Segmentation: A Recipe for Organic Growth
According to TowerGroup's Nelsestuen, there are four keys to enabling organic growth and expanding customer relationships: customer engagement, customer experience, customer satisfaction and customer loyalty. "Start by understanding the marketplace," he says.
Banks should first narrow down the specific business or businesses they are in and the markets they serve, Nelsestuen suggests. Then they should identify their strengths and weaknesses in serving those markets and seek to close the gap -- using CRM solutions, business analytics, customer intelligence and knowledge management, he asserts. "The marriage of the business and the technology side is what's new about this," Nelsestuen says. "The nexus is in the intelligence."
Chicago-based management-consulting firm A.T. Kearney puts out a yearly organic growth index for financial firms. The index connects customer attitudes and actions with their wallet allocation decisions. According to the firm's 2006 rankings, Wachovia outperformed its retail competitors for the second year in a row.
"Many financial institutions are aiming for annual organic growth rates of 10 percent or higher, but all too often they fall short," said Rajiv Shah, A.T. Kearney VP and leader of the North American financial institutions practice, in a release. "It's impossible to achieve sustained organic growth without a mix of customer momentum and wallet momentum."
According to A.T. Kearney, "Customer momentum measures an institution's ability to attract and retain customers, forge long-lasting customer relationships and instill advocacy among their customers. Wallet momentum measures an institution's ability to expand the number of products and drive greater penetration per product with its customer." Both National City Bank and San Fransico-based Union Bank of California ($53 billion in assets) scored "strong" for customer momentum in the firm's organic growth index.
UBOC's success at building customer relationships comes as no surprise as the bank recently recognized the role segmentation could play in increasing its growth. "Last year the retail bank came up with a whole new strategy using segmentation," relates Harsh Sangani, SVP and manager of business intelligence and analytics for UBOC, who heads the retail bank's business intelligence competency center (BICC). Sangani's group manages business intelligence and analytics, including retail bank CRM, predictive modeling, list engine, reporting and customer insights. The goal of the new strategy, he explains, was to reengineer processes from a customer point of view, enable segmentation, and use UBOC's relatively small size to target customers' needs and then conduct initiatives at segment levels.
According to Sangani, UBOC's retail segment group oversees product development and implementation of financial products and marketing and sales. Sangani's BICC supports the retail bank's overall strategy of segmentation by being the one-stop shop for analysis and customer databases, he says. "Business intelligence analytics is part of the whole new strategy, and the segmentation strategy was actually developed within the [business intelligence and analytics area]," Sangani says. "We work as a team in supporting the whole implementation."
"Four years ago, we realized that data will never be perfect," Sangani continues. "What we did was create a customer-centric database." That database includes -- at an account level -- all the information about products, transactions and channels; financial product profitability, revenue and costs; and demographics.
"We do not have a single CRM application," Sangani notes, explaining that the bank uses Amdocs' (St. Louis) Clarify solution for call center CRM and a BearingPoint (McLean, Va.) solution at the branch level, but most of the database and analytical applications were built in-house. Four years ago, he recalls, the bank considered purchasing a new CRM platform, but instead decided to develop an internal, agile system.
"Through testing, we find out how to do things better," Sangani says. "We came up with an iterative development model. We develop as we learn and change right away."