Crm

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Crm

  1. 1. BANKING CRM (Customer Relationship Management) BACKGROUND: During the past decade dramatic changes are taking place in marketing environment (Phillip Kotler, 2008). The information technology has inducted many new innovations within the fields of business and marketing. Information Technology has emphasized management to re arrange their plans and new plans for marketing, using websites and internet have taken place. Before 90s, organizations and banks were focusing the number of transactions made by the customers and this was the way they were following to for their sales promotion. But after the stated era, companies have shifted the attention towards the long lasting and strong relationship with the customer. Strategy to adopt e-CRM not only provides a cost effective relationship management but it is the most effective solution for the retention of the customer. Further in the thesis we would discuss the role of e-CRM within the banking industry. According to (Zineldin; 1995) relationship management has become a very important factor for marketing with in the financial services industry. 1. Introduction Today, many businesses such as banks, insurance companies, and other service providers realize the importance of Customer Relationship Management (CRM) and its potential to help them acquire new customers retain existing ones and maximize their lifetime value. At this point, close relationship with customers will require a strong coordination between IT and marketing departments to provide a long-term retention of selected customers. This paper deals with the role of Customer Relationship Management in banking sector and the need for Customer Relationship Management to increase customer value by using some analytical methods in CRM applications. CRM is a sound business strategy to identify the bank’s most profitable customers and prospects, and devotes time and attention to expanding account relationships with those customers through individualized marketing, reprising, discretionary decision making, and customized service-all delivered through the various sales channels that the bank uses. Under this case study, a campaign management in a bank is conducted using data mining tasks such as dependency analysis, cluster profile analysis, concept description, deviation detection, and data visualization. Crucial business decisions with this campaign are made by extracting valid, previously unknown and ultimately comprehensible and actionable knowledge from large databases. The model developed here answers what the different customer segments are, who more likely to respond to a given offer is, which customers are the bank likely to lose, who most likely to default on credit cards is, what the risk associated with this loan applicant is. Finally, a cluster profile analysis is used for revealing the distinct characteristics of each cluster, and for modeling product propensity, which should be implemented in order to increase the sales.
  2. 2. In looking for ways to drive growth, banks need to evaluate their customer management strategy. Do they currently have a CRM solution that is capable of delivering:  Consistent and cost-effective customer service?  Customer-aligned products and services?  Enhanced customer loyalty and long-term value? 2. Customer Relationship Management In literature, many definitions were given to describe CRM. The main difference among these definitions is technological and relationship aspects of CRM. Some authors from marketing background emphasize technological side of CRM while the others consider IT perspective of CRM. From marketing aspect, CRM is defined by [Couldwell 1998] as “.. a combination of business process and technology that seeks to understand a company’s customers from the perspective of who they are, what they do, and what they are like”. Technological definition of CRM was given as “.. the market place of the future is undergoing a technology-driven metamorphosis” [Peppers and Rogers 1995]. Consequently, IT and marketing departments must work closely to implement CRM efficiently. Meanwhile, implementation of CRM in banking sector was considered by [Mihelis et al. 2001]. They focused on the evaluation of the critical satisfaction dimensions and the determination of customer groups with distinctive preferences and expectations in the private bank sector. The methodological approach is based on the principles of multi-criteria modeling and preference disaggregation modeling used for data analysis and interpretation. [Yli-Renko et al. 2001] have focused on the management of the exchange relationships and the implications of such management for the performance and development of technology-based firms and their customers. Spesifically the customer relationships of new technology-based firms has been studied. [Cook and Hababou, 2001] was interested in total sales activities, both volume-related and non-volume related. They also developed a modification of the standard data envelope analysis (DEA) structure using goal programming concepts that yields both a sales and service measures. [Beckett-Camarata et al. 1998] have noted that managing relationships with their customers (especially with employees, channel partners and strategic alliance partners) was critical to the firm’s long-term success. It was also emphasized that customer relationship management based on social exchange and equity significantly assists the firm in developing collaborative, cooperative and profitable long- term relationships. [Yuan and Chang 2001] have presented a mixed-initiative synthesized learning approach for better understanding of customers and the provision of clues for improving customer relationships based on different sources of web customer data. They have also hierarchically segmented data sources into clusters, automatically labeled the features of the clusters, discovered the characteristics of normal, defected and possibly defected clusters of customers, and provided clues for gaining customer retention. [Peppers 2000] has also presented a framework, which is based on incorporating e-business activities, channel management, relationship management and back-office/front-office integration within a customer centric strategy. He has developed four concepts, namely Enterprise, Channel management, Relationships and Management of the total enterprise, in the context of a CRM initiative. [Royals and Knox 2001] have identified the three main issues that can enable the development of
  3. 3. Customer Relationship Management in the service sector; the organizational issues of culture and communication, management metrics and cross-functional integration especially between marketing and information technology. 3. CRM Objectives in Banking Sector The idea of CRM is that it helps businesses use technology and human resources gain insight into the behavior of customers and the value of those customers. If it works as hoped, a business can: provide better customer service, make call centers more efficient, cross sell products more effectively, help sales staff close deals faster, simplify marketing and sales processes, discover new customers, and increase customer revenues. It doesn't happen by simply buying software and installing it. For CRM to be truly effective an organization must first decide what kind of customer information it is looking for and it must decide what it intends to do with that information. For example, many financial institutions keep track of customers' life stages in order to market appropriate banking products like mortgages or IRAs to them at the right time to fit their needs. Next, the organization must look into all of the different ways information about customers comes into a business, where and how this data is stored and how it is currently used. One company, for instance, may interact with customers in a myriad of different ways including mail campaigns, Web sites, brick-and-mortar stores, call centers, mobile sales force staff and marketing and advertising efforts. Solid CRM systems link up each of these points. This collected data flows between operational systems (like sales and inventory systems) and analytical systems that can help sort through these records for patterns. Company analysts can then comb through the data to obtain a holistic view of each customer and pinpoint areas where better services are needed. In CRM projects, following data should be collected to run process engine: 1) Responses to campaigns, 2) Shipping and fulfillment dates, 3)Sales and purchase data, 4) Account information, 5) Web registration data, 6) Service and support records, 7) Demographic data, 8) Web sales data. 4. Need for CRM in the banking industry A Relationship-based Marketing approach has the following benefits:  Over time, retail bank customers tend to increase their holding of the other products from across the range of financial products /services available.  Long-term customers are more likely to become a referral source.  The longer a relationship continues, the better a bank can understand the customer.  Customers in long-term relationships are more comfortable with the service, the organization, methods and procedures.
  4. 4.  Consumers largely select their banks based on how convenient is the location of bank to their homes or offices.  The pressures of competitive and dynamic markets have contributed to the growth of CRM in the Financial Services Sector.  Analysis suggests that a 5% increase in customer retention can increase profitability by 35% in banking business, 50% in insurance and brokerage, and 125% in the consumer credit card market.  Private Banks have traditionally viewed themselves as exceedingly 'Customer Centric' offering what they believe to be highly personalized services to the High Net Worth Customers. 5. Importance of CRM Customer relationship management is a broad approach for creating, maintaining and expanding customer relationships. CRM is the business strategy that aims to understand, anticipate, manage and personalize the needs of an organization's current and potential customers. At the heart of a perfect strategy is the creation of mutual value for all parties involved in the business process. It is about creating a sustainable competitive advantage by being the best at understanding, communicating, and delivering and developing existing customer relationships in addition to creating and keeping new customers. So the concept of product life cycle is giving way to the concept of customer life cycle focusing on the development of products and services that anticipate the future need of the existing customers and creating additional services that extend existing customer relationships beyond transactions. 6. Present and Future of CRM in banking Bank merely an organization it accepts deposits and lends money to the needy persons, but banking is the processassociated with the activities of banks. It includes issuance of cheque and cards, monthly statements, timely announcement of new services, helping the customers to avail online and mobile banking etc. Huge growth of customer relationship management is predicted in the banking sector over the next few years. Banks are aiming to increase customer profitability with any customer retention. This paper deals with the role of CRM in banking sector and the need for it is to increase customer value by using some analytical methods in CRM applications. It is a sound business strategy to identify the bank's most profitable customers and prospects, and devotes time and attention to expanding account relationships with those customers through individualized marketing, pricing, discretionary decision making. In banking sector, relationship management could be defined as having and acting upon deeper knowledge about the customer, ensure that the customer such as how to fund the customer, get to know the customer, keep in tough with the customer, ensure that the customer gets what he
  5. 5. wishes from service provider and understand when they are not satisfied and might leave the service provider and act accordingly. CRM in banking industry entirely different from other sectors, because banking industry purely related to financial services, which needs to create the trust among the people. Establishing customer care support during on and off official hours, making timely information about interest payments, maturity of time deposit, issuing credit and debit cum ATM card, creating awareness regarding online and e-banking, adopting mobile request etc are required to keep regular relationship with customers. The present day CRM includes developing customer base. The bank has to pay adequate attention to increase customer base by all means, it is possible if the performance is at satisfactory level, the existing clients can recommend others to have banking connection with the bank he is operating. Hence asking reference from the existing customers can develop their client base. If the base increased, the profitability is also increase. Hence the bank has to implement lot of innovative CRM to capture and retain the customers. There is a shift from bank centric activities to customer centric activities are opted. The private sector banks in India deployed much innovative strategies to attract new customers and to retain existing customers. CRM in banking sector is still in evolutionary stage, it is the time for taking ideas from customers to enrich its service. The use of CRM in banking has gained importance with the aggressive strategies for customer acquisition and retention being employed by the bank in today's competitive milieu. This has resulted in the adoption of various CRM initiatives by these banks.
  6. 6. Research Approaches In this section, we present the ways in which the research work can be approached. Research can be approached in various ways depending on the type of research to be conducted. Generally, in Information systems, there are two different ways of conducting a research i.e., quantitative approach and qualitative approach. The Quantitative research technique is used to gather quantitative data such as information dealing with numbers and anything that is measurable. Statistics, tables and graphs, are often used to present the results of these methods (Wikipedia, 2009b). According to Myers (2008), Qualitative research methodology was developed in the social sciences to enable researchers to study social and cultural phenomena. Examples of qualitative methods are action research, case study research and ethnography. Qualitative data sources include interviews and questionnaires, documents and texts, and the researcher’s impressions and reaction Proposed Methodology for Current Research The selection of a research methodology highly depends on the type of research which is to be Carried out. Since, the nature of the current research is more qualitative as it does not require Quantitative data such calculations, exact results, numbers and anything that is measurable. On the other hand, the current research is highly focused on social and cultural aspects. For that reason, a case study approach and its techniques seem relevant for the nature of current research. Therefore, the current research is based on the qualitative research technique using the case study Approach Case Study Research According to Myers (2008), the term "case study" has multiple meanings. It can be used to describe a unit of analysis (e.g. a case study of a particular organization) or to describe a research method. The discussion here concerns the use of the case study as a research method. Case study research is the most common qualitative method used in information systems (Orlikowski and Baroudi, 1991; Alavi and Carlson, 1992). Although there are numerous definitions for instance Yin (2003) in his work defines the scope of a case study as follows A case study is an empirical inquiry that: • investigates a contemporary phenomenon within its real-life context, especially when • the boundaries between phenomenon and context are not clearly evident (Yin 2003) Data Collection Techniques for Qualitative Case Study Research Yin (2003), argue that for conducting a case study research, the preparation for data collection can be complex and difficult. If they are not handled well, the entire case study investigation can be jeopardized, and all of the earlier work. The author further discuss that there are six sources of evidence available which are the most commonly used in doing case studies: documentation, archival records, interviews, direct observations, participant-observation, and physical artefacts. The data collection technique used for the purpose of current research is presented in the following section.
  7. 7. Interviews for the Qualitative Case Study Research From the list of available qualitative data collection techniques, interviewing is the initial and most important component for conducting a case study research as it describes the exact requirements and provides the starting point for designing the case study approach. According to Yin (2003), while conducting an interview, the interviewer has two jobs: (i) to follow your own line of inquiry, as reflected by your case study protocol, and (ii) (ii) to ask you actual (conversational) questions in an unbiased manner that also serves the needs of your line of inquiry. Initially, from different banks across Pakistan, two different questionnaires were designed to conduct interviews from bank customers and employees in terms of the use of CRM. At least, ten persons volunteered for each questionnaire. The major questions used for these interviews are Interview questions from Customers During the interviews from different bank customers in Pakistan, the main focus was to identify the problems customers are facing and to check their loyalty level using the facilities from their bank. The interview questions asked from the customers are used from the following broad category. • Products and services used by customers, • Call centers, • Response time of query, • Speed of processing transactions, • Security issues with internet banking, on-line shopping etc., • Convenience, • Trust. Interview questions from bank Employees In most of the Pakistani banks, CRM is operated by their I.T department which records and handles customer information. These banks have installed the latest CRM packages and have the most up-to-date computers. The interview questions asked from different I.T personnel and bank managers are based on the following broad category. • The use of CRM (Its packages used by banks), • Products and services offered by banks to its customers, • Services in terms of business customers vs individual customers, • Dealing with customer queries, • Interacting with customers, • Data warehousing, • Knowledge management, • ATM machines (availability and its security issues), • Customer service/ Call centers
  8. 8. VALIDITY AND RELIABILITY The items selected for the customer loyalty survey were taken from scales having established validity and reliability. All the same, content validity was checked using two academics and three marketing practitioners and it was found to be a good measure of customer loyalty. Further, the questionnaire was pre-tested on 10 bank customers having characteristics very similar to the targeted audience. The pretesting results revealed that the scale is easy to understand and unambiguous.The bank managers advised that the questionnaire be translated into the local business language, that is,english as many of the high and medium RV customers, even though quite wealthy, may not be fully proficient with written English. Therefore, the questionnaire was translated into urdu using the method of back translation (Zikmund, 2003). Further, the questionnaires were pre-tested with 10 bank customers having characteristics similar to that of the final target audience. The pre-testing indicated that the translation was perfect and that there was no miscommunication or misinterpretation.Regarding external validity, since the sampling was non-probability in nature, the findings of the loyalty survey, done separately for each of the selected 10 banks, cannot be fully generalized to the respective banks (Malhotra, 2006). Further, scale reliability was measured using Cronbach’s coefficient of alpha which was computed to be 0.79 indicated that the scale is reliable (Nunnaly, 1978). European Journal of Social Sciences – Volume 11, Number 1 (2009) 73 6.3. Respondents for the Study The respondents for the customer loyalty survey comprised the high and medium RV retail customers of the selected Bank. Each of the two categories of retail customers has been earlier defined in terms of business contribution. The questionnaires were given to the bank managers for getting it filled up by their High and Medium RV retail customers. For banks having more than one branch, all branches having significant proportion of high and medium RV customers in the retail banking segment were approached for the survey.The problem of missing data was solved by discarding such questionnaires. 6.4. Increasing Response – Quality and Quantity Random sampling using mail questionnaires could not be attempted because of strict privacy codes prevailing in the banking industry which prevent sharing of customer contact details with outside parties. Also, many banks had reservations regarding allowing any external researcher to conduct survey within the bank premises. Further, since the survey was targeted at the premium retail customers whose visits to the bank premises are infrequent, it was felt that the only way to complete the survey would be through the support and co-operation of the bank managers. The managers of the selected banks were given a set of customer loyalty survey questionnaires with a request to get it selfadministered by their High and Medium RV retail customers as and when these customers visit the branch. The bank managers were clearly instructed to encourage the respondents to present both positive and negative feelings about the bank using the questionnaire. The bank managers were also told that a copy of the findings will be provided to them and it will be upto them to decide whether to share it with the top management. This was done so that they do not get disturbed if the respondents give lower ratings for customer loyalty. Further, they were told that the findings would be helpful to them to get an idea about the current state of customer loyalty. All the bank managers were well educated and having good work
  9. 9. experience (in the range of 8 to 15 years) and they well appreciated the need to get unbiased responses. In addition, regular monitoring was done to check the proper conduct of the study. It is hoped that in light of these precautions, the limitations were minimized. Since a strong rapport had already been built with the managers of the selected banks, it can be further expected that the managers gave their full co-operation, thus ensuring that the distortions were minimum. Regarding the questionnaire, the layout was made simple, attractive and reader-friendly. The number of questions, based on the suggestions of several bank managers, was deliberately kept on the lower side so that the entire questionnaire can be filled up in less than 10 minutes in order to increase customer response. 6.5. Limitations As discussed earlier, the findings of the loyalty survey cannot be fully generalized. Second, since the questionnaires were mostly filled by the customers in the presence of the bank managers/officials, it is quite possible that the respondents may avoid giving negative answers . It is also possible that the bank managers might have given the questionnaires only to those customers who have high loyalty towards the bank and that way, again, biasing the results However, the data collection exercise was very closely monitored to minimize possible distortions.

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