In cahoots with the customer

Unlike traditional banks, cahoot has established a unique positioning of direct-only access combined with customised accounts and market-leading offers. Christine McLean explains how the firm put together its CRM strategy.

Launched in 2000 with two products (current account and credit card), it has since extended its portfolio with flexible loan and savings as well as insurance products and share dealing via 3rd party providers. The bank has now built a customer base of 450k ? not a small achievement just three years after launch.

However, as a start up, cahoot initially had a huge job to tackle in terms of growing its customer base, building the brand and winning the trust of consumers. It realised that long term success depended on nurturing and developing its customers through a CRM programme. The process was multi-disciplinary and covered many aspects of the company's business from establishing an appropriate corporate culture to setting up data systems and analysis to generate actionable strategies.

cahoot appreciated that CRM is not just about technology and it isn?t something that is delivered overnight; it is a phased process of creating a truly customer centric organisation. Developing the right mindset and educating all in the benefits of customer segmentation is therefore a vital part of the process. In cahoot's case, the CRM team undertook a programme of vision-setting and created working teams from throughout the business (Product Development, Risk, Finance, Partners, Channels, IT, Acquisition, Operations and the Contact Centre) to be involved in shaping the segmentation at each stage. This meant that they were able to influence every area of the business and align it behind a set of common objectives for the customer.

Segmentation was going to be pivotal to delivering the strategy since the associated analysis would inform all aspects of the business. Naturally, a number of analytical approaches needed to be explored and tested, but a more fundamental decision came down to what type of data would be most appropriate. Marketing segmentation systems are primary developed on the basis of one (or a combination) of the following types of customer data: Value, Profitability, Behaviour, Attitude, Demographics, Life stage, Needs (financial). For cahoot, the decision had to be around customer behaviour. The aim was to use the segmentations to influence marketing communications and therefore it was vital to gain a thorough understanding of the different types of customer behaviour that exist.

Although the focus for defining the segments was behaviour, the fundamental value dimension was not ignored. Through experience Zalpha has found that Lifetime Value (LTV) segmentations are not useful for driving marketing strategy because they do not recognise different customer behaviours or how changing circumstances/behaviour can open up marketing opportunities. However, the reason to focus on trying to change a customer?s behaviour is clearly to make them more profitable to the business and this was something that cahoot and Zalpha realised would be important to track and measure. The solution was to calculate a value score separately for each customer (at both a product and customer level) that would give an added layer of understanding to the behaviours identified within each segment.

The segments are refreshed on a monthly basis and the migration paths of customers tracked. Where the monthly segmentation picture is descriptive, these month on month migration patterns have been found to be predictive and highly informative to the marketing strategy through the identification of a number of significant marketing trigger points. For example, a credit card customer who consistently utilises 50% of his credit limit and pays off only at the minimum level, may start to make part payments, leading to a decrease in his credit utilisation (and hence value to the bank) and over a number of months results in him ceasing to use his card. Where this can be identified far enough in advance of the customer becoming dormant, marketing action can be taken to prevent this. The likelihood is that the decision to switch cards had been made long before the final balance was paid off, so to have any chance of retaining the customer, this early identification of ?lapse? behaviour is vital.

All businesses require actionable solutions and therefore analysis must never lose sight of the bottom line. For cahoot, the analysis has led to marketing strategy at both a macro level - e.g. product development, pricing and propositions - and at a micro level - e.g. tactical campaigns and cross-selling. Strategies have been developed for all segments with the emphasis on retaining quality customers as well as developing profitable customer relationships in general. In terms of customer acquisition, the initial focus for the bank has had to be on building volume but it is now refocusing to some extent and is able to use the segmentation to help to acquire and retain the customers that have the potential to be more profitable and remain loyal. Top segment understanding allows cahoot to identify the best channels, offers and propositions. It will also allow them to begin to weigh up profitability, risk and potential at point of recruitment. On a micro level, the data analysis has revealed that balance transfer and cash-back offers can be two-edged swords: building value from certain customer groups whilst destroying it in others. Understanding these offers in conjunction with the segmentations and the value dimension has ensured that the optimum offer is always implemented.

The cahoot story is by definition unique but for other companies looking to use CRM to build a brand, there are a number of principles which can be drawn from its experience. Firstly, the outlook of an organisation is critical since CRM involves taking on board new ways of operating. Newly formed companies which do not carry a long heritage often have the edge over established ones which are more likely to be averse to an innovation culture.

Secondly, companies need to be prepared to act quickly on information and react quickly to market changes is essential. Small organisations which have a flat structure are therefore often better placed than large businesses when it comes to setting up a CRM initiative. Thirdly, success depends on the process of co-operation and the alignment of the organisation behind the customer. cahoot is delivering customer value whilst reducing operational risk.

Finally, customer insight drawn from behavioural segmentation encourages a different marketing approach that is more strategic. It brings the customers to life and along with research gives a full picture of the what, the why, the value ? leading to tailored and relevant propositions and offers.

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