Management Update: A Case Study of CRM Excellence

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1 IGG C. Marcus Article 5 February 2003 Management Update: A Case Study of CRM Excellence Grupo Financiero Bital was Gartner s CRM Excellence Award winner for 2002 in the largeenterprise category. Bital demonstrated that a real understanding of each customer s unique needs and preferences is key to delivering an enhanced customer experience. Many CIOs and other executives are seeking information about how enterprises have achieved success in their customer relationship management (CRM) initiatives. Grupo Financiero Bital was Gartner s CRM Excellence Award winner for 2002 in the large-enterprise category. Bital demonstrated that a real understanding of each customer s unique needs and preferences is key to delivering an enhanced customer experience. Gartner s Eight Building Blocks of CRM: A Key Framework Gartner analysts are often asked how they determine excellence in CRM. As with many intrinsic attributes, such as credibility or value, excellence can be difficult to define and measure. Gartner s CRM Excellence Award uses a framework called The Eight Building Blocks of CRM to determine the best examples (see Figure 1). The framework can also help enterprises see the big picture, make their business cases and plan their implementations. The framework can be used for internal education and debate in developing an enterprise s CRM vision and strategies. It can then be the basis of an assessment of an enterprise s current and required CRM capabilities, to help understand its current position and future strategy. Figure 1 The Eight Building Blocks of CRM Gartner Entire contents 2003 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology 8. CRM Metrics Source: Gartner Research Case Study Introduction Grupo Financiero Bital is a leading financial services provider in Mexico, offering retail and commercial banking, insurance, and investment products and services to more than six million customers. Bital includes Mexico s largest retail bank branch network, comprised of 1,350 branches and 15,400 employees, and accounts for 12.5 percent market share of deposits and 15 percent share of the consumer loan market. Bital was formed in 1992 as a result of the merger of Grupo Prime, a nonretail financial services provider that was part of the state-owned banking system, and Banco Internacional, a retail bank formed during the process of privatization of the Mexican banking system. Since its inception, Bital has focused on improving operational efficiency. It has invested more than $470 million in technology, process re-engineering and modernization to enhance the quality and timing of information and service delivery for customers, employees and management. Bital is the fastest-growing financial services institution in Mexico, and it embraced CRM to create a broad customer-focused strategy to deploy CRM successfully throughout its vast branch system. The Problem The privatization of Mexico s state-owned banking system in the early 1990s enabled national banks to attract clients. However, by mid-decade, a severe economic downturn resulted in a stagnant financial services market. Economic improvement in the late 1990s was accompanied by aggressive entry of international financial services entities, resulting in a challenging competitive environment and a subsequent sharp decline in operating margins as interest rates dropped from 15 percent in 2000 to 6 percent in By 2000, the Mexican banking sector struggled to compete against international financial services providers, which enjoyed substantial operational and scale efficiencies.

3 From a consumer perspective, the privatization and increased competition in financial services resulted in a broader set of offerings and aggressive pricing and promotion with a strong emphasis on new customer acquisition as firms looked to aggressively capture market share. The Objective Bital s goal was to use CRM strategies, processes and technologies to enhance its dealings with its customers and prospects, while streamlining internal operations. It developed the following objectives to achieve that goal: Focus on retention and growth of the best customers. Lure high-value potential customers away from competitors. Increase margins by creating greater value for customers, increasing retention and moving away from commodity-based pricing. Reduce operating expenses via more effective customer segment value-based resource allocation. Enhance customer experience by using one-to-one marketing techniques to communicate with customers based on their individual needs and preferences. Leverage branch personnel s deep understanding of local markets and competitive environments. Rely on customer service to build stronger and more profitable customer relationships by employing processes and technologies that facilitate personalized, proactive service based on a real understanding of each customer s unique preferences and needs. The Approach Taken Bital views CRM as a business strategy not just any business strategy, but its primary business strategy. Bital s CRM strategy crystallized with the recognition that greater customer intimacy was the key to developing a sustainable competitive advantage against larger competitors that could leverage scale efficiencies. CRM Vision Bital s vision is to become the most intimate, most convenient and easiest-to-use bank in Mexico. Achieving Bital s vision required taking advantage of all customer data including demographic data and behavioral data to establish a 360-degree view of the customer. Bital leverages such knowledge to provide a unique value proposition to each customer. To enable its vision, Bital focuses on: Hiring and developing the best people for every job Developing multiple contact channels to interact with customers in the ways they want

4 Meeting customer needs and providing the right product or service at the right time and in the right way Creating a corporate culture that enables each worker and department to focus on customers needs CRM Strategy Based on the present and potential profitability of each of its six million customer households, Bital defined the following strategies to bolster the effectiveness of overall resource allocation: Keep the best customers Grow the customers that have potential Maximize the profitability of remaining customers Valued Customer Experience Real understanding of each customer s unique needs and preferences is the key to delivering an enhanced customer experience. To begin with, Bital moved the bulk of its marketing expenditures from mass-marketing efforts to direct communications that target identified individual customer needs. Bital now focuses on activities most likely to build a one-to-one relationship with the bank and most likely to achieve a high probability of success. Bital s CRM strategy emphasizes aligning the quality of interaction at a local (i.e., market and branch) and personal (i.e., account managers, tellers and customer service representatives) level with the customer value segment. The bank devotes the highest level of customer attention and quality of interaction to customer segments that represent the strongest value potential for a deeper mutually beneficial relationship. For growable customers, Bital stresses convenience (e.g., pre-approved loans) based on analysis of the customers and their potential. Across all segments, Bital addresses the customer experience through personalized messages and self-service capabilities, using multiple channels e.g., automatic teller machine (ATM), Web, and interactive voice response to provide convenient, timely and customized delivery of information. Organizational Collaboration Bital s CEO is the chief advocate of CRM and was instrumental in developing and overseeing the bank s CRM strategy, which was developed with the collaboration of the channels and product marketing. The channels suggest the type of information and customer intelligence they need to better serve customers. Product marketing develops offerings that can be configured for individual customers based on customer intelligence (see Figure 2). Figure 2

5 Organizational Collaboration Mass marketing Knowledge of our skills Businessunit strategy Service guarantees Certified ISO 9000 processes Market strategy Product management Businessunit board Profitability metrics Market intelligence Operations Knowledge of customer and business-unit profitability Customer metrics PBC Market segment Driven Processes Private banking Highincome banking Corporate banking Middleenterprise banking Retail banking Knowledge of our competitors skills Relationships defined by market segment Source: Grupo Financiero Bital PBC: Performance-based compensation CRM Processes Bital developed a comprehensive view of all the business processes necessary to deliver products and services to customers across all bank departments, functional areas and business units. As a result, Bital s CRM strategy now drives customer activities. In conjunction with departments and business units, Bital s CRM group evaluates business processes each week to identify problems, concerns and opportunities. The goal is to develop initiatives to improve overall system performance. CRM Information Bital focuses its CRM strategy on the transformation of data into applied insight. The bank employs its own proprietary algorithms and uses data mining software to convert customer and operations data into customer intelligence. Examples include: Predictive models for cross-sell and up-sell. Bital regularly scores customers in relation to specific product affinities to calculate the probability of a positive response. Regression models to detect abnormal movements on customer balances to quickly identify important events (e.g., unusually large deposits or withdrawals) Value-based customer segmentation driven by current and potential profitability Lifetime value models for each customer segment

6 Clustering models to segments credit card customers based on product usage. Monthly profitability of customers based on the total set of products and services they have, as well as their use and interactions. Bital empowers local business units and front-line personnel to act on the available customer information and local competitive market information. Relying on Bital s performance-based compensation, the bank drives effective local use of customer information and derived corporate insights and uses, results and local market intelligence to refine strategies and tactics. CRM Technology As branch executives personally deliver the majority of campaigns directly to customers, either by phone or in person, an inexpensive thin-client solution transmits campaigns to the branch promoters via a combination of s and a Web-based application. This system delivers the campaigns and collects feedback on the result for each individual customer (see Figure 3). Campaigns, offers and feedback can also be executed automatically through other channels (e.g., ATM, Web and ). Figure 3 CRM Technology 1 Legacy systems Bital CRM architecture Value offer Collaborative CRM 4 Branches Data warehouse Seven employees Data warehouse 10 employees Operational CRM 3 ATM 5 Customer intelligence Facts Datamart Data mining analytics, event detection, campaign management and reporting Source: Grupo Financiero Bital Value offer Learning 2 Analytic CRM Personization server Learning Internet Call center Direct mailing Customers

7 Bital then launched pilots in six branches (i.e., expanded to 130 by year-end 2000) to determine the impact of targeting clients with individualized offers based on identified or stated needs and preferences. The pilots also validated the local business-unit level of competency to implement micro-market CRM strategy. Following encouraging pilot test results, in 2001 Bital rolled out its CRM strategy to all of its branches nationwide. CRM Metrics Bital measures the success of its CRM strategy with the following metrics: Customer satisfaction number of complaints, suggestions and accomplishments. Customer loyalty retention rate per segment, additional products per customer and lost profitability based on lost customers. Customer profitability customer profitability per segment, number of customers in each profitability segment, profitability per product, lifetime value per segment, migration between segments, charged fees per segment and number of transactions per segment. Campaign results feedback per campaign, sales per campaign and profitability increase per campaign. All are tracked at segment and customer level. Share of market market share by product and region, average balance per account, new customers and new accounts per product. Share of wallet accounts per customer, account value per customer and profitability per customer. The Results Achieved From a marketing and sales standpoint, Bital s achievements include: 20-percent to 30-percent average response to cross-sell campaigns (along with substantially lower cost of marketing since most campaigns are executed through the current sales force) 12 percent of new credit accounts derived from customer-focused cross-sell campaigns Increased retention rate of most valuable customers from 77 percent to 90 percent 20-percent average increase in customer profitability The proof of Bital s CRM success shows on the bottom line. Since 1999, Bital is the only Mexican bank to grow its share of the national market. Share of deposits increased from 9.6 percent to 12.7 percent, and its share of loans climbed from 7.2 percent to 14.6 percent. In the 12 months ending 31 August 2002, Bital boasts even stronger results 35 percent of new deposits and 16 percent of new loans.

8 Critical Success Factors and Lessons Learned The lessons that Bital learned from its experience include: The most important thing when implementing CRM is to define the business goals clearly. A firm understanding of CRM concepts is critical to define and create a framework for a suitable CRM strategy. CRM is a journey, not a destination. There will always be a need to improve processes. CRM is more than just one project. Think about all business objectives, but start with a limited approach and build on a firm foundation. CRM requires collaboration among all departments. Senior executive sponsorship is essential to champion all the changes necessary to fulfill a CRM vision. Bottom Line Many enterprises are recognizing the wisdom of adopting CRM as an essential part of their culture. Enterprises that succeed realize increased sales, improved customer retention, greater profitability and a larger market share. Adopting CRM as an essential part of Bital s corporate culture as well as its CRM success is largely due to its customer-centric business process re-engineering and adoption of customervalue focused performance compensation. The results of Bital s CRM initiative include increased sales, customer retention, profitability and a significant gain in market share. Written by Thomas Berg, Research Products Analytical source: Claudio Marcus, Gartner Research For related Inside Gartner articles, see: Management Update: How Fidelity Investments Uses CRM to Drive Value, 22 January 2003 CEO and CIO Update: 2003 CRM Predictions Point to Light at End of Tunnel, 11 December 2002 Management Update: The Importance of Developing a CRM Strategy, 30 October 2002