Customer Analytics Triathlon: From Data to Knowledge to Wisdom

June 13, 2006

Abstract

San Francisco, CA, USA June 13, 2006

What Are The Best Practice Olympians Achieving?

A strategic shift to customer centricity has banks competing in a new race: a customer analytics triathlon. Celent predicts this new focus will have banks sprinting to master customer data, achieve knowledge, and realize wisdom.

The power of traditional retail banking strategies is waning. Diversification and acquisition strategies are being tapped out, new branch growth is increasingly expensive, and market share is continually being nibbled away by new entrants. Where does the performance power now lie? Celent believes the answer is in customer value management. No small feat, customer value management involves a customer analytics triathlon that begins with mastering customer data, moves to achieving knowledge (extracting insight from the data, e.g., customer profitability), and culminates in realizing wisdom (acting on the insight, e.g., using predictive modeling to improve sub-segment profitability). The triathlon has proven to be an Olympian feat with few in the bank pack able to finish the race today.

In the report, , Celent explores what it takes to be a medalist. To finish ahead, banks must jettison their traditional profitability models and develop a new one based on account level data, which requires gauging cost-to-serve, and most bankers would agree that is an Olympian feat. A feat worthy of attempt, however, given the results banks typically find: over half of their customers' profitability level shifts, and the shift can be as great as three deciles. The shift is driven largely due to variations in customers' cost-to-serve. For example, a customer that consumes "live" channels (branch and call center) can cost five times and more to serve than one reliant on remote channels.

"Although a majority of banks would say yes to the question "do you calculate customer profitability," most would have to qualify that they do not calculate it at the account level but instead use averages. Averages do not win the race. To get on the podium, a bank must calculate account level profitability and roll these up to the customer level," says Alenka Grealish, author of the report and manager of the Banking group at Celent. "Customer value management is not a one shot achievement but rather involves a long learning curve and results in cumulative improvements. Consequently, banks that are today's winners will likely be tomorrow's winners, while the losers will be increasingly behind. The winners will excel in identifying product opportunities in sub-segments, in reducing product development times, and overall in raising the bar on customer satisfaction and loyalty," she adds.

This report discusses the achievements of two medalists: Royal Bank of Canada and Washington Mutual.

The report is 33 pages and contains 13 figures and 8 tables.

A table of contents is available online.

 

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

San Francisco, CA, USA June 13, 2006

What Are The Best Practice Olympians Achieving?

 

Executive Summary 3
Why Customer Value Matters 5
  Cross-Subsidization Challenge 5
  Bane of Retail Bankers: 120/20 Rule 7
  Shattering Conventional Wisdom 7
Customer Value Triathlon 9
From Data To Knowledge 11
  Bronze Medal: Customer Account Level Profitability 11
  As Hard as ABC 13
  Silver and Gold Medal: LTV and Potential LTV 16
From Knowledge To Wisdom 18
  Prerequisite: Team Effort 18
  Strategic Goals Tied to Customer Segments 18
  Tactical Goals Tied to Customer Segments 20
The Technology Providers 22
  Taxonomy of Software Providers 22
Examples Of Olympians 27
  Overall Gold: Royal Bank of Canada 27
  Gold in Cost-to-Serve Analysis: Washington Mutual 31
The Next Triathlon 34
 

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