The typical thinking with banking is that you want to get rid of the bottom-feeders: older customers whose assets will not appreciate and younger customers who have yet to amass funds. And by the same token, those lower-income, seemingly less profitable, customers can be less than thrilled with their bank—particularly when the ATM flashes “insufficient funds.”
The Royal Bank of Canada, however, takes a different approach with customers. Take the typical trouble with insufficient funds. If you’re at the ATM trying to withdraw more money than is in your account, the automated teller machine asks if you want to get the cash, anyway, for a fee.
That’s smart business, because instead of a customer getting keyed up over receiving a dunning notice from a bank, he or she is empowered. The customer has the choice of taking the cash and accepting the fee or not. It’s all about balance, says Cathy Burrows, director of enterprise information and customer management support for RBC Centura Bank, a subsidiary of Royal Bank of Canada (which operates under the master brand name of RBC Financial Group).
Burrows talked a lot about balance in her keynote address to the delegates at the CustomerThink Leadership Summit in June 2005.
That aim for balance is a large part of how the company has become the epitome of a business with the customer at its heart. Loyalty experts like Arthur Middleton Hughes use its example to preach the value of customer-driven organizations. And clearly the strategy has served the financial institution well. It is Canada’s largest bank and one of North America’s leading diversified financial services companies, and its 60,000 employees serve more than 12 million customers.
But listening to the voice of the customer wasn’t always Royal Bank of Canada’s strength. The strategy, says Burrows, was one that arose when company executives realized it needed a better means to assure growth.
The Canadian government had nixed the company’s plans to merge, so RBC executives were trying to decide how to plant the seeds for further growth. And they realized that the typical banking organization and strategy wouldn’t work. They needed an “organic” way to grow the business, Burrows said.
The catalyst for implementing a customer relationship management program was research the company commissioned in around 1997 that “told us that what financial institutions were good at delivering didn’t have a large impact on customers,” Burrows said.
Banks could excel at 24-hour, seven-day-a-week banking through a variety of channels, but that wasn’t a differentiator between institutions and not what drove customers to seek out financial help. “What customers wanted,” said Burrows, “was help managing their financial assets.” What customers also wanted, research told RBC, was:
- To be shown the RBC cared about them
- To know that RBC appreciated and valued their business
- To be treated as an individual, not a number
- For RBC to demonstrate that it knows them
- For RBC to anticipate their needs … regardless of where and when they contact the company
That set RBC on its road to customer-centricity: “We realized we had to change.”
What the company had to change was the customer experience, but at the same time, a company has to be realistic. RBC had to balance the goal of giving customers what they wanted against what the organization could afford to deliver profitably.
The company’s vision is to grow profitable relationships with each customer by:
- Creating a tailored client experience
- Building a more personal and friendly image
- Reducing costs
- Effectively managing risk and capital
And it turned to automation to achieve that balance, from a marketing data mart and a sales and service desktop in the late 1990s to a client-value model, life stage segmentation, retention management and automated leads sent to the desktop to campaign automation management in 1999 to online banking, an enterprise client data warehouse and client-value based contact center prioritizing in 2001 to the present.
It all has been with the aim of gaining more insights into customers and their lifetime value and developing a personalized strategy for every customer that’s translated into a good experience in any of the many channels through which “clients,” as RBC calls customers, interact with the organization.
RBC recognized that it couldn’t form its organization around how customers are treated “unless you know what the customers are doing.”
Burrows, who works for RBC’s North American subsidiary, based in North Carolina, is particularly interested in the lower-income customers. As RBC segmented its customers, she was the manager in charge of the key market known as “nexus.” These were the people 18 to 35 years old who would, perhaps, be interacting with RBC for the first time for substantial lifetime experiences: buying a car or a home, making an initial investment or applying for a credit card. “We became really clever in the time it took us to build up the program,” Burrows said.
RBC didn’t have a propensity model that told the company which customers were likely to invest, and it couldn’t “score” them because they didn’t have a history with the company. So Burrows’ team members surveyed the customers and followed up with direct contact.
They took some less traditional measurements, such as web site hits, completed response cards and inbound call volumes.
And they compared their findings to the target population, trying to assess whether customers were planning for the long or short term. “We weren’t focused on the product results as much as we were focused on, ‘Did we acquire something new?’ “
The challenge, Burrows told delegates, was, “How do I grow these relationships, so I can grow them into the next lifecycle stage?”
RBC calculated lifetime value five years out. Instead of the traditional method of selling a product, where the goal has little to do with the client, a segmentation approach concentrates on the customers throughout their lives. Such a holistic view of the customer led to sequenced offers which resulted, in some cases, with balances increased as much as 200 percent, Burrows said. It also gave RBC an awareness of cross-selling opportunities. At the same time, RBC diversified its communication channels to align them with customer preferences and give them more choice.
And it re-segmented its customers. So instead of low-income—or low money-making—customers being shunted into higher-cost banking categories, RBC could move them into packages that cost them less. That move improved customers’ perception of the value. “Imagine that,” Burrows said, “A bank was going to call you asking if it could save you money.”
At the same time, it allowed RBC to control costs. Thirty percent of its “youth account” customers had no bankcards, yet the company had not been factoring that in its cost allocation. “If a customer’s not able to access a particular channel, you’re over-allocating cost,” Burrows said.
With a new behavior-based profitability calculation, more than 75 percent of the customers changed deciles.
When the deciles were changed, Burrows said, the economic profit of each of those segments improved fairly dramatically. Although the nexus segment represented only about 20 percent of the bank’s customers, they represented a significant percentage of
new growth potential and profit
“My argument is there’s no such thing as unprofitable customer,” Burrows said, “just unprofitable products and services.”