Analyze This

Banks increasingly rely on a CRM systems to better target marketing efforts.

Savings Bank of the Finger Lakes recently acquired $1 million in new balances as a result of a home equity direct mail campaign-no small feat for a community bank with $350 million in assets and seven offices. Especially since the bank sent out a promotional letter to only 9,000 prospects.

How did it manage that kind of return on investment? The bank used sophisticated analytic customer relationship management (aCRM) technology to build a profile of those most likely to be interested in such a product, then culled 3,000 customers from its own ranks that fit that profile, and bought a list of 6,000 more prospective customers that also matched up.

"We looked at who our home equity customers are and applied that criteria both to our own customer base, to see if there were other customers that had those demographic and banking history qualities, then we purchased some outside names," said Leslie Zornow, senior vice president of retail banking at SBFL.

Thus far, the bank has conducted two home equity campaigns and a checking campaign. Results aren't yet back from the checking campaign. "Our overall strategy is to try to become more targeted with our marketing, using the information we have on customers," Zornow said.

The bank plans to try to identify where the highest profit potential is in its customer base-segmenting the base into already highly profitable customers that the bank wants to retain, those who have a large upside for profitability, and those who aren't profitable now but possess some potential.

Increasing wallet share is a key part of new uses of aCRM, according to Kathleen Khirallah, senior research analyst at TowerGroup, noting that the average consumer has 10.14 financial relationships with approximately 4.15 separate institutions. "What's important is that, if my household is average and I have a little over 10 financial products and services, there are four institutions that will want more of what I've got. The question is which of those four am I going to give more of my business to. That's where the challenge is, and that's the reason banks pursue CRM."

Banks are also using aCRM to move toward value-based marketing, added Paul Bascobert, senior vice president of customer solutions at Braun Consulting. "There's a notional shift from people talking about satisfying customers to a much more bottom-line focus, taking into account things like acquisition costs and cost to serve."

Honing in on desirable customers can boost profitability, as well as save time and money. "Whether the economy is good or the economy is bad, wasting money is bad," Khirallah said. "That's what happened in the old days-banks would just send everybody a letter and hope for the best."

With a traditional marketing approach, if a bank wanted more checking account customers, it would look at all of its savings account customers who don't have a checking account and send them a letter suggesting they open a checking account.

"That's a real mass marketing approach," Khirallah said. "Today, they might look at savings customers who don't have a checking account, then they might also select by age, or by those who have a loan that could be paid from the checking account. Now they're cutting the data much more finely, in order to find really good prospects, instead of just dumping mail on everybody."

Big Picture Approach
Understanding a bank's overall strategy is the key to deciding in what direction an aCRM project will head, according to Linda Hanson, director of research and product development at Orange County Teachers Federal Credit Union (OCTFCU) in Orange County, Calif.

OCTFCU, with more than $3.1 billion in assets, has recently started pursuing a new aCRM strategy in order to fit it with the overall culture of the organization. "As a credit union, serving our members is really our main objective," Hanson said. "Many people look at CRM as a sales tool-focused on selling the right product to the right person at the right time, which is fabulous if it matches your organization's focus. If you've got a sales culture, then use it to support that sales culture. If you don't, don't try to turn it into a selling tool. Make sure that whatever you're doing with your CRM system matches the core values of your organization."

To match with OCTFCU's core values, the institution has moved its CRM technology out of the control of the marketing department and into its other departments. With a user in each department trained to produce reports, other business lines will hopefully get excited about the possibilities.

"We're trying to get the whole organization to see it as a good decision-making tool to help us know more about our members," Hanson said. "We started out looking at CRM as a marketing tool, so we wouldn't be wasting money on mailing to 50,000 people when we should be able to target it down to 20,000 people." Now, the institution plans to use aCRM to make branching decisions and in new product development.

Moving aCRM out of the marketing department may be the next step. "Banks have been slow to adopt CRM just as they've been slow to adopt sales cultures," said Ginger Gagen, CRM specialist at Sedona, a King of Prussia, Pa.-based provider of CRM solutions for small and mid-sized financial services companies. "But what we're seeing, even among our customer base, is that they're at the point where they're embracing a lot of change, so they're looking for the more robust technology. CRM solutions that can't be pushed enterprise-wide aren't going to work for them."

Gagen continued, "They've got the understanding that this is critical-they need to understand the customer base, who to market to, who to retain as a customer, and CRM technologies will bring that. But they also need to incorporate the people and the processes."

Both OCTFCU and SBFL are using Sedona's Intarsia CRM solution. SBFL purchased its system three years ago, but it took a long time to get it up and running.

"We couldn't get our core operating system to work with the CRM system we purchased," Zornow said. "We were kind of the guinea pigs. We couldn't transfer our data into the system-it really took two years. It was very very frustrating."

That headache has disappeared. Sedona now works with some 30 different core processing systems, smoothing out connection issues along the way.

"Once we started using it, we sort of forgot all the hardships," Zornow said. Data is now drawn into Intarsia from core customer files, incorporating all relationships, on a monthly basis. The bank's IT department maintains the system and pulls all reports.

Determining what strategy works, and how to use the data, takes time. SBFL employs an outside marketing research firm, Rochester, N.Y.-based Quinetix, to help design campaigns, determine what information to draw out of the system, and how to implement. Quinetix also does a backend analysis of each campaign, measuring ROI.

"For us that has been really pivotal," Zornow said. "At a lot of small community banks, we all wear a lot of different hats, so I've got a lot of responsibilities other than marketing. Lots of my colleagues have very sophisticated systems that they don't ever use, because they don't have time and they don't know quite how to approach it."

For this reason, many CRM initiatives aren't as successful as a bank would hope.

Not A Panacea
"The technology roadmap is so complicated that one size does not fit all," said TowerGroup's Khirallah. "It's important for a financial institution to find a partner or an adviser, a consultant-somebody who can help them evaluate what's the best way for them to implement all those different technologies."

Financial institutions also have to understand that technology alone is not the solution. "A lot of times a bank thinks technology will fix everything, and it doesn't," Sedona's Gagen said. "It's not a magic bullet. A good CRM provider can help them to understand those issues, so the technology does work well for them."

The lines between the different parts of CRM-aCRM versus marketing CRM versus customer service CRM-may ultimately blur into a single vision, incorporating technology, cross-selling, marketing and customer service.

"The more you know about your customers or members, the better you're able to meet their needs," Hanson said. "Our goal is to try to be able to advise them and help them find products that meet their needs, or identify what behavior patterns are to help us make decisions to meet their needs. If we're putting a branch or an ATM somewhere that will make it more convenient for them, for example."

Some define customer service CRM as determining customer value, a definition that SBFL doesn't buy.

"Our general philosophy as a bank is that we treat all customers well," Zornow said. "Some banks have A customers, B customers and C customers, and they treat them differently and fee them differently. That's not our strategy."

SBFL is still doing TV, radio and other non-targeted forms of marketing, but is also employing the data from the aCRM system to its advantage.

"Before, we did a lot of things based on our gut instincts rather than actual information," Zornow said. "Our instincts were right most of the time, but it's nice to have data to back it up."