CRM in intermediated financial services markets: THE CORE ISSUE: GAINING COOPERATION

Of course, none of the techniques described above are new. They are just the application of classic direct marketing. The difference is that the approach involved cooperation between two big companies with a shared customer base. How was this cooperation achieved? In another research project completed by one of the authors it is clear that such cooperation is contingent upon the existence of trust between the two parties.

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CRM in intermediated financial services markets: CASE STUDY OF A SPECIFIC BANK PARTNER PORTFOLIO

CRM in intermediated financial services markets: CASE STUDY OF A SPECIFIC BANK PARTNER PORTFOLIO

Where a partnership exists it makes a great deal of sense to explore the two companies’ experience with the same customer. If the partners are operating within the same business sector, it is probable that the customer will display similar characteristics in both relationships. There are also specific factors that apply to the way banks market insurance.

For example Table 2 highlights the importance of the strength of the relationship with the bank in determining the rate at which customers convert their quotations to a policy. A customer taking out buildings insurance in association with a bank mortgage is nearly four times more likely to convert than if the customer requested a quotation after seeing a newspaper or other advertisement without any other relationship.

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CRM in intermediated financial services markets: Geodemographic analysis

Geodemographic overlays, in this case DEFINE, provide postcode-based summaries using a combination of the variables used above (or proxy variables) such as occupation, affluence and home ownership. Here, group 0, ‘affluent, professional families’, group 8, ‘rural dwellers’, and group 9, ‘residential homes/ institutional accommodation’ correlate with the higher value deciles, while group 4, ‘younger rented council’, group 6, ‘younger mixed tenure’ and group 5, ‘older rented council’ are more likely to be lower value.

This simple analysis is quite interesting and does shed a little light on who customers are, how they behave and how valuable they are. However, by itself it is a risky basis for either predicting customer behaviour or planning activity (eg pricing, customer targeting). The next stage is to combine the variables and undertake modelling. This was done, but the results are considered too confidential for publication.

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CRM in intermediated financial services markets: IMPROVING CUSTOMER PROFITABILITY

Within each partner portfolio, Company X wants to know who are the most and least valuable customers, how more higher value customers can be attracted, retained and developed, and how negative value customers can be avoided. Customer value is defined as the product of all contributions made by the customer (in this case premiums paid) less all expenses incurred (acquisition, renewal, claims and other servicing costs). In the case of one partner’s customer portfolio, Figure 2 shows the sum of contributions made by decile (10 per cent) bands of customers ranked from the most valued on the left to the least valued on the right.

The best decile (20,000 customers in this portfolio) contributed 58 per cent of the total value of the portfolio. The best 20 per cent here contribute approximately 80 per cent of the total value of the portfolio. The worst decile makes a 28 per cent negative contribution! But what do these profitable and unprofitable customers actually look like? How can they be identified? The transactional data provided very few descriptors, making it difficult to differentiate between ‘good’ and ‘bad’ customers in any meaningful way.

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CRM in intermediated financial services markets: THE INSURER’S DATABASE INITIATIVE

CRM in intermediated financial services markets: THE INSURER’S DATABASE INITIATIVE

For a major insurance supplier, justifying investment in a customer database covering policies sold through partners is not easy. During the past three years companies have not only had the challenges of Year 2000 Compliance, the introduction of EMU and the 1998 Data Protection Act, but several have also had the additional challenge of accommodating mergers and acquisitions. During this period competition for scarce IT resources has been tough. All these factors applied to the company in the case study. However, a business case for developing a partnership database was put and accepted and the database built.

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CRM in intermediated financial services markets: ROLE OF THE CUSTOMER DATABASE

The customer database has a central role to play in the development of CRM. The processes identified below indicate the main activities that contribute to understanding the customer and profiting from this understanding.

—    Data management refers to the process of capturing, cleaning and updating the customer data. Within the insurer this includes bringing together data from the various transactional systems and from partner systems. The insurer also overlays geodemographic data to enhance the database with information not captured by the internal systems.

—    Understanding the customer. Statistical analysis of the database allows the insurer to profile customers exhibiting particular behaviours, to identify distinct segments and to differentiate customers based on their relative value.

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CRM in intermediated financial services markets: COMPANY BACKGROUND

As one of the UK’s biggest insurance companies, the Insurer operates in most sectors of the market and via most channels. The Insurer provides insurance through partners in financial services and some leading retailers, many of whom have added financial services to their traditional product range. The Insurer provides a wide range of insurance products and services. These include household (buildings, contents and joint); motor; travel (single trip and annual); health (personal accident, hospital cash and private medical); extended warranty; and creditor. These products are typically marketed under the partner’s own brand. The Insurer ‘manufactures’ the products and these are then ‘retailed’ through partners’ existing channels or through channels set up specifically to support their personal financial services product range.

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Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

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