Gaining Competitive Advantage through CRM

Gaining Competitive Advantage through CRM
The Development of CRM in Financial Services

By Raymond Devadass


Turban Rainer and Potter, (2003:251), state that CRM is the approach that recognises customers as the core of the business and an organisation’s success depends on effectively managing relationships with them.

In many organisations, CRM is seen as the way to gain competitive advantage. Hence, the purpose of this essay is to dwell specifically into the development of CRM in the financial arena, particularly in banks. This essay will encompass CRM background, the e-commerce infrastructure needed to support CRM, the challenges banks face and evidence of benefits banks have garnered using CRM.

The financial services industry is large and diverse. It covers banks, building societies, insurance and investment companies, and increasingly companies from other fields setting up financial services operations. (Hughes 2001:222) There appears to be a worldwide trend in the merger of banks and as such the industry is changing rapidly and it is suggested that the development of new distribution channels, in particular e-commerce, will change the competitive environment (Keeton 2001:25). Gillies, Rigby, and Reichheld, (2002:73) state that few have been able to resist a technology that promises to identify their most profitable customers and target them with campaigns that will increase purchases and loyalty.

CRM Background

As pointed out by Fisher (2001:1), in the ever-widening area of financial services, it is easy to lose track of customer base, thereby losing the opportunity for increased profitability and revenue growth, making it critical for banks to capture and retain their customers, and where possible increase interactions with them.

Morgan (2003:3) affirms that building customer loyalty and “wallet share” are 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% and it is 5-10 times more costly to acquire a new customer than to retain an existing one.

There appears to be a consistent view expressed by various authors on the importance of CRM. Hopkins, Carter and Monasco (1999:1) state that to focus best on customers one must continually engage them, learn their needs and preferences, and act on what is learned will gain a tremendous advantage which is the ability to customize products and services to individual requests. The move toward a customer-centric culture is also something Davenport, Harris & Kohli (2001:63), believe will contribute significantly to the success of an organisation’s customer-knowledge management approach. Furthermore, as Ragins & Greco, (2003:25) assert, CRM can be used to gain clearer insight and more intimate understanding of customers’ buying behaviours, thus helping to build an effective competitive advantage.

McKeown (2003:202) further states that CRM attempts to create a 360-degree view of the customer and Chaffey (2001:330) mentions the 3 phases of CRM are customer acquisition, customer retention and customer extension.

Banks have entered the new millennium, and are operating in an increasingly competitive marketplace characterised by financially literate consumers. (O’Donnell, Durkin, & McCartan-Quinn 2002:273). There also appears to a coherent view of the following authors on the drivers of change. The fundamental drivers behind CRM as stated by Sutherland (2002:3) are customer demand as well as the increased pressure for institutions to find new growth areas and revenue streams. The drivers of change according to Kaster (2003:34) includes customer drivers which includes service expectations, consistent information and faster responses as well as business drivers which includes service quality, share of wallet and 360-degree customer view. These drivers connect the customers and company.

Melewar & Bains (2002:57) further state that consumers are experiencing choice, convenience, control and desire more. Their financial awareness and demands are growing along with expectations of enhanced value for their money.

CRM e-Commerce Infrastructure

The revolution of CRM has been referred to as the new “mantra” of marketing and companies like Siebel, E. piphany, Oracle, Broadvision, Net Perceptions, Kana and others provide products that do everything from track customer behaviour on the Web to predicting their future moves to sending direct e-mail communications. (Winter 2001:2, Tinsley 2002:4)

Current and evolving applications and technologies are discussed below:

Current enabling applications and technologies
Melewar & Bains (2002:57) state technological innovation is both the enabler and driver that has transformed the financial services industry whereby content, commerce, community and collaboration are rich, personalised, immediate and ubiquitous. Melewar & Bains further state that the result is that the Internet channel is able to offer compelling sources of value, primarily information search, comparison, electronic payment, advice and the rebundling of financial services to allow for one-to-one marketing on a massive scale. Information technology is the element which makes one-to-one marketing possible and for a bank to achieve mass customisation, large volumes of data must be tracked well. ( Pitta, 1998:468)

As CRM applications need to take full advantage of technology innovations to collect and analyse data on customer patterns, interpret customer behavior, develop predictive models, respond with timely and effective customised communications, and deliver product and service value to individual customers, innovations in network infrastructure, client/server computing, and business intelligence applications are leading factors in CRM development. (Chen and Popovich 2003:677)

Currently CRM systems accumulate, store, maintain, and distribute customer knowledge throughout the organization. The effective management of information, data warehouses, enterprise resource planning (ERP) systems, and the Internet are central infrastructures to CRM applications. (Chen and Popovich 2003:677, Xu,Yen, Lin, and Chou, 2002:449).

In addition, at present more and more firms that deploy a CRM system are adopting wireless devices as a tool to enhance their CRM system (Xu et al., 2002:449).

Another application is the design of user interface and customizing. This application feature according to Ahn, Kim, and Han 2003:329, is an important factor of advanced CRM systems and the most widely preached and important user interface design principle is to understand who the users are and what they want to do.

Yet another current technology and a significant factor in the design of an effective CRM system is the ASP (application service provider). The ASP hosts and manages a software application and delivers it to the customer over the Internet or over private, leased communication lines. (Ahn et al. 2003:329).

The views expressed above by the various authors clearly mention that IT is a key enabler of CRM and for CRM to take-off successfully in any organizations, vital systems like internet, data warehousing, customised user interfaces, ERP and various other applications should be in place.

Evolving enabling applications and technologies
Where will CRM be tomorrow? Infrastructure and technology, being a critical enabler, will be an obvious pivotal element in the successful implementation of CRM in banks.

Hubbell & Redding (2003:48) are of the opinion that the new wave of technology innovation will transform CRM. It is clear that the modern era and funds for Internet technology have spurred considerable evolution in technology solutions to meet practical needs. (Beidl 2002:33)

Various technologies like sensors, radio frequency identification (RFID) and wireless communications will enable banks to gain access to more types of data about their customers than ever before. Furthermore, virtual double, seeing a mirror image of what a customer owns and how he/she operates will be possible through checking accounts and various other products and services (Hubbell and Redding 2003:49).

A world of real time interaction between customers and banks will soon be a reality as stated by Hubbell and Redding (2003:50) primarily by using historical and real-time data to make accurate and timely decisions on customers “best next products”

There appears to be a consistency in the views expressed by the various authors that such levels of sophistication will open up new ways of doing business and this will give the competitive advantage to the participating banks in the dynamic financial landscape. As e-commerce infrastructure and technology continues to improve, banking consumers wanting to make decisions on their money and financials will continue to benefit from the advancement in Web-based decision-support tools.

CRM Challenges

Morgan (2003:3) cautions that many banks have adopted CRM systems at a frantic pace, hoping that they could better centralise, manage and improve customer relationships as it is more cost-effective to keep a customer than to acquire a new one.

There are several reasons why many banks are unable to gain the full benefits of CRM and the challenges that many banks face include:

Misconception of CRM
Morgan (2003:3) states that many banks view CRM as a technology solution, not as a fundamental change in how they manage and use customer data. For CRM to deliver results rather than disappointment, an organisation must ensure a clear customer strategy, business processes are aligned with that strategy, and then introduce the right technological tools to support it. (Gillies, Rigby & Reichheld 2002:77). In-turn the CRM solution must drive customer loyalty, customer profitability and new customer acquisition.

Many banks have invested CRM and are still trying to determine what, if any, value they have received from it? Does this mean that CRM’s value is questionable? Beidl, (2002:26) says it is fundamental for the bank to understand the value and role of a technology before it takes the plunge.

The marketing and information services interface
Improving the marketing and information services interface is an important in the efficient use of CRM within a bank. Nelson (1999:265) states this appears to be particularly true states within “information intensive” or “technology intensive” industries such as banking whereby, interface management is the process of communication and cooperation between two or more functional areas and if done effectively, facilitates product management, heightens diffusion of innovation and assists implementation of business strategies.

Prunty (2001:1) states that the challenge banks face today is how to effectively integrate electronic and traditional branch based channels to deliver more personalised and profitable products and services to customers. Berger (2003:141) and De Young (2001:80) adds that as many banks employ a “click-and-mortar” implementation strategy in which the banks add a transactional Internet site to their physical offices and ATM networks, this integration is pivotal. Prunty further asserts that this has led to institutions emphasising on behaviour-based customer profitability information to manage these multichannels.

Vertical Portals
Sato & Hawkins (2001:6), state that Vertical Portals, allowing customer a one-stop shopping for financial products/services will pose a threat to banks and as Teixeira (2001:4), further asserts portals like Yahoo!, Netscape and Lycos are becoming more attractive. Hence banks should enhance their services by cross-selling other products and build their brand name to attract more customers.

Sato & Hawkins (2001:6), also cautions the increasing importance of aggregators that are operated by non-banks like Yahoo! and Microsoft allowing individuals to obtain information about their financial and non-financial accounts across institutions. It is imperative for banks to address this challenge by enhancing their services and brand name.

Lack of awareness
Sathye (1999:324) researched that some of the factors preventing adoption of Internet banking in Australia is lack of awareness about internet banking services and its benefits, difficulty in use and resistance to change. However, Sathye recommends that these are matters of customer education and possible solutions could include giving wider publicity by demonstration kiosks at supermarkets or public libraries, where people can have hands-on experience of Internet banking.

Operational Risk
Security concerns, are vital in ensuring that customers are not discouraged from the internet and hence the banks must ensure that adequate assessments have been made to assess the vulnerability of the operating systems. (Sato and Hawkins 2001:8, Wenninger 2000:4)

Jun & Chai (2001:288) state that as the Internet is an open network and customers are concerned with the security and privacy of their banking transactions. Franzak, Pitta & Fritsche (2001:631) further state that the potential threats to consumer privacy have grown exponentially and hence banks should install initiatives that will keep security concerns at bay.

Dependable and accurate service
Customers frequently complained about unreliable banking services where banking services provided were not the same way as advertised on their banks’ Web sites (Jun and Chai, 2001:288). Hence banks should introduce appropriate measures to bridge this gap and to ensure that customers go through the online experience well, and this according to Sullivan (2001:23) will help bankers gain new customers.

Change breeds resistance
Employees’ resistance is one of the major risks associated with CRM implementation. CRM efforts often never get off the ground in most organizations as they encounter stiff resistance (Xu, Yen, Lin, and Chou, 2002:447). How to avoid such resistance? Banks should ensure that well-planned training programs are in place and also allow end users to become involved in the implementation of CRM.

It appears obvious from the challenges mentioned above that banks have to be ready to embrace technology and the CRM advent. It is critical that the above challenges be solved before banks can truly be ready to take on CRM and technology. The views expressed coherently state that it would be pointless for banks to “jump into the CRM bandwagon” and not harness the full potential of CRM. Issues relating to security, technology, dependability and quality of service, lack of awareness amongst the public, new innovations that may threaten the standings of banks in the financial arena must be ironed out first.

Evidence of CRM Benefits

Is CRM merely a hype? Worldwide, banks have shown that CRM does reap benefits and has enhanced customer interactions that have proven to give banks the competitive edge and examples of a few banks implementing CRM techniques include the following:

The main benefit of online banking to consumers is likely to be greater convenience. As Keeton (2002:29) gives examples of such convenience that flows to the consumers which includes online accounts, where consumers can now pay their bills by creating a list of regular payees and then instructing the bank to make payments as they receive the bills, either by electronic funds transfer or paper check. An even more convenient service is called bill presentment whereby the bank collects the bills itself and transmits them to the consumer over the Internet, where the customer can review them along with his account balances and initiate payment as desired

Inbound Marketing driving share of wallet
Trigg (2003:31) introduces inbound marketing as revolving around managing inbound interactions whether they occur through a call centre, website or retail branch which is advantageous as during an inbound interaction, companies have the customer’s time and attention, and are more likely to receive permission to extend a marketing offer. Trigg goes on to cite the example of HBOS (formed by the merger of Halifax Bank and Bank of Scotland), with an impressive total asset of GBP350 billion, whose strategy was to turn every customer interaction into a business opportunity. HBOS deployed E.piphany Interaction Advisor to work with its customer service application, where on-screen cross-sell prompts based on the analysis of each customer’s individual profile are received. This action increased customer retention and enhanced customer loyalty.

Corporate Culture
Melewar & Bains (2002:63) mention HSBC as an example of a bank that aims to have a presence in every camp. Its successful subsidiary, First Direct, operates online and via telephone call centres. Melewar & Bains continue by stating that being customer centric, HSBC also offers its customers the option of Internet, digital TV, ATM or high street banking and the bank has also recently announced a joint venture with Merrill Lynch to create an online supermarket for banking that targets affluent customers outside the USA. The bank’s willingness to keep their options open with respect to the latest technology will allow for greater agility in the face of future opportunities.

Translating Strategy into action
Frigo, Pustorino & Krull (2001:1), gives the example of Venture Bancorp, a community bank with total assets worth USD 300 million. The bank had difficulties in translating e-business strategies into action, weak CRM and lack of customer knowledge. Venture Bancorp then embarked on some strategic themes including the combining the banks goals, customer and market knowledge as well as improving knowledge of their customers. This placed the bank as a leading and highly profitable community bank.

In a world where customer value is created through a hybrid human-technology interface, technology will become an increasingly important component in shaping customer value and banks must deliver customer value through a balance of human-technology interface for their customers on a one-to-one basis. Hence, whichever way the customer is dealing with their bank, by telephone, via the Internet, through the cash machine or face-to-face, the bank can access their data and respond with what is becoming known as “a mass-customised single view of the customer. (Payne, Holt & Frow 2000:258)

In a fast pace world where time is becoming more and more a precious commodity, convenience and customisation of products would be the most important benefit that will flow out to the banking customers. The full benefits of CRM would be able to take banks to different playing fields altogether. The views expressed above succinctly points out that fundamental benefits of effective CRM include, customer loyalty and attrition, timeliness and convenience.


Alan Greenspan, Chairman of the United States Federal Reserve, asserts that the advent of technology will significantly alter the financial landscape and the role that banks play in this new arena. It is said that E-finance will drive the changing landscape of the finance industry, in particular towards a more competitive industry. (Teixeira 2001:4, Lin, Geng & Whinston 2001:13).

Bank Negara Malaysia, the Central Bank of Malaysia, makes it clearer by categorically stating in its Financial Sector Master Plan (2001:38) that a key ingredient for banks to remain competitive and create value is to maintain a close relationship with its customers by adopting a CRM approach to analyse customer profiles and behaviours.

It is vital for banks to embrace the fact that customers are a pivotal element of their survival. Being customer-centric is obviously the way forward. Leveraging on CRM tools will enable banks to effectively obtain and manage a database of customer information and their past interactions – which will give them the competitive advantage to acquire, retain and expand their customer base. Information technology and e-commerce infrastructure implemented diligently may proof to be an effective and efficient way to achieving this goal.


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