatments…

Self-directed – “I’ll figure it out myself”Seeking information, options; not adviceTrust builds over time, based on demonstrated performance

Advice-receptive – “I want ideas and guidance”Willing to take time for consultative sales approaches

— Immediate— Ongoing

Limited customer potential limits justifiable efforts at relationship-buildingChallenging population

— Can absorb sales capacity— Difficult to handicap, especially long-term

potential— Risk of “second-class servicing” syndrome

High

potentialLow

potential

“Don’t sell to me” “Hold my hand”

Relationship Potential

Customer’s Preferred Mode of Interaction

Reasons for Account Opening

“Recently moved, I need to established a new banking relationship”Employment changeLife event (marriage, children, divorce, inheritance, etc.)Student checkingRecent immigrantSecondary checking accountDrawn to bank by a promotion

Source: BAI

…And define specific marketing programs for the first year of the relationship

Data mining and lead management activities are accelerated to become actionable within the first 90 days of the relationship

Account Opening

Propensity Modeling

Contact Strategy

Marketing Strategy

Customer profiling informationSegment identification

PrioritizationContact method–Branch–Phone– Internet–Mail

Next most likely productTransaction preferenceChannel preference

Data Mining

Segment-specific messaging / dialogue Prioritization of benefits & features

Source: BAI

…And define specific marketing programs for the first year of the relationship

Source: BAI

Banks recognize the need to improve the profiling process, the storage of profiling data and onboarding programs

1 2 3 4

Customer profiling process is used

Phone calls are placed to new customers in the daysfollowing account opening

Front-line staff receives training to conduct profiling

Phone calls are placed a few weeks following accountopening

Customer profiling data is stored in a database

New customers are provided a “welcome kit”

“Switching kits” are provided to new customers

Front-line staff receives the proper incentives to encourageprofiling

Importance Performance

(a) Rate the importance of the following activities to developing strong relationships with new checking account customers. (b) Rate your institution’s performance in these activities

High Importance / Good Performance

Moderate Importance / Average Performance

Low Importance / Poor Performance

Not Important / No Activity

Importance-weighted

GAP*

3.3

2.8

2.8

2.9

4.0

1.0

2.6

2.2

The Frontline Factor

Paul J. OlivierGroup Executive Vice PresidentFrost National Bank

Robert M. KottlerSenior Executive Vice PresidentHibernia Corporation

The first 90 days represent a critical window of opportunity to control attrition

Checking Account Attrition

Annual Attrition First 3-6 MonthAttrition

17% - 22%

35% - 45%~ 2x

Customers attrite at double the average rate in the early going– Placed into the wrong

products, or into too many products, or they fail to activate

– Fulfillment errors– Negative surprises (fees)

Source: BAI

A large portion of cross-sales take place in the early stages of new customer relationships

Timing of cross-sales to new retail DDA relationships

Same Day

0 - 4 Months

4 - 12 Months

1 - 2 Years

2 - 3 Years

3 - 4 Years

4 - 5 Years

5 - 6 Years

6 - 7 Years

7 - 8 Years

8 - 9 Years

9 - 10 Years

> 10 Years

43% of all cross-sales that occur within the lifetime of a DDA relationship take place on the same day of account opening through the first 12 months of the relationship

Source: BAI

Onboarding should serve as the foundation of a relationship-based selling process

Components Product-based Selling Relationship-based Selling

Offer Product focusedPresent productsReactive (order taking)

Customer-focusedExplore needsProactive probing for opportunities

Probe Customer qualification for products under discussion

Products owned, wallet size/allocationBehaviors and preferences

Cross-sell Sequential and driven by supply-side objectivesProduct-oriented mass marketing campaigns

Initially achieved through profiling, multi-product packaging and customer onboardingOngoing: Through relationship management and event-driven triggers

Employee Sales Incentives

Based on units sold Based on balances sold and retainedLagged payouts to encourage account activation and retentionBook of business

Overall Process

Straightforward, quick, easy to implement

Time-consumingSkills-basedCustomer profiling

Source: BAI

The consumer research findings support the need for onboarding and other relationship-based approaches

Most Important Gaps Priority Initiatives

• Product Simplification• Packaging

• Relationship Pricing

• Onboarding

• Onboarding

• Onboarding• Product Packaging

• Onboarding• Product Simplification

• Onboarding• Six Sigma Quality• Problem Resolution

• Onboarding• Problem resolution

• Branch staffing• Customer recognition

• Onboarding• Needs-based selling

Charges low fees

Provides superior returns

Does not surprise me with fees

Staff empowered to decide fees

Rewards amount of business brought them

Has simple, easy to understand fees

Executes my transactions without any mistakes

Employees authorized to resolve issues

Has short lines in the branches

Knowledgeable, well trained staff

Onboarding provides the opportunity to better meet customers’ needs through:

Setting expectations and educating customers about products and feesPersonalizing pricing based on relationship potential Highlight “value” delivered by products and specific benefitsProvide opportunities to ask questions and clarify informationA process that instills consistent execution and employee confidence

Source: BAI

A number of frontline obstacles block banks’ implementationof relationship-based strategies

Percent of bankers that rate these issues as significant to moderately significant challenges to their ability to implement relationship-based strategies

79%

68%

68%

56%

56%

55%

54%

51%

49%

44%

36%

0% 25% 50% 75% 100%

Front-line lacks required sales skills

Inadequate front-line sales training and coaching

Difficult for mgmt. to track front-line activities/results

Front-line lacks required product knowledge

Performance goals are not clearly understood

Front-line focus on internal activities vs. serving customers

High front-line turnover

Inconsistent senior mgmt. communication of objectives

Incentive schemes do not drive right behaviors

Limited front-line access to customer information

Incentive schemes are difficult for staff to understand

Source: BAI

Many banks are planning relationship-oriented IT investments in the coming year

Percent of banks that have plans for significant new investments in the following technologies in the next 12 months

56%

52%

46%

37%

36%

35%

35%

33%

32%

29%

20%

0% 25% 50% 75%

Sales tracking

Customer value/profitability

Customer segmentation

Campaign management

Data warehouse

Enterprise CRM

Branch staffing/capacity planning

Sales force automation

Lead generation and management

X-sell or attrition predictive modeling

Teller cash automation

Source: BAI

Hibernia Bank

Efforts to increase account retentionWOO (windows of opportunity calls)

Follow up branch calls

Instant Issuance of debit card pilot

Retention tracking

Back to basics front line coaching

Frost National Bank

Created a roadmap to implement onboarding— A coordinated effort between marketing, consumer branch sales

team, contact center and technology department

Identified 24 distinct activities that enable a coordinated onboarding program. The 24 activities fall within the categories of:— Marketing communication - merchandising, direct mail and

outbound calls— Managing the in-branch experience – a professional sales

encounter— Data management – collecting and acting on data, and the

metrics that measure success— Process improvement - fulfillment

There’s a huge opportunity, but it will take a significant commitment to attain it

The Opportunities• Coordinated account opening and onboarding process with a simple customer segmentation approach

that front-line employees can understand and implement• Simplify products so customers can understand them and front-line employees can communicate the

benefits• Deploy a needs-based selling approach that extends across the first 90 days of relationships

– Targeted analyses of the triggers of fruitful cross-sales, and attrition behavior, during the first 90 days of new relationships

– A prioritized list of critical customer events and contact strategies– Practical insights into how to dialogue with the customer at critical stages of the customer orientation process

• An operational roadmap identifying the best circumstances for the deployment of relationship-intensive resources

The Challenges• Most banks remain product-focused organizations• No standardized customer acquisition process• Executives develop a “big picture” view of how the process “ought” to work, but front-line staff:

– Remain task-oriented– Are often resistant to large, expensive process redesigns– Lack the proper tools, coaching and incentives

Source: BAI

Q U E S T I O N SQ U E S T I O N SA N S W E R SA N S W E R S

Webcast and Whitepaper

To access today’s webcast replay or to download the BAI Frontline Factor

whitepaper, go to:

oracle.com/industries/financial_services