Banco Santiago

Strategic Marketing Implementation

Introduction
In the late 1990s, main Chilean banks were facing strong competition and fast duplication of new
products and services. The most competitive area was personal banking. Faced with these challenges,
Banco Santiago needed to change its strategic focus from products to customers. Central to a new
philosophy was the improvement of account retention strategies and a renewed emphasis on attracting
customers from other banks.

In 1997, Banco Santiago commissioned an international consulting firm to develop an in-depth marketing
study of over ten thousand clients and nonclients of private and commercial banks in Chile.
The objective was to learn about customers’ needs, financial habits, product purchase behavior, services
required, channel preferences, and the most valued bank characteristics.

The new value-based segmentation was launched in the second half of 2000. An integral element of the
new posture was the multibank concept by which the bank reconfigured its operations and services
around key market segments.

By the second half of 2000, the implementation of the multibank strategy was almost complete.
While the implementation timetable was very much on track, some difficult problems started to surface.
The satisfaction and commitment of account executives was deficient, clients were threatening to close
their accounts, and the market share goals were suffering.

Banco Santiago’s History

Founded in early 1977, Banco de Santiago was created to offer services in areas related to trade
development. Efficiency and volume were at the base of its price differentiation strategy.

Its growth can be viewed in two phases. In the first phase, from the opening until June 1978, the bank
grew very rapidly, mainly due to its lower fees and specialization in large-scale transactions. During this
period, the bank successfully established its presence in the market and achieved its initial goal of
obtaining a significant market share.

The second phase began, ahead of the original provisions, in July 1978. In this phase, the bank sought to
maintain constant growth. It started to consolidate its success by diversifying its portfolio, balancing its
loan portfolio, and focusing on client services. This phase was marked by a consistent effort to offer the
highest level of services in the Chilean bank industry, and by maintaining their leadership position.

On one hand, the Bank focused its efforts in the small- and medium-sized businesses where trust in the
quality of the services was more important than price On the other hand, it also focused in the financing
of international trade, where, besides price, it was also important to have a quick and agile information
system that would allow the client to be always informed on the development of international operations.

Starting in March 1978, the bank offered retail financing, and in November, it entered the mortgage
financing area. By 1979, Banco de Santiago was the largest provider of mortgage financing in
Chile.
In the consumer banking area, Banco De Santiago attained leadership in the management of savings
accounts. Its substantial investment in computer automation and security systems became strong elements
of differentiation in the industry. The bank was the first to launch an ATM network in 1979.

In parallel, the bank also launched an aggressive international expansion, opening branches in New York
and in Sao Paulo, Brazil. The international presence helped the bank to gain experience and become more
agile through more sophisticated communication and information systems.

Then came the 1982–83 financial and banking crisis in Chile. The disintegration of many large financial
institutions led to intervention by the Pinochet government. Excessive bad loans, losses associated with
dollar-denominated loans and currency devaluation brought havoc to the Chilean financial system. Banco
De Santiago was not immune to the crisis. It was forced to close its Sao Paolo branch due to the
insolvency of the local partnership. As the provisionary administrator with the task of restructuring the
Bank, the government established new guidelines for the debt portfolio, redefined risk levels, and
imposed reporting rules that more accurately reflected the true health of the financial system.

The economic and financial crisis of 1982 was considered to be one of the biggest in the twentieth
century in Chile. However, the crisis’ solution turned out to be very unorthodox since the measures often
times were close to arbitrary. Also, these measures caused very important backlashes on more than one
occasion. After this, the economy recovered relatively quickly; by 1986, the recovery of the financial
system’s solvency was clearly visible.

Between 1985 and 1986, Chile experienced the process called Popular Capitalism 1 and the bank saw its
shares sold in the stock market. This situation, plus a new professional administration and less
government interference, led to formation of a new board, which had the mission of consolidating the
bank’s financial assets, developing and consolidating its product offerings, and bringing the bank closer
to the needs of the marketplace.

By 1989, the bank’s prestige and image were consolidated in the Chilean financial industry through its
status as a technically modern institution, its service excellence and nationwide ATM network. Their
Audiomático2 bank service was based on a voice response system, and reinforcing this service was the
superior service provided by Supermático,3 which was a unique self-service center concept in Chile.

From 1995 to 1999, the world banking industry witnessed a wave of mergers and acquisitions.
Latin America didn’t escape this tendency. Waves of mergers and acquisitions also happened in Brazil,
Venezuela, Argentina, and Chile—the economies that experienced the most bank restructurings in the last
two decades.

In the case of Chile, the first merger occurred in 1993, when Banco O’Higgins merged with the Chilean
branch of Banco Central Hispano. In 1996, Banco Santander merged with Banco Osorno, becoming the
largest bank on an asset base.

In December 1996, Banco de Santiago and Banco O’Higgins decided to merge, creating the largest
banking organization in Chile, with total assets of US$10 billion dollars. The new entity is controlled by
the Luksic group, a conglomerate with interests in Chile, Argentina, Peru, the United States, the United
Kingdom, and Croatia, with 1995 assets over US$7.2 billion, and the Banco Central Hispanoamericano,
the second largest bank of Spain. The new entity took the name of Banco Santiago and began operations
in January 1997. (See Appendix 1 for ownership data.)

After the merger, the bank wanted to maintain its prestigious modern image with advanced technology
and with excellent customer service. To achieve this, Banco Santiago made its debut on the Internet on
March 1997, launching the first Web page with transactional capability in Chile. From that point, they
continued evolving, passing from one page, to a site, and then to a portal, which was called “Online
Banking.” The Internet was not only beneficial for the clients, but also for the bank. The Internet created a
new distribution channel for their products and services, and had a very favorable impact on their costs.

In the second trimester of 2001, Banco Santiago had 24 years of accumulated experience. It ranked
number 14 in Latin America4 and had a prominent position as a leading financial institution in the Chilean
market. The bank utilized the most advanced technology, the most qualified personnel, provided a vast
range of services for its clients, and delivered high return to its shareholders.

After the end of the 1990s, the Chilean banks faced very strong competition. Each product or service that
was launched was immediately duplicated by the other banks. Given the circumstances, the financial
institutions, including the Banco Santiago, centered marketing strategies and tactics on diverse concepts
that intended to better the quality of service to increase their clients’ value perceptions.
To achieve this purpose, the bank had to change its strategic focus from a product-oriented organization
to a new emphasis on its customers.

In November 2000, Banco Santiago launched its new marketing strategy. Under the slogan “It is time to
be unique” (Es tiempo de ser únicos), and considering clients’ diverse requirements, the bank debuted a
new six-segment approach: Nóbel, Santiago Preferente, Santiago Uno, Santiago Generación,
Bancomático, and Santiago Negocios. The market segmentation process included identifying
homogeneous groups of clients with similar characteristics and banking behavior, and assessing the
variables that mostly contributed to their banking behavior. For each segment, the bank developed a
service portfolio and value proposition targeted to their needs. The characteristics that drove the study
were products, prices, image, level of service, and channels of distribution. For Banco Santiago, the
launch of a new strategy was just the starting point, and it presented a great challenge for the entire
organization. “One of the fundamental bases of the Value Propositions was the services offering, which
should lead to a more adequate level of attention, appropriate pricing, sharper differentiation, a more
relevant image, and greater closeness to the customer bases.” 5 (See Appendix 2 for the financial
information before the introduction of the new strategy.)

Chile’s Political and Economic Transformation6

In the early 1970s, Chile was fundamentally a closed economy and, as such, it was virtually a
monoexporter of copper. The average import tariff rate was 105% and the rate varied from 0% to 750%.
Due to the fact that copper ore and copper products represented over 80% of the Chilean exports, the
dependence on hard currency was immense. The distortion of relative prices was enormous.

The weight of the government in the Chilean economy was immense. The government owned not only
just copper and mining interests, but also public utility services, the main airline, and many other
businesses. Also, state regulations were not in favor of private institutions. Price controls, more and more
frequent, distorted the market. The macroeconomic consequences of this model were obvious. The
country was experiencing slow growth and the industry was based on inefficient substitution of imports.
The savings and investment levels were at critical levels and fell even further between 1970 and 1973,
adding the enormous uncertainty associated with property rights.

The economic reforms that began in the mid 1970s changed the country’s outlook. The restructuring of
public finances, opening of the economy, end of the financial recession, privatization of state owned
businesses, creation of new labor laws, and privatization of pension plans were, among others, reforms
that became permanent foundations of the Chilean economy. Notwithstanding the eventual errors of
certain economic measures, these reforms are widely consolidated. Not only did they survive the violent
recession of 1982–1983, but also the change of political system that came along with the return of
democracy in 1990. By 2002, they were accepted by an overwhelming majority of the political spectrum.

After 1990, several reforms were put in place to reinforce the efficiency of public climate administration
in Chile. An example was the privatization of infrastructure investment, such as the construction and
administration of tunnels and roads. These reforms paved the way for the 1994 approval of a
comprehensive body of laws to regulate the management of public and environmental investments. At the
same time, Chile continued to pursue a strong free-trade orientation via bilateral agreements and even
unilateral reduction of import tariffs.

The 1984 to 1998 period was one of the best periods in the recent economic history of Chile. In this
decade and a half, the average Gross Domestic Product (GDP) growth reached 7% (see Appendix 3 for
GDP data) with significant slowdowns only in 1990 and 1998. The 1990 drop was primarily the result of
an internal adjustment policy. In contrast, the slowdown of 1998 had more serious consequences. It had
its origin in the Asian crisis and was accentuated by an extremely restrictive monetary policy of the
Central Bank.

The immediate consequences of the Asian crisis were substantial increases in the external financing costs
for emerging markets, drastic falls in the world’s stock markets, new lows in primary product prices, and
significant credit access restrictions for Latin American economies. Chile saw a significant increase in its
foreign borrowing costs, which reached 500 base points over U.S. treasury bonds (see Appendix 4).
Internally, the consequences were an increase in the rate of interest and a speculative demand for foreign
currencies. While the liquidity was satisfactory, it tended to concentrate in certain areas, which led the
Central Bank to modify its monetary norms.

After fifteen years of uninterrupted growth, from 1984 to 1998, the income per capita in Chile in 1999
was almost US$5,000. This figure allowed Chile to be classified as a country with medium 7 income; in
other words, Chile was a country of medium economic development. For example, in 1998,
underdeveloped countries such as Nigeria had a per capita income of US$325 compared to the
US$35,840 per capita income of the United States.

According to the purchasing power parity index published by the World Bank, the per capita income in
Chile in 1998, adjusted to the cost of living, was US$8,500, one of the highest in Latin America.

A point worth mentioning is that the decade-long efforts to reduce inflation culminated with a rate of
2.3% in 1999. The 1999 inflation was the smallest inflation in Chile in over 60 years (see Appendix 5).

Four elements characterized the Chilean economic success: (a) the gradual and persistent reduction of inflation
to the level of developed economies, (b) maintenance of manageable internal deficit, (c) gradual and prudent
integration of the local economy to the international financial markets, and (d) strengthening of domestic
financial markets.8 Firmly adhering to such principles allowed for notable results, all of which were important
to maintaining economic growth and international credibility.

At the beginning of 2000, the economy was on the way to recovery. It had survived, although with some
wounds, the Asian crisis. The country’s economic structure was solid in the fundamentals, although some
worries existed, such as the high dependency on natural resources, the fall in savings, and the renewal of
fiscal deficit. The country was still far from the income level of the developed countries and still over
20% of the Chileans lived in poverty conditions. This reveals that the achievements in social and
economic development of the past fifteen years needed to be duplicated in the next two decades. There
was still work to be done for Chile to achieve its goals.
The Banking Industry in Chile
Financial Reform in Chile9
Almost thirty years have passed since the reform began that lead to the stabilization and liberalization of
Chile’s economy. During this transformation, the financial sector faced enormous difficulties.

Actually, in the first decade, the sector was fraught with instability, a result of persistently high real
interest rates, rapid credit growth (see Appendix 6), bankruptcies of small financial entities, and frequent
widespread closure of banks. Without a doubt, these results had roots in oil shock and the monetary
instability of industrialized economies.

It is important to note that, during this stage, the economic authorities were not able to maintain optimal
distance with respect to the financial market, due to the continuous interventions of the Central Bank in
defense of troubled institutions. On one hand, it was believed that the problems and contracts among
private parties should be solved in the private realm; while on the other hand, it was evident that the
possible mistakes in the financial sector could compromise the success of the stabilization and reform
program.

The financial crisis that began in the 1980s, also known as the “debt crisis”—internal and external—led to
a deep reevaluation of the Chilean financial system. On one hand, it was clear that the government should
guarantee the stability and proper functioning of the financial market, but on the other hand, it was argued
that the government should avoid any measures to alleviate the so-called “moral hazards.” 10 The result of
this critical debate was the 1986 reform of the banking law. The positive behavior of the banking
industry, for the greater part of the 1990s, backed the assertiveness of the decision in respect to the
evaluation measures implemented by the government.

The banking industry showed favorable development during the year 2000, evidenced in the recovery of
activity levels, limiting and stabilizing portfolio risks, consolidation of assets, and improved balance
sheets. These results provided evidence that the institutions came out of the period of economic
contraction in a stronger financial situation (see Appendix 7). At the end of 2000, the accumulated
income of the major financial institutions totaled US $394 million, which is 43% greater than the
accumulated income of 1999.

The State of Competition

Chile’s financial system was comprised, as of December 2001, of 27 institutions; of these, nine were
national private banks, sixteen were foreign banks, one was a state bank, and one was a mixed
partnership.

In Chile, foreign banks had gained an important space. As a matter of fact, 20% of the loans were in
national currency, 25% in foreign currency, and 21% of the total Chilean bank loans belonged to branches
of foreign banks authorized to operate in Chile.

In Chile, of a total of 27 banks, eight banks accounted for almost 70% of the market. 11 Banco
Santiago, with 15.8%, was the leading institution. It was followed by Banco Chile with 12.3%, Banco
Santander with 11.4%, Banco de Crédito e Inversiones (BCI) with 8.6%, Banco de A. Edwards with
8%, Banco Bhif with 5.7%, Corp Banca with a 4.4%, and the Banco Sud Americano with a 3.4% of
market participation.
The competitive strategies and market orientation of the major banking institutions are considered in the
next section.

Characteristics of the Personal Banking Industry

The Chilean banks were caught in a competition with no protection, mainly visible in what is referred to
as “personal banks.” Every new product or service introduced to the market was quickly copied by the
rest.

Given the circumstances, most institutions had concentrated their marketing strategies and tactics in
creating unique products and services. Yet, due to quick imitation, these products would lose dominance
or individuality, and the banks would then be forced to add additional services to complement those
existing products to increase the perceived value to the client, which would eventually lead to further
imitation.

Banks were using many different current concepts such as segmentation, remote banking, branding and
image building, and focusing on service. All, in one way or another, were focused on two goals: obtaining
current customer loyalty and attracting the nonloyal customers of competitors who might be looking for
“a bank that understands them.” In this way, the word “identification” played a fundamental role in
strategy planning. “This segmentation was by far the most used strategy, with the intent of helping the
client identify with the bank.”

From a Product Strategy to a Customer Value Strategy

Before the implementation of the customer value segmentation strategy, the bank relied on a product
strategy.

This table illustrates the transition of Banco Santiago from a situation without client segmentation
(product-based segmentation) to customer segmentation (segmentation based on creating customer
value).

Before the Multibank Concept (or Value Segmentation)

The commercial strategy that Banco Santiago employed was concentrated on the products it believed
fitted its clients. In other words, the bank assigned the highest number of customers possible to each
executive (to maximize productivity) who was expected to sell products to clients. In this way, they
assured that the clients received the appropriate products, with automatic renewal of credit cards and
credit lines, clear descriptions of products and available services at each branch via descriptive pamphlets,
with special attention on information systems that adapted to the client’s needs. The support of the
marketing team was essential. Through letters and pamphlets, the bank consistently informed its clients of
the products and services available.

The bank devised four different clientele segments: Banca Privada (private banking), Renta Alta (high
income banking), Renta Baja (low income) and Emergencias (emergencies). Banco Santiago also
centered on individual products, without customizing to the clients. The bank maintained a system of
centralized prices, differentiated by segment, and relied on a basic commission system (different prices
depending on the volume of usage, amount used, and cost of maintenance). The bank did not take into
consideration, when commissions were received, the risk of not receiving payment, nor the number of
products used.

As for communication channels, the bank only relied primarily on bank branches and account executives.
It is worth noting that all of the branches and the account representatives served all types of customers. In
addition, Banco Santiago had a single corporate image. The reasoning was that this image was applicable
to all the core segments, without any differentiation. The messages that the bank was sending to its clients
were standard. Also, the image that was used to promote its products was uniform for all segments.
Branch service levels were standard, regardless of the segment to which customers belonged.

The necessary systems and procedures to formulate the sale of a product were not differentiated. That is
to say, the bank performed the same steps at the moment of the sale, no matter what type of client it was
dealing with. Account executives were expected to take maximum advantage of their interaction with
clients to sell products. The primary focus was on selling.

After a client solicited a new product, the approval process was authorized by the manager in charge of
commercial banking. In order to do this, the bank needed to do an evaluation of the client to assess their
credit worthiness. There existed different ways of evaluating credit worthiness, yet the final determination
of credit worthiness was decided at the central office.

Once the credit was checked, the process continued. It is also worth noting that products were sold
individually and, in this way, each process was independent and different for each product and service.

Customer Value Segmentation

Competition among Chilean banks was fierce. Whenever a new service or concept was introduced,
competitors almost immediately launched a similar service. For this reason, Banco Santiago decided to
change its commercial strategy from being a bank focused on products, to a bank focused on its
customers.

The stated objectives for the new strategy were to gain and sustain market share, cultivate the image of
the bank as being truly focused on its customers, selectively raise the levels of service, reduce operational
costs, and improve profitability.
A large scale study of behavior and preferences involving customers and noncustomers produced a
detailed configuration of the marketplace. On the basis of segment size, attractiveness, and relevance, six
major segments were defined. The major intervening variables were (a) relationship history with Banco
Santiago, (b) transaction volume potential, (c) cross-selling opportunities, (d) risk worthiness, and (e)
profitability (see Appendix 12).

The objectives of the customer value segmentation were to:

1. Recognize explicitly the diversity that existed in the client pool, and group clients into segments of
similar characteristics, habits, and needs.
2. Create, for each segment, a services proposal that met customer needs and optimized returns for the
bank.
3. Increase the income and profit contribution through better customization of services.

A description of the segments:

Segmento Nóbel: was made up of major stockholders, directors, presidents, and executives of large
corporations. The personal monthly liquid income (MLI) was larger than UF 500 (US$8,102,010) 15 or
MLI over UF 250 and assets over UF10,000 ($162,040,200). The most important services to this group
were the level of personal service (personal attention, going the extra mile, etc.), the bank’s operational
flexibility, the ability to answer questions quickly, the amount of errors, and financial advice.
Segmento Santiago Preferente: consisted of customers from any profession or occupation whose
sources of income included salary or income from their own business and a monthly income of at least
UF 145.1 (US$2,351,203). The average age of this group was 45. The most important services were
customer relations and personal attention provided by account specialist, efficiency, agility and
automation, efficient handling of claims, and a focus on conducting transactions by telephone.
Segmento Santiago Uno: incorporated four subsegments: professionals, employees, landlords, and
retired persons. All of whom were required to have a monthly income between UF 55.1 (US$892.84) and
UF 145 (US$2.349.58).

Santiago Uno Profesionales (Professionals): This group consisted of professionals whose main source of
income was derived from their profession. This segment valued efficiency and a high capacity of bank
employees to resolve errors. This group also valued friendliness, and efficient and quick bank operations.
This segment was likely to use drive-up windows, ATM machines, and to make phone calls to account
executives.

Santiago Uno Empleados (Employees): This group consisted of professionals and nonprofessionals whose
income was obtained from personal business. The key aspects of satisfaction for this group were the
efficiency and the capacity of the bank employees to resolve problems. This segment was also very prone
to use drive-up windows, checking accounts, and other products. This group accounted for the highest
percentage of ATM visits and telephone calls.

Santiago Uno Rentistas (Landlords): This group’s principle income came from renting real estate, income
from small businesses or partnerships, etc. These people valued having their problems resolved in a
simple and structured manner. They also appreciated quick, friendly, and good information. These people
rarely visited branches and hardly ever used the telephone to communicatewith the account executives.

Santiago Uno Inactivos (Retirees): This group consisted of retired people. They showed a high level of
utilization of transactional products. They valued the solution of claims in a structured and simple
manner. They expected quickness, friendliness, and good information. They rarely visited the branches or
utilized the telephone to communicate with the bank.

Segmento Santiago Generación: was a group made up of young people under 30 years of age with
college education (or close to graduation) and a monthly income between UF 0 and UF 55 (US$891.22).
These clients were characterized by a low level of sophistication in regard to the majority of products, and
represented a large percentage of ATM usage. These clients required communication through alternative
channels (the Internet, automatic services, etc.). They also put value on efficiency, quick response to their
questions, and available use of new technology.

Segmento Bancomático: This group consisted of people from any profession or occupation. The
majority was self-employed, with medium-level responsibilities, and had completed some level of
college. Their monthly income was between UF 25 (US$405.10) and UF 55 (US$891.22). They regularly
used automated services (ATMs). These people valued being treated with respect, up front answers to
their questions, and being clearly informed.

Segmento Santiago Negocios: This group required products and services such as short- and long-term
financing, foreign exchange, leasing, and technological service.

Value Proposition
The value proposition was the base of the customer value segmentation strategy. It was an integral part of
the services offered to clients. The objective was to satisfy the needs of different market segments in a
manner that helped to achieve the bank’s goals.
The value proposition had the objective of offering to both current and prospective clients a new type of
banking service. It was based on five key points or principle variables with distinct benefits and
characteristics for each, which coincided with the necessities and potential of each segment. The
following are the five variables considered:
• Products and Services
• Prices
• Distribution Channels
• Level of Service
• Image
Proper execution of Banco Santiago’s strategy depended on a clear understanding of the market segments.
To materialize this new commercial strategy, the bank introduced a series of actions, activities, and
operational and commercial developments that were focused on helping the bank achieve their specific
goals. The major focus was on identifying clients who were willing to buy “plans,” rather than individual
products. The plans were designed to attract new clients and increase retention among current clients (see
Appendix 13).

Each plan focused on the attributes of the customers in each segment and how they managed their
products and services with the bank, their cost levels, and their conditions of operation. Each defined
segment had its own individual plan.

The plans were designed for specific segments. The plans were customized to fit the customers’
operational characteristics and to better adapt to the habits and characteristics of the specific segment.
Nevertheless, any client from any plan could take any other plan, as long as they were willing to accept
the specific operational characteristics of that plan. Additionally, the client could opt for the rest of the
bank’s products and services that were not offered in their segment’s plan as additional products and
services. For example, they could opt for credit cards, mortgages, savings, investment accounts, etc., from
another plan. There were individual, family, and group plans. Also, each plan had both obligatory and
elective products. Not all of the products chosen by the client had to be included in the plan. Those that
were not included were considered optional and had different costs.

The prices varied with each plan, products offered, specific clients and/or segments. It is noteworthy to
say that the prices of each plan were lower than buying the specific products individually.

The objective of this new cost system was to increase the segment’s usage rate in order to reduce costs
and better manage the risk associated with the segment. Each plan had fixed costs (for the setup and
maintenance of the products) and variable costs.

The segments’ strategies were also oriented towards sharing the capabilities and resources of the bank,
and taking advantage of the synergies that existed between the distinct communication channels and the
habits of the clients. The access to different communication channels varied in each segment and within
each plan. The bank focused the most personal attention toward those segments with the best growth
potential, and redirected the access to lower-cost channels of those customers who represented a large
volume as a whole, but whose margins were smaller.

All customer service activities and operational processes were standardized and designed to facilitate
automation. This led to the implementation of the following measures: development of a customer
portfolio for each account executive, reassignment of accounts to segments and account executives,
categorization of branches by segments served (single or multiple segments), strengthening alternative
ways of communication (Internet, ATMs, etc.), and the launching of a Contact Center to manage system-
wide interface with customers. Also, it was necessary to create individual marketing and merchandising
material for retail branches, to reflect the segments served.
In regard to recognition and identification, Banco Santiago installed software that permitted the
identification of incoming calls according to account and market segment (see Appendix 14). Another
important part was the signage on the door of account executives indicating the market segment she/he
attended (see Appendix 15).

Under the Banco Santiago brand name, the bank was able to distinguish the different segments with
unique images. The goal of distinct images was to help the customer identify more with the bank.
It was a positive way to differentiate each segment because it communicated to the clients that the bank
understood their distinctive wants and needs. Some examples of how the bank differentiated each
segment include different types of checks and check books, specific types of debit cards, and different
looking branches.

Another relevant aspect in regard to the image was that the bank was able to successfully communicate
these different images through public media, such as the Internet, television, magazines, etc. (see
Appendix 16).

The service level was one of the most relevant intangible attributes used in order to obtain the loyalty of
the clients. The bank created a specific level of service for each segment. The service levels of each
segment were focused on those attributes most valued by the clients in the respective segments. For some,
it was the ability to resolve problems and answer questions, for others, it was personal attention or more
automation. Needless to say, the level of service always considered the cost/benefit relationship (the cost
incurred to offer the specific level of service was a function of the expected income of the segment).

The bank created three entities to support activity functions related to the client focus and the sales of the
products. These three groups were: Service Plans Processing Center, Contact Center, and Customer
Solutions Center. The processing center’s role was to manage materials supply, logistics, distribution, and
control. The center served the requirements of the branches nationwide, created product campaigns, put
together product kits, distributed kits to clients via branches, activated electronic systems, and maintained
performance measuring systems.

The Contact Center independently created distinct processes and functions for the branches to increase
efficiency and better relations with the clientele. These included providing information to the client,
contacting clients to sell products and services, providing personal customized attention, routing general
requisitions from the branches, distributing product offers to clients via tellers, maintaining service levels
(consultation, claims, etc.), and establishing strong relationships with the clients (retention programs,
etc.). The Contact Center also served as an integration platform for different communication resources
such as telemarketing, toll free banking hotline, automated services, and virtual banking.

The Customer Solutions Center was a subarea of the Contact Center. The purpose of this group was to
specifically review and solve customer complaints, solve problems, and address issues that had impact on
customer satisfaction levels. It also provided guidance for processes and product improvement.

In order to implement these new systems and procedures, the bank implemented a new Internet portal.
The tools that were created to increase the sales of the plans and the segments’ administration were found
on the Internet under the Web page “customer value proposition.” The Internet provided numerous new
methods of communication such as Bank Value, Plan Development, and Plan Sales. In regard to
implementing this strategy, it was necessary to establish an implementation team to create standard
procedures and to communicate them over the Internet.
Implementing the Value Strategy at Banco Santiago
Banco Santiago had to overcome some difficult problems during the implementation phase, especially
because operations could not be stopped while change took place. The bank had to implement new
operational and administrative policies and also new corporate norms and procedures. As part of this
process, the bank had to move clients into specific segments, reassign accounts to new segments and
account executives, and then, finally, effectively communicate to the clients affected.

Another difficult challenge was moving from a bank that offered individual products without
differentiation, to one that offered plans and products that were designed to the specific needs of the
various segments. There was also the difficult task of helping current customers understand this change.

As to the new pricing model, the bank had to change from a centralized pricing system based on
accumulated points and commissions (commissions decreased with points accumulated), to a system
based on standard rates per plan or product bundle.

In regard to customer interface, the bank had to change from a system of standard branches and account
representatives who served the whole spectrum of customers, to a system with individual branches and
representatives specialized in specific types of market segments and accounts. In addition, the logo of the
segment(s) served by a branch was visibly displayed at the main entrance, and each account executive had
his/her office identified with the logo of the segment they served.

These initiatives brought immediate changes to the level of customer attention and facilitated the building
of stronger relationships between the bank and its customers. The same principles were also implemented
by the Contact Center.

Certainly, the adoption of identification logos at all levels of the system, supported by point-ofsale
materials and targeted advertising, was efficient at obtaining the buy-in from employees and gaining the
goodwill of customers.

One of the great changes that the implementation of this new segmentation brought to pass was the
placement of a PC in the office of each account representative, which facilitated the use of standardized
tools, especially Internet-based utilities that everyone was able to access, such as the new “Value Analysis
Model” (to profile customer requirements and assess account profitability).

Six months into the implementation phase, senior management started to worry about the appropriateness
of the overall implementation approach, and the impact that it might have on the bank’s performance.
Issues had started to surface, both internally and externally, that required a reevaluation of the
implementation plan, as well as some important adjustments to the overall marketing strategy.

Problems of the Customer Value Strategy

As part of the internal evaluation process, an exploratory study was conducted that included bank clerks,
account executives, contact center operators, and a few selected customers. Survey interviews were
conducted using a preapproved instrument. After reviewing the information gathered, a total of eleven
issues surfaced as more serious problems. They were selected because of the severity of their impact on
customer satisfaction. The following were the major problem areas:
• In general, many customers resisted change due to the fact that they had already built strong
relationships with their previous account representatives.
• A major concern in the effectiveness of presenting the new plans to customers stemmed from the
tendency of account representatives to not offer all the products because they did not want to fill out the
paperwork.
• Many customers did not understand the structure of this new system.
• Calculating the monthly retention rate was very difficult. Not even the account representative
understood how to measure customer retention. This made the calculation for measuring monthly
commissions difficult to understand.
• The account representatives complained that the number of clients was too large for them to be able to
offer the level of service that they wanted to.
• In general, the account representatives stated that the high level of administrative work impeded them
from offering the level of service suggested in the value proposition.
• The account representatives agreed that there was not sufficient product marketing. They said that the
only publicity that the products received was during the initial implementation in
November 2000. In general, they felt that the bank offered little support in regard to advertising.
• Poor service at the phone centers was starting to hurt customer value.
• The majority of the clients felt that this new segmentation was discriminatory. This stemmed from the
customers’ view of ranking the different levels of importance of clients within the segments.
• The clients believed that the bank was stereotyping them into categories.
• The account representatives did not feel that they were supported by the other bank divisions, such as
the Contact Center or the Customer Solutions Center.

Growing Problems
The new marketing strategy of Banco Santiago was threatened. The preliminary information, though
exploratory at this point, showed that technology and processes were not in alignment with people.
New evidence confirming the initial symptoms had started to surface in the form of account closures, an
increase in the number of customer complaints, and the grumblings of key account executives. On the
other side, the marketing manager and the director of personal banking saw the problem as something that
would be fixed with more time. For them, the complaints were not justified. Their position was that it was
unrealistic to expect a complete success just a few months into the process.

The marketing manager and the director of personal banking were asked to provide their assessments of
the situation and to recommend a course of action. Three initial options had made way to their desks: (a)
admit defeat and return to a product-based strategy, (b) give the system more time to absorb the changes,
(c) redesign the communication program, especially the signage and point-of-sale materials. What other
alternative courses should be considered? What should they recommend at the next Operations
Committee meeting?