Customer Information Management (CIM): The key to successful CRM in financial services

Journal of Bank Cost & Management Accounting, The, 2003 by Morgan, Jim

Introduction

Building customer loyalty and "wallet share" are obviously critical strategic imperatives for financial institutions. Studies have shown that a 5% increase in customer retention increases a bank's profitability by an average of 50%. We also know that it is 5-10 times more costly to acquire a new customer than to retain an existing one. Attrition of a bank's most profitable customers is particularly damaging since the "80/20" rule is perhaps nowhere more evident than in financial services.

However, banks are finding it increasingly difficult to build enduring relationships with customers in an evolving competitive landscape fueled by deregulation and the Internet. As evidence, studies have shown that the average customer now has more accounts with a larger number of institutions than ever before.

The banks that will grow and prosper in this difficult environment are those that build a base of loyal customers and differentiate themselves through the quality of their customer service and the effectiveness of their sales and marketing efforts. Many banks have recently implemented Customer Relationship Management (CRM) programs to address those areas, but most have not realized the returns they expected on their CRM investments.

We believe this is because far too many banks have viewed CRM as a technology solution, not as a fundamental change in how they manage and use customer data. As a result, they have not focused on developing the required Customer Information Management (CIM) capabilities to leverage CRM technology effectively to drive customer loyalty, customer profitability and new customer acquisition. Our experience leads us to believe that banks will not meet their Return on Investment (ROI) objectives from CRM unless they use CIM as the basis for enabling the most fundamental of all CRM principles - "treating different customers differently."

CIM versus CRM

CRM vendors spent much of the past decade selling companies on the idea that implementing new CRM technologies would strengthen their relationships with customers and increase profitability. While vendors dominated the CRM scene during the late 1990s, most consulting firms were still focused on getting the last dollar out of Enterprise Resource Planning (ERP), Y2K and e-Business budgets. It was not until the beginning of this decade that a significant number of consulting firms turned their attention to helping companies develop CRM strategies to leverage those technologies effectively.

As an unfortunate result, most banks continue to view CRM as a technology perspective, as evidenced by the fact that CIOs are often given the responsibility for managing CRM programs. CRM technology vendors are now suffering the consequences as more and more reports come out about companies who failed to realize expected returns from their investments in CRM technologies. Meanwhile, many consulting firms are modifying their vernacular, inventing alternative acronyms to avoid the stigma currently attached to the term "CRM."

It is not difficult to see why most banks have not realized the ROI they expected from CRM. New contact center desktop, sales force automation or marketing campaign management applications do not inherently drive market share and "wallet share". Years of experience in CRM strategy and business intelligence consulting have taught us that CRM succeeds only when those technologies are used to meet the specific needs of a company's most profitable customer segments and to attract new customers who fit those profiles.

A bank's ability to identify customer needs, segment customers, and build accurate customer profiles all depend on how effectively it collects, manages and uses customer data. The importance of applying customer data to the development of CRM strategies and the deployment of CRM technology has led us to coin the acronym "CIM", or Customer Information Management - our own alternative to the now infamous "CRM."

Successful CRM Hinges on CIM

At this point, most financial institutions have invested in determining which customers fall into the "20" of the 80/20 rule, but many continue to lack a differentiated strategy for servicing, selling and marketing to those highly profitable customers. Likewise, while it is important to know which customers are least profitable, it is even more important to know how to make them more profitable and to know which ones will never be profitable.

Much of the challenge in developing optimal CRM strategies for each banking customer is the difficulty of coordinating customer-facing activities across several interaction channels. Banks also struggle with integrating and leveraging customer data from across numerous product-oriented divisions, functional silos and business partners.

Banks that have implemented CRM technologies without effectively applying CIM have been unable to generate the ROI they expected from CRM because they are:

* Not able to recognize high value customers during interactions

* Not differentiating service levels based on the importance of each customer to the bank