Customer profitability in real-world banking

This summary of a 10-page paper provides insights into the bank’s practical approach to delivering customer profitability and improved performance.
(download the complete WP at www.cognos.com/eu/wpprofitability )

To understand the scale of the bank’s customer profitability project, it is important to illustrate the bank’s size through its numbers: 14.5 million retail customers, 300,000 high net worth banking customers, 600,000 local business customers, 11.3 million chequing accounts, 11 million savings accounts, £59.3 billion in mortgage balances, 2014 branches in the UK, Between 6 and 12,000 allocated customers per branch, 41,500 UK-based staff, Complex set of technical architectures, particularly delivering business intelligence (BI) and management information (MI)
For this major bank, customer profitability is not a new concept. It has been developed and refined over 25 years, and continues as a project today. Four core areas of an organization must support customer profitability and align to deliver it: strategy and organization, people, data and measurement.

The UK-based global bank being discussed approached strategic and organizational problems in a number of dynamic ways. It became channel-driven and chose a primary channel that would be responsible for customers and accountable for sales. It segmented customers on the basis of ‘propensity-to-buy’ models. It set up a variety of approaches to sales targets, the most important of which was an estimated lifetime value of a product, or ‘value measure,’ which could be used to calculate customer profitability by branch. And it restructured to better serve customers.

Becoming channel-driven Because of its large customer base, the bank decided to go with a channel-driven approach—as opposed to a product-based or customer-based approach—to becoming more customer focused.
Segmenting customers The global UK bank developed broad segments within the channels. Retail banking segments include premier banking. Private banking is a smaller (by volume) segment for very high-net-worth customers served outside the core banking channels. At a central level, the bank segmented by industry, mainly to provide central specialist support and direct mail activity, rather than performance management and targeting.
Targeting sales For a sales force to perform, sales targets and their supporting performance information must be clear. As its culture matured, the bank adopted various approaches to the way branches target sales, including: Targeting by product volume, by sales points, by pseudo profit and loss. This resulted in allocations being based on one or a combination of factors
The value measure -The bank set a target for a total branch value increase.
Reporting to drive performance - To support the branch value increase target, the bank implemented Cognos as the standard distribution tool for reporting on value and customer profitability across all retail branches. But it recognized that value reports alone, without the portfolio approach, would not get the job done in a mass market business.

Banks cannot afford to stand still in the area of customer profitability. Those that do will watch their competitors walk away with existing and potential customers. The combination of clear integrated strategies alongside great people, fully exploited data, and the right measures to drive the right behaviours will deliver sustainable customer profitability.

Download the complete WP at www.cognos.com/eu/wpprofitability and activate the self assessment to help you understand areas of strength or improvements at www.cognos.com/eu/reveal

For more info – Laurence Trigwell, Senior Financial Services Industry Director at FinServ-BI@cognos.com