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Introduction
Building customer loyalty and "wallet share" are obviously 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%. We also know that it is 5-10 times more costly to acquire a new customer than to retain an existing one. Attrition of a bank's most profitable customers is particularly damaging since the "80/20" rule is perhaps nowhere more evident than in financial services.
However, banks are finding it increasingly difficult to build enduring relationships with customers in an evolving competitive landscape fueled by deregulation and the Internet. As evidence, studies have shown that the average customer now has more accounts with a larger number of institutions than ever before.
The banks that will grow and prosper in this difficult environment are those that build a base of loyal customers and differentiate themselves through the quality of their customer service and the effectiveness of their sales and marketing efforts. Many banks have recently implemented Customer Relationship Management (CRM) programs to address those areas, but most have not realized the returns they expected on their CRM investments.
We believe this is because far too many banks have viewed CRM as a technology solution, not as a fundamental change in how they manage and use customer data. As a result, they have not focused on developing the required Customer Information Management (CIM) capabilities to leverage CRM technology effectively to drive customer loyalty, customer profitability and new customer acquisition. Our experience leads us to believe that banks will not meet their Return on Investment (ROI) objectives from CRM unless they use CIM as the basis for enabling the most fundamental of all CRM principles - "treating different customers differently."
CIM versus CRM
CRM vendors spent much of the past decade selling companies on the idea that implementing new CRM technologies would strengthen their relationships with customers and increase profitability. While vendors dominated the CRM scene during the late 1990s, most consulting firms were still focused on getting the last dollar out of Enterprise Resource Planning (ERP), Y2K and e-Business budgets. It was not until the beginning of this decade that a significant number of consulting firms turned their attention to helping companies develop...