Strategy. Execution. Results.

Differentiating Your Business Through Your Customer Experience

February, 2011

make an impact!

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Contents
Our Approach Peppers & Rogers Group

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Our Approach
Most of the banks are using value based segmentation; re-newing and detailing their segmentation schema in line with their business objectives will help them realize untapped potential Current Value
How can we differentiate customers according to their current value and that values relative comparison?

Behavior
How we can retain and grow our customers by utilizing their preferences in products, services and channels?

Extended Value
How we can measure customer lifetime value and prioritize customers based not only on their current value but also on untapped potential?

Needs
How we can examine customer motivations and needs to spot opportunities in both current and potential customer base?

Detailing existing segmentation with extended value and need dimensions as well as enriching behavior segmentation will help banks understand drivers of economic improvements in priority customer groups and formulate effective strategies that create real value.
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Our Approach
Using segmentation results to fine tune commercial approach with better informed decisions will help banks balance long and short term goals
Developing effective strategies across a range of marketing disciplines requires broad insights into customer value, potential value, behaviors and needs.
SEGMENTS Customers Strategies
Acquire

ENABLERS Sales & Service

Sales & Service Model Sales & Service Processes Customer Experience Design KPIs & SLAs

GOALS Metrics

End of Year Targets

Cost of growth in the first year Revenue generated from growth in the first year

Micro Segment 1

Retain Grow

Micro Segment 2

Micro Segment 3

Value Offerings
Product

Customer Equity Uplift

Cost of growth in lifetime Revenue generated from growth in lifetime

Micro Segment 4

Price Channel

Segment Development
Quick Wins Mid / Long-term Plans

Micro Segment 5

Promotion

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Extended Value Segmentation

Extended value segmentation provides the bank with insight on untapped customer potential by calculating customer lifetime value
Extended Value with CLV
Value so far Expected revenue from now on

CLV involves the calculation of current and potential value: Current Data Current Value Value Generated in different product & service groups Sociodemographic information Projections Cross and Up-Sell Potential is projected with analytical models. Overall Churn Risk is estimated by using historical data.

Net Present Value

Current Value

Future Expectations

+ +
First Product Sales Revenue

+ +
+

Expected Cross-Sales Expected Up-Sales

Sociodemographics (Age, Income etc.) Churn Risk

Expected Growth (Trend)

Life Time

Acquisition Cost

Today

This approach will help the bank differentiate and prioritize growable customer segments as well as develop strategies and fine-tune sales& service model to realize untapped customer potential.
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Extended Value Segmentation

Strategies and actions are differentiated for each segment by comparing extended value against current customer value
Most Valuable
Actual Value

Customers with high current value and comparatively low potential value: Retention and cost management strategies are often practiced

Most Growable & Growable

Most Valuable Customers

Most Growable Customers

Customers who have comparatively lower current value and high strategic value: Growth strategies are often practiced

Migrators
Limited Opportunity

Migrators

Growable

Customers who have comparatively low current and potential value: Further exploration to determine likelihood of migration to growable segment is often practiced.

Limited Opportunity
Potential Value

Customers who have very low current and potential value: Cost management strategies are often practiced.

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Behavior Segmentation
Current customer clusters based on product and profit related metrics are enriched with additional behavioral dimensions
Deposit and Investment
Salary Payment Ownership Investment Account Ownership Investment History Deposit Balance Stability

Branch Behavior
Branch Transaction Ratio Branch Usage Distribution Branch Usage Timing Preference Branch Usage Location Preference

Loan Usage
Loan Volume Loan Ownership Loan Term Preference Loan Payment Habits

ADC Behavior
Transition from Branch to ADC ATM Transaction Volume Online Banking Usage Volume Contact Center Usage Volume

Transactions
Transaction Transaction Transaction Transaction Frequency Currency Volume Periodicality

Campaing/Promotion Behavior
Promotion Usage Number Campaign Response Rate Favorite Promotion Average Promotion Response Time

Trend
Value Trend (Increase / Decrease / Stable) Trend in specific product groups Activity level Recency & Frequency
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Others
Customer Value per product & service group Risk (delinquency , payment behavior) Tenure 7

Behavior Segmentation
Customer data available in the bank systems is utilized to identify behavior segments
1 2 3 4 5 6 1 2 3 4 5 6 I V IV

II
III

Customer Data

Behavior Dimensions
Value

Behavior Based Segments

Group 1 Group 2

Field 1 Field 2

Usage

Data Sources

Feature Selection

Field 3 Field 4 Field 5

Data Preparation

Services

Feature Transformation

Data Mining

Channels Demographi cs

Cluster Identification

Group 3 Group 4 Group 5

Extraction and selection of data fields

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Preparation of meaningful data fields from extracted data

Identification of segments of customers to manage 8

Behavior Segmentation
Behavior segments provide answers on how to retain and grow customer value by utilizing their preferences
Behavior dimensions include all the interaction criteria of the customer with the bank from product preferences to channel usage preferences. Thus behavior segments provide the customer groups which possess a clear preference among some product/service/channel combinations.

0.3%

2.0 % Stars

5.0 %

1.2 %

4.2 %

3.3 %

3.2%

7.3% Loss Inactivity in the last 3 months

Risk Takers Complex investment needs and capital 5.2% 3.1%

Product Owners Very high product ownership 6.0% 2.0% Techies Quick adoption and tech seekers 14.7%

Most Valuable

High net worth and profitable customers 2.0% 11.6%

1.3% Loss Inactivity in the last 3 months 9

Rising Stars
Increase in net worth and product usage

Conservative Late adopters, risk averse

Mass Affluent

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Needs Segmentation
Common and differentiating customer needs which are the basis for needs segment are identified

Common Needs
Shared Needs 1 Shared Needs 2 Shared Needs 3
Differentiating Needs I Differentiating Needs II Differentiating Needs III

Mass Value Propositions Targeted Value Propositions Segment Based Value Propositions

Shared Needs 4
Differentiating Needs IV Differentiating Needs V

Needs Segment A

Needs Segment B

Needs Segment C

Needs Segment D

Needs Segment E

Individual Customers
differentiating needs exist within the bank customer base.

1to1 Value Propositions

Survey results are utilized to determine which common needs the bank customers share and which

Uncovered differentiating needs are used to define bank needs segments while common and shared needs help the bank understand customers common expectations from the bank.
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Understanding Customer Needs

Detailed customer surveys are used to understand customer needs, preferences, behavioral characteristics and sociodemographic parameters

Customer Surveys
Customer surveys which holds the basis for Needs Segmentation are designed to collect external data from both customers and non-customers.
Value Offering Needs
Please state the importance of following statements in terms of their priority in your personal banking needs Importance

BehavioralCharacteristics
1 2 3 4 5

Please answer the following questions regarding your relationship with the banks you are working with

Response Yes No

Receiving support and guidance on my personal investments

Having 24/7 access to daily financial news and market information

I work only with the bank

I work both with the bank and other banks I prefer the bank for the following products / services Loans

Finding funds to finance my education Increasing my assets fast, taking high level of risks Securing my assets against inflation and financial risks

Insvetment Products

Experience Needs
Please state the importance of following statements in terms of their priority in your personal banking service preferences Speed of services across channels Importance 1 2 3 4 5
Gender
Age

Sociodemographics
Please answer the following questions

Having my branch close to my work or home Look and feel of my branch Accuracy in services and transactions Privacy for my wealth and self
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Income Marital Status Education Level Occupation

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Needs Segmentation
Needs segmentation focuses on identifying the unmet needs/expectations by using data mining techniques on market research data
1 2 3 4 5 6 ? ? ? ? ? ? I II V IV

A B

III

Some customers might need

Hypothesized Need 1

Some customers do need

group of customers do need

Needs Segmen tI Needs Segmen t II Needs Segmen t III Needs Segmen t IV Needs Segmen tV

... customer is in ... needs segment

Number of Products Tenure Preferred Channels Payment Amount Demographic Information

Quantitative Research

Qualitative Research

Hypothesis Development

Factor Identification

Hypothesized Need 3 Hypothesized Need 4 Hypothesized Need 5

Hypothesized customer needs and profiles are identified through qualitative research internally and externally.
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The hypotheses are either verified or revised based on quantitative evidence through customer surveys.

The proven needs are used to differentiate customers and segment them.

Cluster Identification

Hypothesized Need 2

Identified Need Type A Identified Need Type B Identified Need Type C Identified Need Type D Identified Need Type E

Profiling need segment with customer info.

Customers are assigned to the suitable need based segments according to their profiles

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Needs Segmentation
Needs segments, which are the basis for packaging of banks financial solutions, are defined and used as another tier in micro segmentation
Market Research Needs Segmentation
Example: Customers Needs Segments
Functionalist
Seeks extra income from investments Prefers shorter term commitments and likes to control Gives importance to having extra information regarding investment options Access, convenience and simplicity is important Prioritizes the maintenance of close contact with the bank

Youngsters
Corresponds to young adults who start their own independent lives

Guidance Seeker
Gives special attention to planning the future Needs continuous guidance and information Needs funds for unexpected events and for retirement and future Saves mostly for tomorrow Keeping track of banking activities involving income and expenses is highly important

Represents a phase of more sophisticated needs from the bank compared to dependent youngsters

Common Needs
Shared Needs 1 Shared Needs 2 Shared Needs 3
Differentiating Needs I Differentiating Needs II Differentiating Needs III

Working Out / In Need

Needs to access funds for current investments/expenditures and necessities

For The Family

Familys short and long-term needs are the priority Needs extra funds and money for immediate needs

Shared Needs 4
Differentiating Needs IV Differentiating Needs V

Needs Segment A

Needs Segment B

Needs Segment C

Needs Segment D

Needs Segment E

Seeks guidance on loans, financing options and future financing

Simplicity and flexibility is important

Gives importance to savings and future security

Individual Customers
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Segment Integration
Blending needs, behavior and extended value dimensions in micro segmentation provides the bank with more actionable segments
BEHAVIOR
Keep Walking Conservative Risk Takers Functionals Guidance Seeker Youngsters Product Owners Working Out Star Potential Rising Stars Growable Limited

VALUE & EXTENDED VALUE

NEEDS

Techies Credit Card Holders

Mass

For The Family

1 2 3

Segment integration focuses on business attractiveness Manageable number of customer segments is created by integrating segments

Provides capability to design specific treatments for specific types of customers

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Revisiting Commercial Approach

Micro Segmentation results are used to revisit and update the banks current commercial approach
Segmentation
Micro Segmentation
Private Corporate

Pillars of Usage
Segment Strategies & Value Offerings
Segment strategies are defined based on detailed segment profiles and help banks prioritize customers based on business objectives Value Offering design revises marketing mix customization for each customer segment.

Prestige

M. Corporate

Affinity

ME

Mass

SME

Customer Insight via Market Research

Segment Development Plan

Segment Development Plan aims to create a longterm action plan moving segment-level marketing beyond one-off programs. Segment development plans created for a number of selected segments help the bank reach long-term company goals by utilizing detailed segment profiles.

Sales & Service Model Differentiation

Sales & Service Model Differentiation includes improvements in sales and service processes, sales and service models, customer experience design, KPIs and SLAs across segments.

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Segment Strategies & Value Offerings

As part of value offering design the bank is able to create sustainable value through product bundling as well as create a better and more convenient experience to customers
Segment Based Strategies Product Bundles
Segment Strategy & Value Offering Our data driven approach uses behavioral information in a customer segment to predict needs of other individuals within that segment
Day to Day Banking
Current Account Debit Card Internet banking access Multiple current accounts Savings accounts Insurance Credit cards Cash loan Non-cash loan Overdraft facility Flexible loan Cheque Savings accounts Investment Funds

Banking Modules

Loan

Daily Cash Needs

Basic Savings

Segment Development Plan

Basic Products

Sales and Service Model Differentiation

Additional Products

Credit cards
Overdraft facility Stand-byservice

POS

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Segment Development Plan

To realize the development plans, segment based activity ideas are generated based on various segment insight
Segment Based Activities
Segment Strategy & Value Offering

Activity Design

Analysis and Planning

Execution

Monitoring

Segment Development Plan

5
1

Reporting and Revision

Campaign Design: In line with banks marketing strategy and the needs of its existing and potential customers, activity ideas are developed, campaign goals and general properties are defined Planning and Selection of Target Groups: To attain maximum return on activities, target customer group selection criteria and activity execution steps are detailed Execution: Activities are executed to the right customers, at the right time through the right channels Monitoring of Activity Return: The results of the executed activities are tracked and integrated with existing customer information to enable activity result measurements Reporting and Revision: Results are reported to business units in an organized and systematic manner and these are used to enhance future campaign effectiveness

Sales and Service Model Differentiation

2 3

4
5

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Segment Development Plan

Selected number of activity ideas are put into practice both to make the bank gain the competency and to generate revenue
Segment Based Activities
Segment Strategy & Value Offering
Cross sell
Entrepreneur

Cheque book & Overdraft Deposit Account Automatic Bill Payment Business Loan Internet Account Business Card POS & POS Credit Insurance Increase of Business Card Limit Salary Payment Investment Fund Business Card Activation

Cross sell
Developing

Cross sell Channel Migration Cross sell Cross sell

Segment Development Plan

Borrowers

Micro Segments

Sales and Service Model Differentiation

Cross sell Upsell Cross sell Cross sell Cross sell

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Sales & Service Model Differentiation

Fine-tunings on sales & service model components such as processes, KPIs and SLAs are identified according to customer segments
Segment Based Sales and Service Model Differentiation
Segment Strategy & Value Offering Segment profiles incorporating needs and behaviors help identify segment-based improvement opportunities in sales & service model while customer lifetime value will help justify the required investments. 1 Segment Development Plan
Initial Contact Cash Cash Instruction from Instruction from customer to pay customer to pay cash/cheques into cash/cheques into credit card account. credit card account. Cheques Cheques yes Cheques valid? Cheques valid? Credit into Loan Credit into Loan account, Issue account, Issue receipt receipt Cash counted and credited Cash counted and credited Update account, Issue receipt. Update account, Issue receipt.

Service Processes
Encourage change in payment method towards direct debit

Service Models

End

3
End End Initial Contact

Sales Processes
yes no no New payment New payment organised organised Refer to customer Refer to customer Cash Cash Instruction from Instruction from customer to pay customer to pay cash/cheques into cash/cheques into credit card account. credit card account.

yes

Cheques pass Cheques pass clearing? clearing?

Sales Models

Encourage change in payment method towards direct debit Account Debited Account Debited no Cash counted and credited Cash counted and credited Update account, Issue receipt. Update account, Issue receipt.

Sales and Service Model Differentiation

End

5
yes

KPIs & SLAs

Cheques Cheques yes Cheques valid? Cheques valid?

Credit into Loan Credit into Loan account, Issue account, Issue receipt receipt

6
yes

... Transactors End End Asset Managers

no Refer to customer Refer to customer Cheques pass Cheques pass clearing? clearing?

no New payment New payment organised organised

Customer Experience Design Principles

C-Level Dashboard

Indicator

Marketing Level Dashboard Account Debited Account Debited

Last

Current

no

Target

Customer Lifecycle Performance New Customer Acquisition Attrition Rate Cross-Sales Ratio Financial Performance Customer Profitability Average Revenue per Customer Average Balance per Customer Average Credit per Customer Relationship Performance Trust Index Commitment Index Mutuality & Alignment Index 3.1 2.1 4.1 3.2 2.2 4.0 4.0 4.0 4.0 25% 1.000 3.000 500 25% 1.250 3.500 250 25% 1.500 4.000 1.000 150 5% 1.2 102 3% 1.23 200 2% 1.5

Perception Process Product

Perception Process Product

Perception Process Product

Perception Process Product

Perception Perception Process Process Product

Product

Awareness
Attrition

Evaluation
Attrition

Activation
Attrition

Usage
Attrition

Loyalty
Attrition

What are the highest impact initiatives to move customers towards loyalty?

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Sales & Service Model Differentiation

Segment profiles as well as deep insight gained through market research constitute a basis for segment based customizations
Specific type of branches for technology users No teller, no operations, limited #of RMs for sales activities
Rightsizing of customer representative headcounts regarding actual and potential value Specific type of RMs for customers showing low actual but high potential value Specific type of customer representatives for loan user to close follow up of loan process and direction to investment products at the end Specific type of private banking centers and RMs for risk avers and/or risk taker customers

Business Line Service Model Primary Sales Channels Tools

Mass Aff. RMs

Retail Banking Mass Affluent Mass Market

Commercial Banking Mid Value

Corporate Banking
Corporate Centers

Private Banking Affluent HNW

High Value Large Corp

Retail Branches

Commercial Branches Classic Branches

Private Banking Centers

Q-Mate Meeter Greeters / Customer Representatives

Phone / Appointment / Client branch visit / Visit to client

Appointment / Private Bank visit / Visit to client

Specific type of CC agents (virtual RMs) for time savvy high value customers

Primary Sales Roles

Call Center Agents (Cross-Sell) Tellers (referrals only) ATM

SME Account Managers

Comm. Account Managers

Corporate Account Managers

Affluent Account Managers

HNW Account Managers

Call Center Call Center

Affluent and HNW Call Center

Service Channels
Tellers

Internet

Affluent and HNW Internet

Customer Service Officers

Central Operations

Service Processing
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Contents
Our Approach Peppers & Rogers Group

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Who we are
World leading management consultancy

Global Consultancy

Thought Leader

Strong Regional Presence

150

Headquartered in the U.S. With offices on the five continents

Founders recognized among the worlds top 20 business thinkers

150 consultants deployed on projects across the region

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What we do
The Peppers & Rogers Group Value Chain for the Financial Services Industry.

INSIGHT

STRATEGY

PRODUCT & DISTRIBUTION

CAPABILITIES DEVELOPMENT

DEPLOYMENT

Customer segmentation Lifetime value Potential Value next best product offering Churn Model RSX Customer Behavior Prediction Credit Card Segmentation Payroll Segmentation Best Practice Research & Benchmarking Market entry insight Data Strategy

Corporate strategy Human resources Customer centricity Portfolio strategy Private Banking Value Proposition Affluent Value Proposition SME Banking Value Proposition Product Specific Business Models (mortgage, credit card) Sub-prime Banking Business Model

Sales & Service Model Customer Service Campaign Mgmt. PRODUCT Product Bundling Design & Execution Product Enhancement Pricing DISTRIBUTION Target Setting Network strategy Distribution Model Design / Execution Multichannel Strategy and Design Sales force Mgmt Staff rightisizing Sales & Service

Operational Excellence Cost Optimization Customer Experience Management

Project Management Office Initiatives Piloting Communication Planning and Coordination

Technology Selection
Corp. Finance Support Organization Design & Restructuring Performance Management & KPIs Cultural Change Management

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Sample References
Since its inception, Peppers & Rogers Group has made an impact on some of the worlds and regions leading organizations
Financial Services Telco Public Sector Real Estate Travel & Transport Retail & Distribution

Turkish Prime Ministry State Planning Organization

Nike.com

Ministry of Culture, Youth and Community Development

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Industry References
In the Financial Services Industry, PRGs clients include the following:

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Thank You!
For a copy of Customer Strategist, please go to www.peppersandrogersgroup.com For a copy of the Customer Experience Report, please send me an email at hhamutcu@1to1.com or just drop your business card

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Peppers and Rogers Group Americas Norwalk - Connecticut United States of America Voice +1 (203) 123 4121 Fax +1 (203) 123 4122 Peppers and Rogers Group EMEA Peppers & Rogers Group Dreve du Prieur 19 Priorijdreef Bruxelles 1160 Brussel Phone: + 32 ( 2 ) 661 21 11 Fax: + 32 ( 2 ) 661 21 50 Peppers and Rogers Group MEA Al Thuraya Tower 1503 Dubai Media City P.O. Box 502264 Dubai United Arab Emirates Voice +971 (4) 391 1353 Fax +971 (4) 390 4698 Peppers and Rogers Group Turkey Buyukdere Cad. Ozsezen Is Merkezi No:122 C Blok Kat:8 Esentepe, Turkey phone +90 212.272.3780 fax +90 212.272.3790

150

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Global thought leadership with strong regional presence

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The information contained in this document, much of which is confidential to Peppers and Rogers Group, is for the sole use of the intended recipients. No part of this document may be reproduced in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Peppers and Rogers Group..
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