IBM Software Business Analytics

Banking

Customer Analytics in Banking

Four Steps to Maximize Customer Profitability
Overview Highlights
Customer analytics help banks improve marketing campaigns, maximize customer profitability, make pricing decisions, drive cross-sell and up-sell initiatives, increase loyalty and customer lifetime value. In this white paper, you will learn how your organization can use customer analytics to understand what customers want and will do next, along with the key capabilities required to effectively conduct customer analytics.

In the wake of the global financial crisis, todays banking organizations are focused on the most effective ways to rebuild trust and drive stable, long-term growth. And in this post-crisis environment, customer centricity is imperative. According to IBMs 2010 Global Chief Executive Officer Study, 89 percent of banking and financial markets CEOs say their top priority is to better understand, predict and give customers what they want. Building and sustaining profitability over the long term requires an ability to increase wallet share, improve customer satisfaction and loyalty, serve mass market customers more cost-effectively and anticipate customer needs. At the same time, todays customers are more empowered and have more choices in terms of financial service providers. They are more savvy, price sensitive and far less loyal. They know how they want to be treated and expect their banks to know this as well. Banks that do not or cannot understand customer needs face a variety of challenges that directly impact their revenue and profitability. However, by using analytics on their stores of customer data, banks are able to unlock valuable insights about customer needs and use this information to build stronger, more profitable relationships. Customer analytics provides a 360-degree view of individual customers, their profitability, risk, propensity to buy new products and what is required to keep them satisfied and loyal. It helps banks fulfill the imperative for putting customers at the center of long-term strategies for growth. The insights generated by customer analytics also connect to and inform business planning, budgeting and forecasting so banks can more effectively manage and optimize their financial performance. In this white paper, youll discover the basics of customer analytics, how it is being applied in todays banking environment and the benefits it can deliver for your organization. Youll also learn about the proven IBM solutions for customer analytics that banks around the world rely on to improve customer profitability.

IBM Software Business Analytics

Banking

First Tennessee Bank

First Tennessee Bank suspected it was wasting thousands of dollars annually on its direct marketing campaigns by focusing on products rather than customer needs. Despite an abundance of data, the bank had little insight into the preferences and behaviors of individual customers. After implementing a customer analytics solution from IBM, First Tennessee gained a deep understanding of their customers and sparked demand by targeting those with a propensity to buy new products. The bank reduced its direct mailing costs 20 percent while increasing its customer response rate by 3.1 percent. First Tennessee generated an overall 600 percent return on its investment through more efficiently allocated marketing resources.

An explosion of data
Like other industries, there has been an explosion in the amount of available customer information within the banking industry. This includes everything from simple demographic data to transactional records, product holdings, service preferences, online activity logs, call center interactions, social media and feedback including complaints and inquiries. However, many businesses have not been able to transform these massive volumes of data into actionable insights that benefit the organization. Much of the data is ignored, mismanaged or underutilized. That is significant because without the ability to effectively analyze customer data, banks dont know what customers want. They cannot determine what level of service to provide, which actions will keep customers loyal and satisfied, and how to anticipate and meet their future financial needs. As banks fiercely compete for valuable customers, this lack of insight has significant consequences. It directly impacts revenue and profitability through low or declining share of wallet, ineffective marketing campaigns, high customer opt-out rates and diminished customer lifetime value.

Unlocking the value in data

IBM customer analytics is enabling First Tennessee to gain an unprecedented level of insight from our data, making our marketing campaigns more efficient and profitable.
Tanner Mueller, Direct Marketing Database Manager, First Tennessee Bank

However, by applying customer analytics banks can unlock the hidden value in their customer information. It empowers them to gain a deep understanding of their customers, predict their future needs and build stronger, more profitable relationships. Customer analytics leverages information from across the banking organization to provide a single, unified view of each individual customer and the potential they offer to the organization. The practical benefit of customer analytics lies in its ability to dramatically improve a broad range of customer-centric initiatives so banks can:

Create and execute more effective campaigns to improve marketing ROI Monitor measure, and maximize customer profitability Make commercial pricing decisions that maximize profitability and minimize risk Improve cross-sell and up-sell initiatives through better customer targeting Leverage social media to understand what customers are thinking

The analytical process

So exactly how can banks generate value from customer analytics? The journey begins and ends with four basic steps: consolidate customer information, predict what customers want, personalize customer interactions, and integrate what you learned back into the process to optimize your future predictions. Lets start with an overview of each step of this analytical process, the specific capabilities required, and some banking scenarios that demonstrate the benefits of this process in action. Then well examine the proven IBM software that banks rely upon to perform customer analytics and improve profitability.

IBM Software Business Analytics

Banking

Step 1: Consolidate customer information

Laurentian Bank
Using IBM customer analytics solutions, Laurentian Bank of Canada has gained new insights into its customer base and uncovered the factors that drive successful marketing campaigns. The banks marketing team now benefits from weekly analysis on the status of its marketing campaigns, enabling it to easily change strategy to improve results. The sales team can now easily monitor its progress against campaign goals with weekly performance reports. And instead of a time-consuming process of manually requesting and building reports on customer intelligence, employees can now quickly create their own reports to drive rapid, proactive programs that drive superior results. The bank can now provide personalized service interactions with customers and quickly adapt to changing conditions based upon analytical insights.

The first step of the process and the foundation of customer analytics is, of course, the raw information. Customer data from a wide variety of sources and systems across your banking organization, including both structured and unstructured data sources, should be consolidated into a single view. The data used to create this unified view should span the four broad categories of demographics (such as age, income, occupation and family status), product information (such as account activity, balances, payment preferences and product holdings), interaction information (including channel usage, service requests, complaints and online activity) and opinion information (the motivations for customer behavior, survey results and net promoter scores). This data does not have to be perfect before you move forward with your analysis. Because this is an ongoing process, you will have many opportunities to improve and refine your data with future iterations. Although these volumes of information are readily available within most banking organizations, they are often unused and not leveraged to their full advantage. By accessing, organizing and analyzing this data, banks can unlock valuable insights about both customers and the overall business that can be deployed and leveraged across the entire enterprise. Some key data elements you should focus on in order to ensure success in the following steps of this process include:

Marketing campaign data such as contact history, responses and purchases, and results of test campaigns Service interactions such as call logs, e-mails, information requests and complaints Sales data regarding products, services, and the history of a customers relationship with the bank Customer data such as demographics, account activity, product holdings and channel activity, business and personal relationships Opinion data captured from customer feedback in social media, emails and surveys that provides insight into customer needs and preferences

Step 2: Predict what customers want

The information you captured can now be analyzed by predictive models that help you understand and anticipate what customers want and will do next. These models use predictive analytics to score the data and predict the likelihood of future events. For example, you could use predictive models to determine how likely it is for an individual customer to respond to a marketing campaign or online offer. Or predict the most effective actions that will build long term, profitable relationships with customers. Along with predictive modeling, another key capability of this step is decision optimization. Once your predictive models tell you how a customer will likely respond, decision optimization tells you how to use that information most effectively. For example, call center or relationship managers would know precisely which services or offers would be most valued by customers and most profitable for the bank, and then use those insights to take actions that maximize the profitability of every customer interaction.

IBM Software Business Analytics

Banking

Step 3: Personalize customer interactions

One European banking cooperative saw a 30 percent reduction in marketing campaign costs after applying customer analytics technology. Another major financial institution achieved a 20 percent increase in annual revenue driven by marketing campaigns with higher quality leads.

Now that you know the best actions to take, the next capability is to personalize interactions for valuable customers by integrating those insights into your operational processes and systems. For example, you could integrate predicted cross-sell response information, based on analysis of customer transactions and service interactions, into your direct marketing programs. Individual customers would receive direct marketing offers that appeal to them and the bank would not waste time or expense targeting customers that have no interest in a particular offer. And because analytics provides the capability to calculate the profitability of each customer, you can further personalize offers to ensure that they will increase a customers lifetime value to the bank over time. You can also use predictive customer insights to guide the actions of your branch or call center employees. By providing at-a-glance, aggregated customer information, your employees will know which customers are unhappy and need a little extra care, and where to focus their retention or cross-sell efforts. In this way, personalizing customer interactions helps you improve customer loyalty, boost response rates, reduce marketing costs and maximize customer profitability

Step 4: Optimize your predictions

Customer analytics isnt a linear process. With each iteration, you gain new insights that you can integrate back into the analytical process to continually improve future performance. By adding more data sources to your analysis over time, and refining your existing sources, you can significantly enrich your customer view and sharpen the accuracy of your predictive models. And with direct analytical insight into the results of your customer initiatives, you can isolate KPPs, or key performance predictors, that will guide your efforts moving forward. This capability provides insightful data on what worked and what didnt with your marketing or sales initiatives. You are then able to anticipate what you can do next time to gain better results, reduce costs and improve overall efficiency. This final step also includes an analytical asset and process management capability. This allows you to easily manage important customer analytic assets, such as predictive models and customer scores. These assets should be centrally and securely stored with role-based user access. You can also automate all or part of the analytical processes so models and scores are automatically refreshed in order to sharpen their accuracy and boost response rates. Automation also minimizes the involvement of analysts, freeing them to work on other critical business priorities. Even more significantly, the insights youve gained from customer analytics can dramatically improve your planning, budgeting and forecasting processes. Drawing upon customer analytics to conduct business planning, strategy modeling, scenario analysis and initiative planning helps answer key questions about how to allocate resources and what returns to expect from which investments. For instance, you could determine how much budget you should allocate between sales and marketing, or what the costs

IBM Software Business Analytics

Banking

will be to retain a certain category of customers. This approach offers exceptional benefits to your overall numbers by giving you the ability to conduct more insightful and effective financial performance management.

Beating the competition and maximizing profitability

Banking organizations that follow these steps enjoy a unique view of their customers that cannot be easily replicated by competitors. They are able to understand who their most valuable customers are, what they want and how they will likely behave in the future. More importantly, they are able to act on those insights in order to improve marketing ROI, increase customer satisfaction retention and grow revenue. Here are a few simple scenarios that illustrates how customer analytics optimize the way banks interact with customers in order to maximize profitability. Maximize marketing efficiency Customer analytics help banks target the specific customers who will most likely respond to marketing campaigns, and determine which offers those customers will find most valuable. Targeting the right customer with the right offer at the right time enhances existing customer relationships and increases marketing efficiency. Minimize offer opt-outs By analyzing the demographic and behavioral data of customers, banks can determine how to optimize offers to maximize positive response. This approach is also effective for reducing the operational and capital expense of accepted offers, by ensuring offers will improve the profitability of the customer and the bank as a whole. Optimize account activation Analytics can personalize and enhance the customer experience to speed the utilization of new products. This could include the auto-population of data in front office applications, automating the speedy dispatch of account materials to the customer, and utilizing customer preferences to personalize their account processes. Personalize customer service By equipping customer service representatives with timely information and analytics, they can provide personalized service for inbound and outbound customer interactions. Analytics can also continuously measure service efficiency and customer satisfaction to help ensure every interaction offers the greatest value for both the client and the bank. Measure sales performance Analytics deliver insight into how sales are performing against the plan across products, customer segments, geography, channels and more. This insight enables banks to accurately align their sales targets and plans with business objectives, and quickly make adjustments that reflect changing market and customer demands.

IBM Software Business Analytics

Banking

Retain profitable customers Using customer analytics to create a profile of profitable customers with attrition attributes, banks can accurately predict which of their most valuable customers are likely to leave before they actually lose them. This early warning system enables banks to execute retention offers and take actions that will retain these profitable customers.

IBM Business Analytics for Banking Solutions

IBM offers proven business analytics solutions for banking that combine powerful IBM Cognos business intelligence and IBM SPSS predictive analytics technologies. This comprehensive approach delivers all the key capabilities required to generate the dramatic benefits and competitive advantage of customer analytics. Through business intelligence reports, scorecards, dashboards, analysis, predictive modeling and real-time monitoring, you gain a single, unified view of each customer. By consolidating vast amounts of customer data, IBMs business analytics for banking delivers actionable intelligence and predictive insights into behavior, revenue streams and profitability of customers. One European banking cooperative saw a 30 percent reduction in marketing campaign costs after applying IBM business analytics technology. Another major financial institution used IBM software to achieve a 20 percent increase in annual revenue driven by marketing campaigns with higher quality leads.

IBM Customer Profitability Solution

With the IBM Customer Profitability solution, you can maximize the value of your customer base by understanding the interconnected factors that influence profitability through a single, at-glance-view. Profit and loss statements at the individual account level, aggregated customer information including household data, personal and business connections, line of business, products owned, geography and other profitability factors create a 360-degree view of customers via a self-service portal. The solution also includes predictive modeling so you know which products and services are most important to customers and will provide the biggest returns for the bank. With deep customer insights and the ability to predict customer lifetime value, you can make smarter decisions and execute strategies that will that will increase the profitability of your entire customer base. The IBM Customer Profitability solution helps banks to:

Calculate, monitor and maximize the profitability of each customer Understand customer needs and propensity to buy new products Increase customer lifetime value Perform more effective profitability forecasting and planning

IBM Banking Campaign Insight and Optimization Solution

The IBM Banking Campaign Insight and Optimization solution also helps you improve profitability by using analytics to predict which individuals are most likely to accept specific marketing or sales offers. For example, you could pleasantly surprise an ATM customer with a customized offer that speaks directly to their interests, or boost response rates when a

IBM Software Business Analytics

Banking

customer is online by personalizing advertisements based on their behavior. Because you know precisely which offer or discount would be most appealing to which customers, your marketing campaigns become more successful and cost-efficient, eliminating the guesswork and wasted effort of the one size fits all approach. This solution helps banks to:

Tailor marketing programs for microsegments based on behavior and preferences rather than simple demographics Reduce marketing costs and improve lead quality by targeting only people likely to respond in their preferred channel Quickly respond to market or competitive changes and customer demand for new services and products

IBM Relationship Pricing for Banking Blueprint

Customer analytics are also critical for helping banks ensure that hurdle rates are met and credit and non-credit deals are priced consistently and profitably. The IBM Relationship Pricing for Banking Blueprint helps you understand the total revenue and risk of each customer relationship so you can make smarter pricing decisions for commercial banking customers. The solution also provides a real-time profitability calculator to quickly evaluate new business pricing scenarios and their profitability impact at the facility, product or overall relationship level. With the IBM Relationship Pricing for Banking you can align commercial pricing decisions with your business objectives through:

Consistent, centralized loan pricing models that ensure the risk and profitability of every deal is aligned with corporate strategy and objectives Bottom up and top down financial planning workflow to improve collaboration and sales efficiency An automated workflow process that ensures hurdle rates are met or exceeded and provides branch or division managers with insight into the lending book

Conclusion
For banks that want to grow revenue and improve profitability, understanding the customer is essential. By applying analytics to the vast stores of available customer data, banks gain actionable insights for driving strategies and initiatives that build trust and profitable, long-term relationships. By optimizing everything from marketing campaigns to customer retention efforts, cross-sell and up-sell initiatives, customer service and pricing decisions, customer analytics empowers banks to increase share of wallet, outmaneuver the competition and maximize the profitability of each customer. To learn more about how IBM business analytics for banking solutions can help your organization achieve its business goals, please visit: www.ibm.com/software/analytics/banking

About IBM Business Analytics

IBM Business Analytics software delivers complete, consistent and accurate information that decision-makers trust to improve business performance. A comprehensive portfolio of business intelligence, advanced analytics, financial performance and strategy management and analytic applications gives you clear, immediate and actionable insights into current performance and the ability to predict future outcomes. Combined with rich industry solutions, proven practices and professional services, organizations of every size can drive the highest IT productivity and deliver better results.

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