Everyone claims to be “customer-centric” these days, but how much do you really know about your customers?
How does an organization become a data-driven, customer-centric utopia, and what can you realistically do to start moving in that direction today?
In a panel discussion at the SAS Financial Services Executive Summit, Susan Faulkner, Deposit and Card Products Executive, Bank of America, Eric Williams, retired CIO, Catalina Marketing, Mark Gorman, CEO and Founder of The Gorman Group Insurance Consultancy, and Lori Bieda, SAS Customer Intelligence Executive Lead, identified six steps to help your organization become more customer focused:
- Correlate data across systems for new insights.
If you don’t know your customers across the spectrum of their relationships with the organization, you might not know your customers at all. And what you don’t know can hurt you.“During the recession we were running things very much as silos,” Faulkner recalled. “If we had been smarter on the front end, we would have seen up front what started to happen in California, Phoenix and Florida that was leading the way for the recession.
- Align the business around the customer.
A major national financial institution produced and executed a successful credit card direct-mail campaign, resulting in numerous applications for new credit cards. The very next week, the company’s home equity department sent appeals to the same customers, urging them to cut up their credit cards and consolidate their debt with a home equity loan.True story, and not even uncommon. All too often, separate lines of business – mortgages, credit cards, etc. – work independently to build revenue. Each department is concerned primarily with how its own product contributes to the bottom line. Such organizational misalignments can create poor customer experiences with real financial impacts.
- Walk the talk. Structure accountability around customer metrics, not product metrics.
One of the common hurdles for companies when moving to a customer-centric approach is their own organizational structure – usually based on geographies and products rather than on customers or customer segments. Employees are held accountable for productivity metrics that don’t necessarily align with customer value – and can even undermine it.Bank of America recognized this disconnect and took dramatic steps to resolve it. “We had to walk the talk,” said Faulkner. “We couldn’t go out and say we were going to be customer-focused, and then show that every way we keep score, or the way we looked at our financial systems, was still in the yesterday of banking. We had to move forward.“We’re changing our entire general ledger and the way we account. We’ll always have product P&Ls, but now we also have customer segment P&Ls, which will be front and center in our reporting. We already had been doing segment-level reporting for some groups, such as mass affluents and corporate clients, but not at a consumer level. We said, ‘Top to bottom, it is about our customers.’”
- Use segmentation for more than marketing and sales.
How is customer segmentation being used in business? Is it still the province of marketing, or does it also shape how the organization provides customer service, develops products, manages risk and makes other business decisions?“We have grown up in the environment where customer segmentation was borne out of the marketing team,” said Bieda. “There was a group of marketers, and they were attached to a group of analysts. Those two collaborated and came up with a segment, because their intention was to push out marketing activities. Now segmentation has grown up, as it rightly should, and it is affecting all kinds of things. In retail banking and insurance, customer segmentation still affects marketing decisions, certainly, but also a lot of financial decisions, product development decisions, collections, fraud strategies and all kinds of servicing strategies. As organizations take customer segmentation out to its fullest potential, it has all sorts of possibilities.”
- Don’t think ‘share of wallet,’ think ‘value of relationship.’
Aggressive cross-selling may boost the number of accounts per household, but customer household profitability may still drop because the newly sold products don’t add value. For example, a customer may open a new line of credit in order to eliminate fees on other accounts. If the customer never uses the credit line, the bank loses the fees, receives no interest, and has to absorb the cost of opening and maintaining the idle line of credit.In other cases, cross-selling only entices current customers to shift their dollars from one banking product to another. There’s no net gain, only profit-killing disintermediation. For example, a customer may revolve a high balance on a credit card, and the bank may proactively promote a secured home-equity line of credit. The customer has thereby shifted the same dollars from a higher margin credit card to a lower margin home-equity line.
- Consider customer lifetime value.
To consider the future profit potential of customers, marketing and sales functions have begun exploring an equation called customer lifetime value (CLV) that treats each customer (or segment) as an investment instrument similar to an individual stock in a portfolio.Customer lifetime value can be defined as the net present value of the likely future profits from a customer, household or segment for a designated time period – a forward-looking view of wealth creation. CLV shows you which customers will offer the highest value in the future, which in turn identifies the core attributes you should look for in prospects.
For the other four steps and more information from this panel discussion, download the white paper: Connecting the Dots with Customer Analytics