CRM for Financial Services, Part 2: Keeping the ‘R’ in CRM

Part 1 of this two-part series discusses the failure of the financial services industy to take full advantage of CRM and explains why it could now be at a turning point.

The market for CRM programs will expand in financial services, although the pace of spending will likely slow down in the near term. Still, the rate of CRM spending by financial firms is not the only element that could change in the future. Whether a financial firm already has implemented a program or is about to make an initial investment in CRM, the landscape will be changing in terms of how such programs really embrace customers for the long term.

Financial firms in the U.S. and Canada will spend US$416.3 million on CRM efforts in 2009, less than .5 percent more than 2008, according to the Aite Group. Spending on CRM in 2010 will increase by only 1.6 percent versus 2009. Only after 2010 will spending begin to advance significantly.

Just 27 percent of 521 banks, insurance firms and brokerages responding to a survey conducted by AbleBridge indicated they were either “somewhat likely” or “very likely” to invest in either new or upgraded CRM systems in the next six to 12 months.

The plateau in spending to some degree mirrors a plateau in the effectiveness of CRM programs. There is widespread agreement that CRM has helped financial firms reduce costs and conduct their marketing programs more efficiently. However, there is also concern that financial firms have failed to realize the full potential of using CRM to embrace customers and enhance customer loyalty in a way that generates profits.

CRM Moves to Third Wave

“We’re at a second or even third wave now in CRM for financial firms,” Ron Shevlin, a senior analyst at Aite Group, told CRM Buyer. “In the first round, CRM facilitated customer support with things like handling incoming calls from customers. The second round was using CRM for outbound efforts like marketing campaigns, lead generation, and making the right offer to the right audience at the right time.”

Despite heavy use of CRM programs, banks especially have failed to develop solid long-term relationships with customers in terms of maintaining high retention rates and expanding business through cross marketing, Shevlin maintained.

Only 11 percent of bank or credit union customers planned to open more accounts with the same financial institution over the next two years, according to the Aite study, while another 8 percent actually planned to close their accounts.

“We’re well beyond the ‘three Ps’ in financial marketing, where a firm tries to predict a market need, push out a product or a marketing campaign — and then pray,” Shevlin said.

What’s needed is a more behavior-based “sense and respond” approach to CRM, suggests the Aite Group study: “the ability to sense consumers’ needs and intentions based on their behavior and respond with the appropriate advice, guidance, and offers.”

An example would be tracking Web site visits by a customer to determine how frequently visits occurred, how long the visit lasted, and what type of information was sought (e.g., a credit card inquiry or auto loan information). After “sensing” the intention of the inquiry, the CRM program would generate a specialized individual response — rather than a “canned” or standardized pop-up message — to be delivered during the same or subsequent visits. Or the program would generate an invitation for a Web site “chat.”

CRM programs would measure site visit intensities to gauge the interest level of the visitor. A system designed for building an individual customer relationship profile that speaks to a particular product and uses an appropriate channel — i.e., Internet, phone, direct mail — can be crafted from existing CRM programs plus some enhancements.

Current data collection functions, predictive capabilities and analytics can be marshaled to develop a “sense and respond” system. However, a major challenge will be the improvement of data integration mechanisms, the Aite report says, noting that “acting on new customer insights is easier said than done.”

Support for Broader Goals

A major factor in putting more emphasis on the relationship component of CRM will be the attitude of top management at financial institutions. A willingness to move away from short-term marketing targets or sales quotas to favoring long-term customer accounts will be critical to CRM success.

“Institutions need a strategy that encompasses all touchpoints of a customer or potential customer so they can achieve collaborative use of customer knowledge across the organization,” observed Ryan Plourde, a principal at AbleBridge.

“Then CRM technology can reap huge rewards in terms of process efficiency, customer scale, self-service, and identifying up-sell and cross-sell market opportunities,” he told CRM Buyer.

While many financial firms have achieved cost savings and promotional benefits from CRM, there have been some impediments as well.

“Financial institutions have largely invested in prepackaged CRM applications or used home-grown programs that are difficult and costly to both maintain and change,” Plourde said. “Smart firms will first have a well-defined strategy but secondly invest in flexible technologies that facilitate current strategies and future requirements.”

Firms that nurture customer loyalty through customer experience management (CEM) also generate profits for the products and services they market, said Jeff Gilleland, global strategist for SAS Institute’s customer intelligence unit.

On the Ground: A Bank Responds

Whether defined as “sense and respond,” or “CEM,” the on-the-ground requirement that emphasizes a strong relationship is a reality at First Citizens National Bank. The community bank, with assets of $675 million, is well on its way to extending CRM to an enhanced level.

“With us, banking is a personal relationship like the one you have with your doctor,” Kathleen Campbell, senior vice president at First Citizens, told CRM Buyer.

“We feel we are responsible for the financial health of our clients. An effective CRM program has to do so much more than just get the next product from the customer and move on,” she said.

“For us, retention of top profitable customers and the organic growth of existing customer households are absolutely necessary because of the very rural locations in which we do business. But the tool itself is not CRM. A bank must define what CRM means to them and to what level they need to take it to achieve their goals,” Campbell explained.

First Citizens used CRM to identify customers who provided high levels of profitability to engage them for expanded services. Spending time on lower-profit accounts was unproductive. To retain customers, CRM tools track maturing loans or investments, so customers won’t walk away when their financial products terminate.

Importantly, First Citizens assigns a relationship manager to highly valued accounts to maintain contact, and provides marketing data to bank employees at the point of sale.

“You have to show a credible ROI to management, but you also need to persuade employees that the CRM effort will pay off for them by increasing bank profitability and the retention of the customer base,” Campbell noted.

CRM for Financial Services, Part 1: Unmet Potential