By Gardoll, Ron
Journal of Banking and Financial Services , Vol. 119, No. 4
Faced with the challenges of compressing product margins and growing customer demands for more personalised service, retail banks are being forced to consider more innovative customer sales and service strategies. This has led to a more comprehensive approach to the management of the many channels that customers may use to interact with their bank.
The service-oriented view is that the customer must always be allowed to choose their channel, regardless of cost. The cost oriented view is that customers can be persuaded to adopt more cost-effective channels. The 'channel collaboration' view is that a balance can be struck between customer preference and cost-effectiveness provided we have an integrated approach to channel management. But it demands a much more rigorous approach to channel management. In effect, a collaborative channel management engine that is constantly fine-tuned through four key processes:
Step 1--channel ideals
The creation of a collaborative channel management engine begins from the customer perspective and their preferred channel preferences. This demands a commitment to the rigorous collection of information on customer channel preference, and recording how and when the customer interacts with the bank for different transactions. Our CRM systems need to accommodate additional information on channel preferences and our sales and service staff need to be constantly prompted to gather channel preference data from the customer. A critical dimension that needs to be understood is why the customer prefers a certain channel. Is it convenience or habit? Are they open to using other channels? Is time or cost the most important driver for them?
A critical component of channel collaboration is creating a sense of collaboration with the customer. Rather than directing the customer to use a more cost-effective channel, we aim to collaborate with the customer and use our knowledge of why they use a channel to shift them to another channel that can service the same need more effectively (at a lower cost).
Step 2--channel realities
Measuring the effectiveness of channel collaboration supports the continuous improvement of channel strategies. This step develops an accurate transaction 'cost signature' for each channel. This should be done at the individual customer level to allow channel costs to be accurately factored into individual customer profitability estimates.
Similar rigour should be applied to product profitability. Understanding which customers have the most profitable channel behaviours and which channels are the most popular for each product are essential components for accurate profit modelling. This analysis can then be extended into customer segmentation, using channel preference as a key indicator of customer behaviours and psychographics.
Cross-subsidisation of channels is a common weakness in bank channel economics. Direct and indirect costs must be accurately apportioned to each channel.
Based on accurate channel economics, we can make design decisions about which customers we would prefer to use which channels for various interactions with the bank. Using our knowledge of existing customer preferences we can baseline our costs for each channel and then set targets for changes in channel balance that will be more cost-effective without significantly diminishing customer satisfaction. Included in this is an analysis of the incentives we are prepared to offer to encourage customers to switch channels (e.g. fee reductions or bonus offers).
Another important component of this step is the identification of common channel management processes (e.g. user identification, customer personal details, customer enquiries, self-service activities) and ensuring those processes are delivered consistently across channels. If a customer is willing to use the Internet channel to update their personal details and preferences, that new information needs to be visible to other channels. …