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Achieving the Cross-Sell -Advanced Relationship Strategy
James T. RagerVice-Chairman
Personal & Commercial Banking
Royal Bank of Canada
Nesbitt BurnsFinancial Services Conference
(Please check against delivery)
March 8, 2000
Thank you and good afternoon.
I’ve been asked to speak this afternoon on the topic of “Achieving the Cross-Sell”, which is becoming increasingly difficult to do in a profitable way, given themulti-channel, multi-product world in which we operate.
Within the Personal & Commercial Banking platform at the Royal Bank FinancialGroup (RBFG) — where we are the primary relationship point for over 9 millionconsumer and small business customers, and a key referral source for many ofthese clients into our wealth management business — understanding andanticipating client needs, preferences and value, and executing aligned salesstrategies consistently across all our channels is the focus of all we do.
We believe that in order for us to gain increased “share of wallet” in a way thatimproves customer loyalty and profitability we must excel in five key areas - datamanagement, customer strategy development, contact management, valueproposition management and service delivery.
With that in mind, I would like to explain how we at the Royal Bank approachcross-selling in a way that maximizes the value of our franchise and leads tobetter shareholder returns.
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Agenda
• Our relationship strategy• What we know about our customers• What we do with this knowledge• How we implement• Positive results
The key areas I want to cover with you are:• our relationship strategy,• our depth of knowledge of our customers,• what we do with this knowledge,• how we execute our relationship strategies through multiple contact
points, and• the encouraging results that we have seen in the past couple of
years.
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Relationship Strategy
• Creating a tailored client experience• Building a more personal and friendly
brand and corporate image• Reducing costs• Effectively managing risk and capital
To grow profitable relationships with eachone of our business and personal clients by:
Our strategy is really quite straightforward. We want to grow profitablerelationships with each one of our business and personal clients by:
• creating a tailored client experience. What we mean by this, andhow we do it, will be the focus of my remarks today,
• building a more personal and friendly brand and corporate image,• reducing the costs of delivery where appropriate, so that where the
tailored client experience is price driven, we can always compete,• effectively managing risk and capital.
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What we know about our customers:
• Foundation research and profitability• Insights on lifetime value, vulnerability, risk
and propensity to buy
What we do with this information:• Organize to deliver• Develop personalized strategy for every client
How we implement:
• Optimize sales effectiveness
Our ability to tailor the client experienceis the result of:
Relationship Strategy
When we talk about creating a tailored client experience, we meanputting together the correct mix of channel, product, price and treatmentthat is right for the customer, and profitable for us.
Our ability to do this results from:• our data management and segmentation capabilities,• our ability to use this information to gain deeper insights into
lifetime value, risk of attrition, client risk and propensity to buy,• our ability to develop personalized customer strategies using this
information, and• most importantly, executing these strategies in a consistent way
across all our channels.
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What We Know About Customers
Importance toClient
High
Financial Institutions Proficiencyat Delivering
HighLow
1-800 Number
ATM Access
Convenient Hours
GenericMail
24x7PC/Internet
Banking
DifferentiatingCapabilities Know and
recognize me
Help me bettermanage my
finances
Be honest and protectmy privacy
Give mesound advice
Know what I need
Short Lines
Cost of EntryCapabilities
Products
Relationships,Personalized
Service
Let’s start with some of our most basic customer research, which is whatlead us to conclude that a strategy based on delivering this tailoredexperience is a winner.
Here we see that our ability to deliver anywhere, anyhow, anytime to ourclients does not rate very high in their eyes as differentiating factors.They expect these capabilities, and we better be good at them, butcustomers really value sound advice, our ability to understand andanticipate their needs, and the feeling that we value them as individualsas things that will set us apart from our competitors.
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• They access services through numerouspoints/channels
• Relationship management through a singleperson is not always economically viable
• “Relationship means different things todifferent people
We also know:
What we Know About Customers
We also know there are challenges because:• customers access services through numerous points & channels,• relationship management through a single person is not always
economically viable, and• “relationship” means different things to different people.
Therefore, our ability to deliver on the differentiating relationship factorswith a traditional face-to-face approach is virtually impossible.
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• Use our customer information and decisioningtechnology to:
– segment– understand profitability– predict preferences and behaviours
How do we go about developing a profitablerelationship with every client ?
But We Know More
So we have to go deeper into our data, to use our customer informationand decisioning technology to segment clients, predict their behaviour,understand their current and potential profitability, and thus develop apersonalized strategy for every client that puts together the right mix ofproduct, price, channel and treatment that is satisfactory to ourcustomers and profitable for us.
We have lots of information on our customers. We also havetransactional, demographic, and attitudinal data, that we are able to useto segment our client base in a pretty sophisticated, refined way. Eventoday, many banks lack this important capability.
I’d like to spend a few minutes discussing the strategic and tacticalcodes we use.
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Strategic Codes
ClientProfitability/
Client ValuationModel
Client Segment/Composite Code
But We Know More
ClientVulnerability
ChannelPreference
Client Risk
CurrentPotential/
Lifetime Value
Here are some of the codes we have developed to understand our customers,and their needs and preferences. Strategic codes identify what we know aboutour customers, and help us to determine what strategies we need to put in placeto meet our business objectives.
The Potential and Lifetime value codes provide information on the value of acustomer if we were to obtain all their wallet, over a longer time frame. Ithelps us understand that not all profitable clients have additional potential, andmore importantly, that some currently unprofitable customers representsignificant potential. It helps us align scarce sales and marketing efforts againsthighest opportunity.
The Customer Segment code actually clusters our customers into similar lifestage groups which help us develop value propositions for customers based onlife events.
The Channel Preference code predicts likelihood of using different channelsbased on current behaviour. We know, for instance that 1/3 of our clients arebranch/teller centric. Another 1/3 have migrated to the ATM for routinetransactions, and a further 1/3 are actively moving to telephone and Internetbanking.
The Customer Vulnerability code identifies customers who are at risk ofleaving the Bank.
The Customer Risk code identifies customers with higher risk of loss.
(CONTINUED ON NEXT PAGE)
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Strategic Codes Tactical Codes
ClientProfitability/
Client ValuationModel
Client Segment/Composite Code
Propensity to Buy& Growth Models
Product AttritionModels
Activation Models
But We Know More
ClientVulnerability
ChannelPreference
Client Risk
CurrentPotential/
Lifetime Value
We’ll describe how we use these codes to develop personalized strategies forour customers in a moment.
Important to note that we do not provide strategic codes to staff -- thestrategic codes are too prone to different staff interpreting them in differentways. Rather, we provide our staff, whether they are in the call center, in abranch, or mobile sales forces, with very detailed tactical information.
The tactical codes enable staff to focus their scarce sales times on highestpotential activities. Sales leads based on these codes would identify, forinstance, the likely next product for a specific customer, or details on amortgage customer who is at risk of switching a mortgage to a competitor(we can tell this 6 to 12 months in advance so we can intervene), orinformation on a customer who is not using a service (e.g. an RC or Internetbanking) we have sold them. In this way, we are able to more efficientlydirect our cross-selling activities.
Each one of our 10 million customers is scored monthly on each one of thesecodes, with more frequent updates if significant changes occur during themonth (e.g. a large balance change). To give you a sense of the richness ofour database, we have information on over 9 million active personal andbusiness clients, and 2 million inactive clients with over 30 million recordsand accounts. Each client has over 2600 attributes associated with them onour data base.
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• Use our customer information and decisioningtechnology to:
– segment– understand profitability– predict preferences and behaviours
• Develop a personalized strategy for every client• Organize ourselves around client segments
What We Do With This Knowledge
How do we go about developing a profitablerelationship with every client ?
We analyze all of this information and cluster our clients into four maingroups, from which we start the process of developing a personalizedstrategy.
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Organize To Deliver
GettingStarted
• Youth• Nexus• Small Business• Small
Agriculture
Builders
• Borrowers &Builders
• Business• Agriculture
Wealth
• WealthAccumulators
• WealthPreservers
Commercial
• KBI• Public Sector• Real Estate• Commercial
Leveraging segmentation and customerinformation in the development of strategies
* Personal & Commercial Banking customers
We have organized around four broad segment groupings with thirteen sub-groupings. These will evolve over time.
The segment structure reflects client life stages and complexity of financial needs.The groupings also reflect commonalities in service and product requirements.The interesting part to note is the current profitability between these groups isquite different, as you would expect.
The Getting Started grouping comprises four sub-segments with low currentvalue, but many with potential. Our strategy is to identify and grow this potential;while minimizing costs.
Our Builders are mid-life / mid-stage clients. For the most part they are stillgrowing and have high credit and financial advisory needs. Our strategy is toretain, grow and consolidate relationships.
Our Wealth grouping consists of more mature segments, in the savings phase withsignificant potential for full RBFG offerings. The value proposition for theWealth segments is trusted service and referral to specialized resources.
We continue to focus on high potential Commercial clients.
Here is an example of a client in the Borrower and Builder sub-segment (NEXTSLIDE):
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Developing Personalized Strategies
What Does RBFG Know About The Client?High
PotentialValue
MediumCurrent
Value
LowRisk
HighVulnerability
Borrowers& Builders
ChannelPreference:
Current: RCL
Chq AcctCar Loan
Home-Owner
High PTB:Tailored
Product &Service Pkg
� While ViewingAccount Transactionson Internet, Browses
Service Package Offer
Looksinteresting, I’ll
investigatefurther when I
have more time.
RBFGunderstands my
needs.
• Reduce Vulnerability
• Improve Efficiency
Targeted Marketing Offer
� Royal DirectContacts Client ForCustomer Care Call
RBFG caresabout me, I am
not just anumber.
• Reduce Vulnerability
Tailored Retention Activity
� RBFG PaysCheque b y
Extending a $750Courtesy Overdraft
RBFGappreciates my
business.
• Improve Efficiency
• Increase Profits• Reduce Vulnerability
Individualized Courtesy Overdraft
� Client Goes ToBranch, PersonalBanker Aware of
Internet Offer andSells the Service
Package
RBFG isdependable.
I trust RBFG.
• Increase Profits• Reduce Vulnerability
Effective Sales Practices
Here’s what we know about the customer: - internet and telephone user, - owns a home, - currently has a credit line, chequing account and car loan with us, - likely next needs identified are a service package, - has medium current profitability but good potential, - low credit risk, and - quite vulnerable to leave us.
Our strategy for this client includes attempting to:• reduce vulnerability since we know this client is likely to leave us,• improve efficiency given current profitability, and• increase profits given that we know this client has potential.
Here’s how we would structure some specific activities and what the client wouldexperience:
• a marketing offer of a service package over the Internet (we know package clientsstay 3 years longer than clients without packages),
• an outbound Royal Direct call to ensure follow up and recognition,• a courtesy overdraft to accommodate occasional transactions - shows appreciation
of business, and• the branch picks up the conversation seamlessly - the customer thinks “RBFG
knows me and is aligned to satisfy my needs.”
This is an example of cross-selling with a purpose.
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What Does RBFG Know About The Client?High
PotentialValue
MediumCurrentValue
LowRisk
Medium
Vulnerability
WealthAccumulator
ChannelPreference:
Current: RegisteredMutual Fund
Chq Acct
Home-Owner
High PTB:Tailored
Product &Service Pkg
� While viewing accounttransactions on Internet,browses email message
on RSP contributiondeadline.
Great timing, Ididn’t realize itis that time ofthe year again!
• Reduce Vulnerability
• Improve Efficiency
Timely E-mail
message
� Direct Mail ContactsClient For RSP
portfolio/foreign contentopportunity
• Reduce Vulnerability
Targeted Marketing
Offer
� RBFG recommendsRoyal VIP service
package based onbehaviour/usage
pattern.
RBFGappreciates my
business.
• Improve Efficiency• Increase Profits
• Reduce Vulnerability
Individualized Service Package
� Personal Bankeraware of Direct Mail
offer, contacts client,provides financial
advice, recommendsappropriate Mutual
Fund for their registeredplan and obtains RSP
contribution
• Increase Profits• Reduce Vulnerability
Effective Sales Practices
RBFGunderstands my needs.
RBFG is dependable.I trust RBFG.
RBFG cares aboutRBFG cares aboutme, and is helpingme, and is helpingme to accumulateme to accumulatewealth.wealth.
Developing Personalized Strategies
Here is another example of a client in a different segment - the Wealth Accumulatorsegment
Here is what we know about the customer:– high investible assets / household income,– professional,– account team managed,– has chequing account, Visa and registered retirement savings plan,– medium profitability, but high potential,– risk profile is low, and– unlikely to leave us.
This client will receive an email as a reminder to make an RRSP contribution, with atailored direct mail message offering financial advice regarding increasing the foreigncontent in the registered plan, and recommending appropriate mutual funds.
Client will also receive a customized message for premium service banking packagefor day-to-day activity.
A Personal Banker will follow up to review their investment strategy and obtain RSPcontribution.
This client will also be a good candidate for referral to our Royal Investment Services(wealth management) business. I’ll speak further about our RBFG Referral Programin a few moments.
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Increased Value in a Key Package
• What we knew in 1998:– Customers who have packages remain a customer longer– Customers who have packages hold more products
• Offering a package of “everyday banking” (Enhanced Royal CertifiedService) to selected Borrowers & Builders would increase profitabilitythrough additional products being held and reduced attrition, whileimproving perception of “value for money”
• Promising results included:4 Highest lift among customers paying less than the package price4 Reduced fees of some customers more than offset by increased fees
of others4 A 700 basis point increase in banking package penetration4 RBC moved from #7 to #4 in “value for money” ranking (1999)4 Incremental increases in RCS revenues by $11 mm for 1999 over
1998 and a further $5 mm for Q1/00 over Q1/99.
Here’s a real life example that demonstrates the power of this process, bothin targeting customers, achieving sales and expanding relationships.
Royal Certified Service (RCS) is a very popular full-service bankingpackage that we wanted to promote. We knew that customers who havepackages remain a customer an average of 3 years longer and hold one-halfmore products, on average, than customers who do not
Using advanced modeling, we were able to construct a picture of customersmost likely to purchase this comprehensive flat fee service.
Offering a package to selected Borrowers & Builders would increaseprofitability through additional products being held and reduced attrition,while improving those customers’ perception of “value for money.”
Promising results from this initiative included:• a 700 basis point increase in banking package penetration,• RBC moving from #7 to #4 in the “value for money”ranking in 1999,
and• RCS revenues increasing by $11 mm for 1999 over 1998 and a further
$5 mm for Q1/00 over Q1/99.
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Customized & Focused Sales Leads
Here's an example of the type of actionable and targeted sales leads wewill soon be able to deliver directly to the desktops of our sales people,while keeping the complexity of our approach behind the scenes.
On this slide is an example of a daily proactive contact list that aPersonal Banker would access on their workstation Workbench whenthey sign on.
You can see here that Leigh Casey has been offered RCS (packagedchequing account) with a $500 overdraft limit.
If we drill down on the next screen...
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Customized & Focused Sales Leads
You can see the sales activities of the personal banker in working thiscontact.
Once accepted, the decision will be fed back to the database, and theclient information will be updated for all those who have access to theclient’s information.
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Optimizing Sales Effectiveness
• Improved quality of sales leads meansincreased sales results
• Geographic units focused on sales andservice, business units focused on clientstrategy
• Consistent focus on customer needs• Automated sales tracking and
performance management
You have seen how we grow the profitability of each relationship. Thekey to delivering a consistent client experience is automating ourstrategies and delivering them consistently across each point of contact.
By doing this, what our salespeople see is an organization designedaround the client where they get much better information to help themsell.
This optimizes sales effectiveness through:• improved quality of sales leads which increases sales,• geographic units focused on sales and service, and business units
focused on client strategy,• consistent focus on customer needs, and• automated sales tracking and performance management.
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Sales Management
Conducting WeeklySales meetings forskill development andreinforcement
Setting WeeklyGoals to gaincommitment andaffect change
Coaching individuals toform and sustainbehaviours
Joint Selling toobserve behavioursand client experience
ProvidingRewards &recognition
Performance support becomes more important as our sales culture becomes more sophisticated
Training individualsand groups tocompleteunderstanding andenhance sales &relationshipmanagementcapability
The last critical piece of our strategy is around the overall salesmanagement process.
Performance support becomes more important as our sales culturebecomes more mature and sophisticated.
Strong sales management routines are the key to this support:• weekly sales meetings to build skills and reinforce behaviours,• weekly goal setting,• coaching,• joint selling,• training, and• reward & recognition.
A great deal of emphasis is being placed currently during the fieldrestructuring on getting the right people into these key roles.
This strong sales management approach is a key success factor in beingable to identify and refer clients to other members of RBFG, as you willsee on the next slide.
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Referrals Throughout the Group
Year
1997*
1998
1999
Business Referred($ Billions)
3.0
2.4
1.2
New Sales($ Billions)
2.7
4.0
3.9
* Three months - from August 1/97 to October 31/97
Total Referrals Between RBFG Businesses
New Sales/Business Referred
.9 X
1.6 X
3.3 X
Since the latter part of 1997, we’ve had an active referral program inplace -- referring business to other groups in the organization -- mutualfunds, full-service and discount brokerage, asset management and so on.
As you can see, we’ve had considerable success with our referralprogram and much of the “low hanging fruit” has been harvested.What’s amazing is that for every dollar of business referred in 1999, wegenerated $3.30 from outside the Group, i.e, from our competitors, upfrom 90 cents in 1997.
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Increasing Share of Wallet...
Annual Increase inthe Number of“A” Clients*
Annual Increase inAverage Profitability
of “A” Clients*
Personal Financial Services Clients
…resulting in more “A” clients and averageprofitability per “A” client
*”A” are high-value clients
122,000
76,000
131,000
$43
$10
$16
1996 to 1997
1997 to 1998
1998 to 1999
An indication of the success of our program is the increasing share ofwallet of our Personal Financial Services customers. We have focusseda large part of our efforts on “A” clients (the most profitable), increasingnot only average profitability per client, but also the absolute number ofclients.
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More Positive Results
• 60% reduction in the time required to get ourDirect Marketing out the door
• Increase in the number of ‘A’ clients of 15%from 1996 to 1999
• Direct marketing efficiency continues toimprove with 1999 actual 65% versus target of83%
• 1999 marketing revenue exceeded projectionsby 27%
• Customer satisfaction measures all up; RBCnow top-ranked among the “Big 6”
Some other positive successes of our relationship marketing programinclude:
• a 60% reduction in the time required to get our Direct Marketingout the door, as our customer information allow for a focussedmarketing effort,
• an increase in the number of “A” clients of 15% from 1996 to1999,
• direct marketing efficiency continues to improve with a 1999 actualof 65% versus our target of 83%,
• 1999 marketing revenue exceeded projections by 27%, and• all of our customer satisfaction measures are up; with RBC now
top-ranked among the “Big 6.”
As you can see, we have had considerable success over the past coupleof years with our relationship marketing program.
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The Proof is in the Numbers
Revenue Growth (1999 vs. 1998) of Personal &Commercial Banking Segment
-0.8%
2.2% 2.5%3.1%
7.0%
8.7%
CM BNS TD NA* BMO RY
* Includes wealth management
This is evident in Personal & Commercial Banking’s revenue growthnumbers - the best in the industry last year.
Thank you for the opportunity to discuss one of the many excitingthings that we are executing at Royal Bank Financial Group