Breaking the Spell
A conversation with a banker whose title speaks volumes about how one company transcended the product-based legacy of an industry.

It’s a realm in which relationship-building makes its greatest impact. A world whose masters can hold enviably revealing data on many of their customers. Yet in the banking industry, customer-centric initiatives have been trapped in a spellbinding mire of product-focused systems, mindsets and business models.

This year a longtime inhabitant of that world broke through those boundaries. Louisiana’s largest financial services provider, 131-year-old Hibernia National Bank, is rolling out a full-scale customer relationship management program. Here, our conversation with a chief engineer and patriot of that groundbreaking initiative.

CCG: You started building your CRM program two years ago. What was the epiphany that started the gears working?

Demarest: Some customers were more profitable than others. That’s it — that’s all we knew. We started calling those customers and found that some were profitable not because of footings (i.e., account balances) but because of late fees, interest, NSF fees … So our next question was: What’s the likelihood that a customer will buy a certain product, and how profitable will it be for the bank?

CCG: What were the biggest obstacles you faced?

Demarest: The financial industry has recognized for a long time that CRM is the approach we need to have. But we had these (product-based) legacy systems to deal with. We would launch product promotions targeting customers not because they wanted a product, but because the more (a product sales rep) sells to more customers, the more rewarded they are financially.

CCG: Was winning over the CEO a major hurdle as well?

Demarest: We informed and educated informally at the executive level and said, “Here’s what we now know about our customers that we never knew before.” Profitability results prompted customer research, and that led to realizations about the value of existing customer relationships … and questions about how we’re going to keep them. Now our CEO talks about the customer in all of the analyst meetings, and the importance of the customer in these projects we’re putting in place.

CCG: How did you get started?

Demarest: We went back through our database and sliced through the data further … grouping customers around common characteristics. The most obvious delineator is demographics, but then you’re back to the same problem; you still haven’t told me the value of their relationship with the bank. We moved forward (by appending the customer database) with information about the customer we didn’t have previously, then started putting the tools in place to exploit that information.

CCG: What kinds of tools did you need to put in place?

Demarest: We needed database tools to tell us who to talk to and how to talk to them. We needed a sales platform residing with all frontline sales staff to allow consistency in customer interactions. And we needed an incentive program to recognize and value a customer-centric approach.

CCG: How did you segment your database from there?

Demarest: Not based on income, but on annual profitability and product ownership. From there we segmented customers into Retention, High Growth, Limited Growth or Cost Management segments, and sub-segmented those into 16 different groups. Our attrition model and purchase-propensity model are both indexes, so I can see the attrition risk and the purchase index on a given household … and better allocate resources, money, time and people to relationships that are showing up on the radar. Otherwise you’re just going after the low-hanging fruit.

We also appended P$YCLE lifestyle data as well as behavioral, attitudinal, motivational-based psychographic data (from Yankelovich’s Monitor segmentation tool). These help identify the tone, voice or keywords that appeal to you or turn you off, and factor in people’s different motivations for purchasing a product.

CCG: How did you mesh all the different data?

Demarest: Our Touchpoint sales platform, which we dubbed the Universal Workstation, front-ends data from our mainframe legacy applications, plus data on customer segmentation and profitability from a data warehouse we built internally. It displays the information in a user-friendly drill-down data interface we also built internally. The system also incorporates CRM data on our customers, such as contacts, financial relationships, customer notes, sales notes, etc.

CCG: How is this information affecting customer touchpoints now?

Demarest: When a representative has contact with a customer, our Universal Workstation identifies the customer by segment. Then it offers more specific sales direction based on other customer profile data. This gives us the ability to track what’s going on with a customer on a one-to-one basis. If she tells me she’s preparing for her daughter’s graduation and college, I can key in that information and trigger a referral to Asset Management or Investments.

One thing that’s important to remember is that segment management isn’t a science; it’s only a tool. The best customer information comes from the sales people in direct contact with customers every day. So we’re now having needs-based conversations to uncover not only the immediate need, but also what the need might be down the road. And rather than keeping that information to themselves, the sales reps are entering it into the sales platform as part of that customer relationship. This helps ensure consistency across touchpoints.

CCG: Has this sales platform really changed how those sales people interact with customers?

Demarest: Their number-one performance measure is becoming retention, vs. product penetration. They now recognize that even if the footings aren’t in place today (to place a customer in a top segment), the potential for those footings may be significant, depending on your service to her today. Not recognizing that can be a costly mistake. The more knowledge the sales force has on a customer, the better equipped they are to retain that customer’s business.

CCG: Do you think that idea has been accepted across your organization?

Demarest: It’s fully supported from the CEO to the Personal Banker. But we recognize that it won’t happen overnight. We’re taking a very structured approach — not haphazard. We started with the hardware and software, and we did some very intensive training … about six months of training in structured stages. Then we incrementally began to give the position the authority it takes to be successful. When a Retention customer calls and says her account is going to be overdrawn today, if I can’t say I’m going to waive the overdraft fee, I’m powerless to retain her business.

CCG: Is your program working?

Demarest: It’s not about measuring how many loans or deposits we gain today, it’s about what we’ve done for the retention of our customers this week compared to last week, this quarter compared to last quarter … It’s all based on retention rates, migration rates, upsell rates and acquisition rates.

We glean knowledge from the way customers transact with us — how often, the channel they prefer to use … Also, we measure customer satisfaction on an annual basis, then take that information and try to incorporate solutions that increase that level of satisfaction. It may be a particular error we seem to be making on a regular basis, or not enough branches or ATMs in a certain area, or not enough features in our online product. Whatever it is, we review that in great detail and break it down so we can measure how well we’ve solved that problem when we run customer satisfaction surveys the next time.

We’re still rolling this out — but we’re very confident that the results will be there.

CCG: What’s next on the horizon?

Demarest: We still have a way to go; and you’re never done, of course. We’re rolling out a contact management system to help us communicate with customers who prefer only electronic contact. We’ll then carve out a portion of the customer base to be served by cyberbankers.

We’ve also purchased a new event notification engine. It uses historical data and looks for unusual customer events on a daily basis. Say you take a $150,000 401(k) distribution and deposit it into your account. The system looks to see if this is an abnormality for your account over time. If so, you’re going to show up on a report tomorrow morning, and — once we scrub it against both the privacy and do-not-call databases — we’re going to call you. We won’t allude to the transaction or any certain products … we just call to say we appreciate your business and ask if there’s anything we can help with. Hopefully you say, Yes, I’d like to talk to an investment specialist, and with your permission I trigger the appropriate contact.

CCG: Have you created a magic CRM formula?

Demarest: No. Whether it’s CRM or CMR, it’s just a natural progression — from product management to segment management to customer relationship management.

There was an article that came out probably 15 years ago in one of the banking trade journals, saying banks were so product-focused they’ll build Cinderella’s slipper first, then go find someone it fits. CRM may be on the cutting edge for the banking section of the financial industry; the retail industry has had several years’ head start. But it’s not rocket science.