Customer Profitability and Customer Relationship Management at RBC

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Customer Profitability and Customer Relationship Management at RBC Powered By Docstoc
					      Customer Profitability and Customer
      Relationship Management at RBC
      Financial Group

Anthony Ayala        Jorge Munoz
             Robert Heard
RBC Financial Group
  Headquartered in Toronto, Canada
 Considered one of Canada’s few full-service, national
   and international financial establishments
 RBC Financial Group services; 5 main areas of practice
 Personal and commercial retail banking (RBC Royal
 Insurance (RBC Insurance)
 Wealth management (RBC Investments)
 Corporate and investment banking (RBC Capital Markets)
 Transaction processing (RBC Global Services)
    RBC Financial Group
   Considered Canada’s largest bank when measured in terms of
    assets and market capitalization
    $270 Billion in assets
    23 Million retail accounts
    700 Products
    58,000 Employees
    10 Million personal, commercial, corporate, and public sector
    customers served in North America and much of the world
   RBC Royal Bank (personal and commercial retail banking)
    comprised of 1,300 branches, 4,800 ABM’s, 87,250 proprietary POS
    terminals, 900+ mobile sales staff, 1.4 million online banking
    customers and 2 million telephone banking customers with 300
    offices in 30 countries
RBC Financial Group
 The personal banking department covered
  consumers and small business banking
  and loan, while larger companies earning
  $5 million to $25 million were covered by
  the commercial division
 RBC Royal Bank also provided credit card
  services, Visa credit and debit cards
  provided; via RBC Centura and RBC
History of RBC Financial Group
   Royal Bank began its expansion in 1946, with
    the philosophy in mind; “all things to all people”
   Sought to expand both nationally and
    internationally, while developing new products
    and services in the process
   Due to changing market condition in the 1960’s
    and 1970’s RBC sought to supplemented their
    expansion by utilizing emerging ABM
    technologies and a decentralization strategy
    1968 – 25 ABM’s were utilized in domestic
    History of RBC Financial Group
   The 1980’s changes to “Bank Act of 1871”
    1980 – Allowed foreign competitors limited access in the Canadian
    1986 and 1987 – Deregulation of financial industry now allowed
    banks to participate in banking, trusts, securities and insurance
   Royal Bank’s response to these changes
    -Main strategy was to purchase companies to assist them in
    becoming a fully integrated financial service institution.
       1989 Royal seized 50% of the mutual fund market as they
    entered into the securities market.
       1990 they acquired 70% of Marcil Trust Company, this helped
    them enter the trust industry.
      1992 First to offer group retirement products to customers.
 Current Environment
Throughout    Canada’s banking history there atmosphere was
always one of “friendly competition.”
In the 1990’s with the emergence of Internet banking and
continuous lowering of protections for domestic banks changed
this oligopoly.
The internet posed both opportunities and threats but it was the
uprising of foreign banks and the minister of finances halt on two
important mergers that showed Canada they should expect out-
of-country competition, that could exceed their own resources.
It was the internet that challenged the idea of being “All things
to all people.”
Kevin Purkiss, Senior manager, customer value analytics made
public statements about the new competition. He mentioned TD
Canada Trust being RBC’s main competitor when talking about
full service banks.
He talked largely about ING and what they offer as well as the
expansion they are making in the industry
          His last statement was about the customer and how in
this industry at that time, “How the financial entity focus’ on
customer needs is the differentiation point.”
Developing a CRM Philosophy
 The ultimate goal was to bring together in
  one place a view of all contacts,
  transactions, accounts and interaction with
  each customer.
 A financial institution’s fully integrated
  CRM system could allow its personal
  bankers (PBs) to assess a customer’s
  transaction history.
The Ideal CRM system (when triggered by a customer
call or visit) would look as follows:
   Address, age, and account balances
   All contacts the customer had at any company
    location, phone center, or Internet site
   What level of service the customer qualified for,
    based on current and future profitability
   What products the customer held at the time of
    the call
   What products the customer was
    targeted/approved for by sales and marketing
   How the customer responded to targeted direct
    marketing campaigns
Problems with CRM System
   Although extremely beneficial, CRM was expensive and difficult to
    deploy, especially on a large scale
   In 2001, a US industry journal found that while 78% of respondents
    found CRM critical, only 35% actually had implemented it.
   Various roadblocks such as; budget constraints, lack of
    coordination/cooperation within companies, lack of management
    commitment made it very hard to penetrate the industry with CRM.
•   Companies who were successful with CRM created ongoing repeat
    purchase relationships with their customers and had the resources
    and infrastructure to capture detailed data about the customers
    behavior when the customer purchased, used and repurchased their
    products and services
CRM at Royal Bank
   In 1997 Royal Bank underwent several marketing
   The Strategic Marketing Research and Analytics
    (SMR&A) group conducted brand research,
    segmentation and predictive modeling using
    information from Royal Bank’s data mart
   The objective of this research was to determine the
    image perceptions of major financial institutions and
    identify the optimum positioning for RBC Royal
   Due to the push from competition Royal Bank was
    eager to use the information they had gathered
    about their customers in future interactions with
     The “Burning” platform
   A study conducted in 1997 of 2000 customers of the large Canada
    financial institutions asked “What aspects of banking do you highly
   The results created the “burning platform” for CRM within the Bank.
    Customers said the most important value to them was intimacy,
    encompassing feelings of trust, reassurance, a feeling that the bank
    knows and understands them and their needs.
   Banks had been following the idea that convenience was key to their
    consumers, which is why banks offered 24-hour ATMs and call
   This study showed a whole area of differentiation that Royal bank
    could explore
   Royal bank chose to deploy CRM in points of contact critical to the
    customer experience such as call centers, branches and
    direct mail
Reorganization around CRM
 Royal Banks Primary customer segments:
  Key, Growth, Prime
 The structure reflected life stages and the
  different range of complexity within
  financial needs
 The groupings also reflected
  commonalities in service and product
 Comprises four sub-segments; Youth, Nexus, Small
  Business, and Farming & Lifestyle Agriculture.
 Low current value, potential to make high profits for bank

 Clients in mid-life, and/or business’ that are still growing
  their assets and have high credit and financial advisory.
 Strategy: Retain, grow, consolidate these relationships

 Consists of more mature customers in the accumulation
  and preservation phases with significant potential for full
  RBCFG offerings.
 Value proposition: trusted service and referral to
  specialized resources
   Segment managers competed for resources alone with product
    managers and functional area managers.
   The “friendly competition” fostered close collaboration between
    these areas.
   There was resistance to the changes within the new customer and
    centered organization.
   Part of the problem was the inability to communicate how the new
    program would work, power shifts from product managers to
    customer managers
   Consolidation of regional sales and marketing groups meant that
    branches received compiled lists from sales and marketing offices in
    Toronto rather than regional offices.
   Royal bank created a small, specialized group that produced ad-hoc
    and follow-up leads as requested by the branches.
   The goal was to replace often-haphazard sales leads process at the
    local level with centralized and standardized sales leads
   Now the leads are generated centrally and everyone has direct
    access to them, they switched from paper based to being
    available electronically
Customer Profitability and
Potential Measurement
 Aggregate Information vs. Actual Data
 20% customers accounted for 100% profit
   “A” customers made the most profit
   “B” customers made some profit
   “C” customers broke even or lost money
    New Model
   NCR – Value Analyzer
    Calculated Profitability faster
    High Processing Power
    More accurate spread of information
    Created a Better Understanding of
    Help Determine Customer tolerance
    Future Profitability and Lifetime
   1) Calculate Present Value of Profit
          Assuming profitability percentile of client remains
   2)Factoring in Variables
          (Example: Age, Tenure with Bank, , Number of
           Products Held, Acquisitions)

   Lifetime Value calculated individually
     Can    be aggregated up to Segment Level
Using Customer Profitability
for Customer Decisioning
     Once profitability and lifetime was value
     determined, these measures were included
     when determining customer decisions. For
     RBC this meant:

     •   Customized Marketing Campaign

     •   Establishing Service Levels

     •   Product Design & Pricing
Customized Marketing Campaign

   Customer profitability was a determinant used
    for segmenting and targeting
   Studies were done on customers likes, dislikes
    and types of products they would benefit from.
   Models were developed to determined they’re
    propensity to buy
Levels of Service

   RBC also determined a set of customer
    treatment strategies using the customer
    segment categories
   A customers category would determine the
    length of wait and type of customer service
    representative the customer talks to.
Product Design and Pricing
   The CRM system used customer profitability
    and future potential calculations to give
    pricing parameters to account managers to
    determine how to price products depending
    on the customer.
Packages vs. Fees
   Another use for customer profitability data
    was to inform in the debate over whether
    to change for services using a flat rate
    package or charge fees based on the
    amount and type of transaction the
    customer was generating with the bank.
Interest Revenue Value and
Transfer Pricing
The bank determined profits on asset
products by subtracting transfer rates from
actual interest income and for liability
accounts by subtracting interest paid from
the transfer rate on the money in the
deposit account
Risk Calculation
 Factors such as Income, Service Debt Ratio,
  Cash Flows, and credit reports helped make an
  initial decision.
 Once loan granted, a risk score was given based
  on nature and frequency of transactions in the
  customers account.
 Score converted into cost driver
 All inputs were entered into software
  that calculates customer profitability