CRM in Banking Industry

 | June 03,2010 01:55 pm IST

Executive Summary

Consumers largely selected their banks based on how convenient the location of bank's branches was to their homes or offices. With the advent of new technologies in the business of bank, such as Internet Banking and ATMs, now customers can freely chose any bank for their transactions.

The pressures of competitive and dynamic markets have contributed to the growth of CRM in the Financial Services Sector.

 

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. Therefore, banks are now stressing on retaining customers and increasing market share. 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. The wealthier the customers, the more demanding they are - and the clients expect more and more from their banks, to understand what their wants and needs are, so that the organization can be built around serving those needs. The structured approach to CRM provides various benefits to the bank, viz., a distinctive and consistent customer experience, clear identification of the organizational, technological and process-related capabilities and prioritization of these capabilities. The structure and hierarchy of the customer experiences are discussed in the paper.

 

Introduction

Traditionally, few people changed their banks unless serious problems occurred. In the past there was, to certain extent, a committed, often inherited relationship between a customer and his/her bank. The philosophy, culture and organization of financial institutions were grounded in this assumption and reflected in their marketing policies, which were product and transaction-oriented, reactionary, focused on discrete rather than continuous activities.

 

Today, financial institutions can no longer rely on these committed relationships or established marketing techniques to attract and retain customers. As markets break down into heterogeneous segments, a more precisely targeted marketing technique is required, which creates a dialogue with smaller groups of customers and identifies individual needs.


Also, before the Internet revolution, consumers largely selected their banks based on how convenient the location of bank's branches was to their homes or offices. With the advent of new technologies in the business of bank, such as Internet banking and ATMs, now customers can freely chose any bank for their transactions. Thus, the customer base of banks has increased, and so has the choices of customers for selecting the banks.

This situation coupled with the pressures of competitive and dynamic markets has contributed to the growth of CRM in the Financial Services Sector.

 

Customer Relationship Management: The Concept

Customer Relationship Management is the establishment, development, maintenance and optimization of long-term mutually valuable relationships between consumers and the organizations. Successful customer relationship management focuses on understanding the needs and desires of the customers and is achieved by placing these needs at the heart of the business by integrating them with the organization's strategy, people, technology and business processes.

 

At the heart of a perfect CRM strategy is the creation of mutual value for all the 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.

 

Need of 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 and his/her needs & preferences, and so greater the opportunity to tailor products and services and cross-sell the product / service range.

Customers in long-term relationships are more comfortable with the service, the organization, methods and procedures. This helps reduce operating cost and costs arising out of customer error.

With increased number of banks, products and services and practically nil switching costs, customers are easily switching banks whenever they find better services and products. Banks are finding it tough to get new customers, and more importantly, retain existing customers.

 

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Comments


karpagam on 03/08/11 at 08:09 pm

sir
iam doing ph.d. my topic is crm in private and public banks.ur material is highly helpful for me.if u have any more material it will be of great help for me
thanks


Raajeshwari.N on 06/28/11 at 10:17 pm

hi,,,,, am planning to do my research in CRM in private bank,any material related to my topic will help me to take further move

thank you