Increasing Retail Banking Profitability through CRM: the ... · PDF fileIncreasing Retail...

Gruppo UniCredito Italiano

Giorgio Redemagni

Marketing Information Systems Manager

Paris, 2002 June 11-13

Increasing Retail Banking Profitabilitythrough CRM:

the UniCredito Italiano Case History


UNICREDITO ITALIANO GROUP OVERVIEWUNICREDITO ITALIANO GROUP OVERVIEW

In Italy In Italy (2001):(2001):• 1st in Operating Income and

Market Capitalization• 2nd in Interest Margin and Income

from Banking Activities• 7 Banks• Full Retail & Corporate Banking services• 6,5 millions retail customers• 2,924 branches

In Europe In Europe (2001):(2001):• 3rd in pre-tax RoE (28.9%)• 5th in Cost to Income Ratio (55.2%)

UniCredito ItalianoHolding

BancaCRT

CreditoItaliano

Investment Banking

ItalianBanks

Wholesale Banking

Foreign Banks

ClarimaXelion

ROLO Banca

CariveronaBanca

CassaMarca

CRTrieste

UBM

TradingLab

Bank PEKAO

BulBank

Pol’nobanka

SplitskaBanka

CARITRO

Asset Mgmt.

PIONEER

RETAIL BANKING

UniCredito ItalianoCRM


• Business Objectives

• CRM Organization and Processes

• CRM Information System

• Project Roadmap and Methodology

• Achieved Results

AGENDAAGENDA







AGENDAAGENDA


CUSTOMER RELATIONSHIP MANAGEMENT: A DEFINITION

Customer Relationship Management (CRM) is a business strategy aimed at

• Increasing customer profitability over time

• Maximizing customer satisfaction

through a mix of

• Business Processes

• Organization Steps

• People’s Skills

• Enabling Technologies

Source: Gartner Group

CRM

TECHNOLOGYTECHNOLOGY

PROCESSESPROCESSES

ORGANIZATIONORGANIZATION

SKILLSSKILLS


CRM PROJECT MISSION AND OBJECTIVES

MissionTo deploy a CRM System supporting UniCredito’s CRM Business Strategy in Retail Banking for Italian Banks

Business Benefits

! Increased Profitability

! Improved Cross-selling

! Decreased Attrition Rate

! Increased Propensity-to-buy

Objectives! To improve effectiveness of marketing campaignsthrough better targeting

! To retain most profitable customers

! To increase customers’ wallet share

! To improve customer satisfaction by offering" The right product " At the right time" Through the right channel

! To provide a customer-centric view throughout theorganization







AGENDAAGENDA


ORGANIZATION SUPPORTING CRM STRATEGY

Hence:

! dedicated CRM Business Unit

managing the whole strategy

! specific functions of the Business

Unit managing each phase of the

CRM process

CRM - Marketing Information Systems

CRM - Planning CRM – Data Analysis CRM - MktgCommunication

DATA MININGAND

TARGETINGCAMPAIGN

MANAGEMENT COMMUNICATIONCAMPAIGN

PLANNING


CRM PROCESS: CUSTOMER PROFILINGCRM PROCESS: CUSTOMER PROFILING

Fidelization• Attrition Scoring• Loyalty Programme

High Profitability

HighAttrition

Customer Segmentation• Attrition Scoring• Wallet Share Estimation

Up-sellingCross-selling

• Multi-banking Scoring • Propensity-to-buy Scoring

HighLoyalty

Find Best Prospects(Top Customers- like)

Prediction

Low Profitability

! For each customer define predictive indicators and KPIs to track over time

! Identify clusters of customers, having relevant business features, to consistently address

$++

$--

Retention• Loyalty Programme• Lifetime Value Estimation


CRM PROCESS: CAMPAIGN MANAGEMENTCRM PROCESS: CAMPAIGN MANAGEMENT

Bank

ASSESSMENTCAMPAIGNEXECUTION

SEGMENTATION &PLANNING

CAMPAIGNDEFINITION

• Target endorsement• Planning endorsement

Target Selection

• Branches• Account Managers

• Evaluation of Results

• Learning from experience

Define contents:• Macro-target• Budget• Timing • Media mix

• Verify consistency• Analysis and

segmentation• Targeting• Campaign Planning

• Sharing of • Results • Businessevaluation

• Direct Mail• Call Center• Internet• Ads•...

CRM BusinessUnit

! Bank defines contents, demands consultancy and decides! CRM Business Unit designs and plans marketing operations as well as defines

related analytics, and eventually measures results







AGENDAAGENDA


THE MARKETING PROCESS: CLOSING THE LOOP

• Where are we now ?• What strategy ?

• What have we achieved ?• Measurement

• Why are we here ? • Planning / Targeting

• Marketing Operations

• CampaignExecution

Source: Gartner Group

AnalyzeExecute

Plan

TrackOperational CRM• Marketing Automation

Analytical CRM• Business Intelligence

• Data Mining

CustomerIntelligence


CRM FRAMEWORKCRM FRAMEWORK

CUSTOMER DATA WAREHOUSE

MAR

KET

ING

AU

TOM

ATIO

N

DAT

A M

ININ

G

QU

ERY

& R

EPO

RTI

NG

CUSTOMERRELATIONSHIP MANAGEMENT

OLA

P


CUSTOMER DATA WAREHOUSE

## FactsFacts

• Product Ownership• Statement Balance• Transaction Amt.• Profitability• Contacts (I/O)

## DimensionsDimensions

• Customer• Household• Product Type• Channel• Geography• Bank Organization• Campaign

# Overview• Heart of CRM System• Pre-defined Data Model for Retail Banking• “Light” Personalization • Data History: 24 on-line Monthly Snapshots

# Size• Current Size: 750+ GB

• Final Estimated Size: 3 TB

# Monthly Records• Customer Personal Data: 6 millions• Checking Account Transactions: 13 millions• Profitability : 14 millions

• Total: 95 millions


BUSINESS INTELLIGENCE

OLAP, OLAP, QueryQuery & & ReportingReporting

! OLAP Analyisis:• Drill down• Roll up• Slice & dice

! Query & Reporting through Web browser

! 11 OLAP Cubes, 30 business users

! Support Marketing Product &Segment Managers in betterbusiness understanding andcampaign macro-targeting

WHAT’S HOT:" Cross-selling Cubes

AnalyzeExecute

Plan

Track


DATA MINING

SASSAS Enterprise MinerEnterprise Miner

! Brain of CRM System, turns data into valuableinformation supporting business decisions

! Predictive Analysis and Market Basket Analysis through statistical modeling

! Scoring of Customers based on their propensity-to-buy

WHAT’S HOT:

" Attrition Analysis supporting Customer Retention Programme

" Customer Lifetime Value Analysis

" Multi-banking Customer Analysis

AnalyzeExecute

Plan

Track


MARKETING AUTOMATION

CampaignCampaign ManagerManager

! Support definition & mana-gement of multi-stage multi-channel marketing campaigns

! Definition of customer segmentsand profiles

! Connect Target Information (Customer names & addresses) to multiple Touchpoint

! Execute Response Analysis and compute ROI for each campaign

WHAT’S HOT:" Event - triggered Campaign

Management" Life Cycle Campaign

Management

AnalyzeExecute

Plan

Track


Data Warehousing

LOGICAL SYSTEM ARCHITECTURELegacySystems

Customer Data

DepositAccounts

BrokerageAccouns

OperationalDataStore

CRM Applications

Loans

Transactions

Profitability

CustomerData

Warehouse

CRM Hardware Infrastructure

Oracle Enterprise Server 8i

Relationship Manager

Call Center

Direct Mail

Web

E-mail

Multi-channelInformationDelivery Sys.

Channels

Contacts

Cards

OLAP Query & Reporting

OLAP Cubes

Track

Analyze

Plan

Execute

CampaignManagement

DataMining

SAS Enterprise Miner

Customer Relationship Management System

ETL

SAS Warehouse Administrator• EXTRACT• TRANSFORM• AGGREGATE• CLEANSE• BUILD HISTORY• LOAD

Gruppo UniCredito ItalianoCustomer Relationship Management System

CRM ApplicationsData WarehousingLegacySystems

CustomerData

Warehouse

Track

Analyze

Plan

Execute

Operational DataStore

DataMining


ETL

RelationshipManager

Call Center

Direct Mail

Web

E-mail

Channels

100 Mb/s LAN Ethernet

155 Mb/sATM

IBM MVSMAINFRAME

Web Browser

Campaign Manager


SAS WarehouseAdministrator

DATABASESERVER

Sun E5500

DATA MININGAPPLICATION

SERVER

HP N4000

OLAPAPPLICATION

SERVER

HP NTLxr8000

PHYSICAL SYSTEM ARCHITECTURE


THE ROLE OF SASTHE ROLE OF SASData Warehousing CRM ApplicationsLegacy Systems

Account Manager

Customer Data

DepositAccounts

BrokerageAccouns

OperationalDataStore

Loans

Transactions

Profitability

CustomerData

Warehouse

CRM Hardware Infrastructure

Oracle Enterprise Server 8i

Web

E-mail

Multi-channelTargetDelivery

Channels

Contacts

Cards


OLAP Cubes

Track

AnalyzePlan

Execute

Campaign Manager

DataMining


ETL

SAS Warehouse Administrator• EXTRACT• TRANSFORM• AGGREGATE• CLEANSE• BUILD HISTORY• LOAD

Call Center

Direct Mail

• SAS Warehouse Administrator as ETL Tool• Operational consulting activities for ODS Data Feed

• RME (Rapid Modeling Environment), application writtenin SAS, as flattening and scoring tool for Enterprise Miner’s I/O

• SAS Enterprise Miner as Data Mining application


CASE STUDY – SMALL BUSINESS PACKAGE CAMPAIGN CHAID

Number of Accounts

Conversions from a traditional checking account to a small business package account

< 1,5 >= 1,5

Overdraft Profit Margin

Number of Monthly Transactions

< 51,32 EUR >= 51,32 EUR

Number of Monthly Transactions Average Monthly Balance

< 4,5 >= 4,5

< 5854,84 EUR >= 5854,84 EUR< 6,5 >= 6,5< 7,83 >= 7,83

COLOR KEY

Below Avg. Avg. Above

Avg.

Sample Average = 12,2 %

32 %

23,6 %

37,8 %

41,7 %

27,6 %







AGENDAAGENDA


PROJECT ROADMAP PROJECT ROADMAP Pr

ofita

bilit

y

Customer Satisfaction

Start date: July 1999

UniCredito in 2000

Phase 1: Proof-of-Concept

• Development in 6 months

• One bank• Subset of Data• Data Mining +

Campaign Manager• Early & tangible

Business benefits

UniCredito in 2001

Phase 2: Full CRM System• One bank • Data enhancement• + Business Intelligence• Complete Infrastructure:

" Process Automation" Test Environment" Full System Mgmt.

UniCredito in 2002

Phase 3: Enterprise-level deployment• Integration of other

banks • + Web Channel• Channel Integration


THE “APPLICATION ICEBERG”A risky trend in CRM is to mainly consider technology and front-end systems, disregarding the underlying components ...

Behaviour

Processes

! Data Model consistent with business objectives

! Proper Data Sourcing! Good Data Quality

! CRM Processes Definition

! Change Management! No “shotgun approach”! Consistent Organization

Applications

Data


CHOOSING A PRAGMATIC PROJECT SCOPE

versusversus

We need to manage the integration ofapplications, data, processes andbehaviour to achieve real business benefits !!

Data

Applications

Old approach:

• Broad Project Scope (“doeverything”)

• Emphasis just on link between applications and data

Applications

Data

Processes

Behaviour

New approach:

• More restricted Project Scope

• Emphasis on:

• Fast delivery

• Match of applications, data,

processes and behaviour


GROWING BY ITERATIONS

Increased Scope in each iteration:• One Business Objective• New Subject Areas• New User Requirements

Project Scope

SecondIteration

FirstIteration

Pilot

Analysis

Design

Implementation

Test

Roll-Out

Review


CRITICAL SUCCESS FACTORSCRITICAL SUCCESS FACTORS

! ORGANIZATION• Sponsorship from Top Management• Dedicated CRM Business Unit

! PROCESS• Quick Wins: rapid prototyping able to produce immediate and tangible

business benefits • Clear definition of business objectives to be achieved and related

metrics to track CRM results

! TECHNOLOGY• Approach: ‘Buy’ versus ‘Make’• Choice of Best-of-breed applications, having standard integration with

Data Warehouse Metadata • Data Quality / ETL Process (“garbage in, garbage out”)

! PEOPLE• Marketing and I.T. skills in the same business unit• On-going education of internal customers on CRM







AGENDAAGENDA


KPIsKPIs TO MEASURE CRM SUCCESSTO MEASURE CRM SUCCESS

Key Performance Indicator

Redemption LiftCampaign ROI

Retention Rate

Customer Net Present Value (NPV)Customer Lifetime Value (LTV)

Customer Satisfaction Index (CSI)

“If you can’t measure it, you can’t manage it”(John F. Welch, Chairmain and CEO, General Electric, 1981 – 2001 )

Objective

To improve effectiveness of marketing campaigns

To retain most profitable customers

To increase customers’ wallet share

To improve customer satisfaction


REDEMPTION LIFT 1999 REDEMPTION LIFT 1999 -- 20012001

! Campaign Redemption increase from no CRM to Pilot CRM: 126 %

! Campaign Redemption increase from Pilot CRM to Full CRM: 90 %

! Total Redemption increase from no CRM to Full CRM: 329 %

Redemption Lift Index

1,00

2,26

4,29

0,00

1,00

2,00

3,00

4,00

5,00

1999 - No CRM 2000 - Pilot CRM 2001 - CompleteCRM

Year

Lift

Inde

x

+ 126 %

+ 90 %


ROI ON 2001 MARKETING CAMPAIGNSROI ON 2001 MARKETING CAMPAIGNS

Campaign Year (2001)

• Overall Return On Campaigns (ROI): 375 %

• Return due to better targeting (CRM ROI): 75 % (*)

• Profit Increase due to CRM: X (millions Euros)

Life TimeA product sold in one year brings profits, due to its usage and yearly fee, also in

the following years (until product life time) => CAMPAIGN LIFETIME VALUE

• Return due to better targeting: 540 %

• Profit Increase due to CRM: 7 X

(*) CRM ROI = CRM Net Margin / Total Costs

CRM Net Margin comes from a redemption increase due to better targeting made with Data Mining methodologies, as opposed to pseudo-casual Control Group data selection


CONCLUSIONSCONCLUSIONS

! CRM is a business strategy, and an effective implementation needs to be consistently managed through four layers:

" organization

" processes

" people’s skills

" technology

CRM

TECHNOLOGY

PROCESSES

ORGANIZATION

SKILLS

2nd

1st

Pilot

Analysis

DesignImplementation

Test

Roll-OutReview

! Fast delivery of an incremental business-driven project

! Focus on most profitable customer segments


THE ESSENCE OF CUSTOMER RELATIONSHIP MANAGEMENT

“Don’t count the people you reach,

reach the people who count”��

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Thank you !“Building a technological infrastructure may seem simply tricky.As a matter of fact, it is awfully more complex”

(IBM)

Giorgio [email protected]

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