CRM - November 2007 - (Page 22)

PROFITABILITY ANALYTICS bottom-to-top approach to drive strategic decision-making. By analyzing the aforementioned “bulletproof ” metrics, businesses are redefining their client value measures and making strategic investments in certain customer segments to ensure future profitability. “You’re streamlining the decision-making and reporting for marketing and sales initiatives with an accurate and concise assessment of client portfolios and their values,” says Kevin Purkiss, manager of customer analytics at RBC Royal, a $294 billion Canadian financial services firm, where leveraging customer data to drive profitability is nothing new. The company was one of the first to implement data warehouses, and by the early 1990s was letting Teradata power its data quality initiatives. Following a study of its customers, the company realized it needed a powerful analytic application to leverage that data, and to score and manage its 11 million personal and commercial clients by value. To further refine its service and product offerings, cost management, pricing initiatives, and marketing programs, RBC Royal upgraded its existing profitability models so it could gain a more granular measure of client profitability. After a lengthy evaluation of third-party products and vendors, RBC Royal decided to stick with the vendor that had laid the foundation of its analytic initiative and chose Teradata Value Analyzer. By adding Teradata Value Analyzer, the bank could move from product portfolio reporting to client segment reporting. Initial design to full operation was completed in just over six months, which included defining business requirements and an extensive data-verification process. Using Value Analyzer, RBC Royal’s 10 million retail customers are grouped into discrete segments based on such factors as current and potential profitability and channel preferences. Strategies are then developed for each segment, as well as for subsegments. Individual treatment strategies are tested on small cells of clients to establish what works and what doesn’t. “We recalculated customer profitability using the account-level metric 22 produced by Value Analyzer, which showed that 75 percent of our customers moved two or more deciles,” Purkiss says. Taking things one step further, RBC Royal integrated the application of clientvalue metrics into the day-to-day activities of the front-line staff, enabling the bank’s client sales and service system to proactively pursue opportunities with clients. And through the use of current and historical client-value measures, Royal Bank assesses client segmentation at a more granular level, by taking into account factors such as life-stage changes.“From current value, we have progressed to potential ments at ATMs. Rather than raising the package prices, the bank introduced new service channels, including interactive voice response and Web self-service at no extra charge to the customer. Over the next two years, most clients migrated their bill payment methods to a channel that was more convenient for them— and more cost-effective for the bank. “Organizations are becoming more comfortable USING DATA TO MAKE AUTOMATED DECISIONS. It’s all about the data: Dirty data in equals dirty data out.” value,” says Ted Brewer, vice president of CRM and information management at RBC Royal. “In this way, we can manage a relationship, actualizing CRM by ensuring the right product is available at the right time in the customer’s life.” And that’s showing in the bank’s direct marketing campaigns, where response rates are up—reaching as high as 40 percent at times—compared to an industry average between 2 percent and 4 percent. For its Retirement Savings Plans (RSP), RBC Royal used its CRM solution to execute a targeted marketing program that led to an 11 percent increase in RSP deposits. The bank also used Value Analyzer to determine that 90 percent of its Royal Certified Service accounts were unprofitable by drilling into the transaction data and seeing that a large portion of customers’ account transactions were higher-cost bill pay- PRICE OPTIMIZATION: PART OF THE ANALYTICS FAMILY One of the technological offspring of profitability analytics—and an underlying cornerstone of any sound profitability strategy—is price optimization. Like profitability analytics, price optimization strategies and their emerging software solutions have expanded their reach enterprisewide, touching upon multiple departments and reaching to the highest and lowest levels of the business. Originally born out of the transportation and airline industries, price optimization strategies and solutions have developed concepts and expanded their functionality to cut a broad swath across a multitude of verticals. The importance of price optimization, albeit due to illegal actions, was brought to light in August of this year, when British Airways and Korean Air were fined $300 million apiece after admitting they conspired to fix prices on international flights. Both pleaded guilty to antitrust conspiracy charges after admitting that they colluded with rivals over cargo rates and fuel surcharges. Fares were increased in response to rising oil prices, leading to higher costs for international shippers and passengers. Today’s price optimization solutions are a far cry from the pricing books that sales and service reps have traditionally used over the years. Despite the emergence of these new tools, the market is still a maturing one, and most companies today do not fully understand the influence that pricing has on customer profitability, says Jon Utterback, a specialist leader in Deloitte’s pricing center of excellence. A recent study by the Business Performance Management Forum (BPMF) supports this, finding that www.destinationCRM.com CUSTOMER RELATIONSHIP MANAGEMENT | NOVEMBER 2007 http://www.destinationCRM.com

Table of Contents Feed for the Digital Edition of CRM - November 2007

CRM - November 2007 Contents Front Office Reality Check Customer Centricity Have You Caught It? The Mother of Enterprise Information Market Focus: Technology: The Simple Truth about Complex Manufacturing Q&A: Gianforte Talks CRM Required Reading Predicting Profitability Checking the Pulse of the Contact Center Cast a Narrow Net Modern Times, Modern Methods Primos Hunting Calls Snares Efficiency Nailing It Down Moving in on Mortgage Delinquencies RDS Delivery Delivers on Service Secret of My Success Re:Tooling The Tipping Point Pint of View

CRM - November 2007

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