Building Integrated Customer Value Management Strategies · CVM Strategy Focus –The CVM Framework...

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Building Integrated Customer

Value Management Strategies

CVM Banking Case Study

Kevin Decker

Managing Partner

Progress Partners - Insights, Strategy, Solutions

Agenda

CVM Approach for Segmentation Model Development

Examples of CVM Segmentation Approach & Considerations

Implementing Segment Management using the (CVM) Approach

Summary of Benefits of CVM Framework & Customer Based Design Approach

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Introduction to our approach

We believe that our integrated approach to Customer Segmentation Model development is unique and has a very versatile and practical approach to Customer Strategy development.

We propose to demonstrate how our Proprietary Customer Value Management (CVM) segmentation and customer management approach will assist with Acquisition of New Customers, Customer Management, Expansion of Existing Customers and Retention of Valued Customers.

We will also demonstrate how our Customer Value Management approach and CVM architecture can assist you in developing focused and segment specific Strategies & Value Propositions to maximise effectiveness and results.

We will share share how this Customer Value Management Framework and Customer Based Design approach has been used to drive practical and meaningful business initiatives and outcomes.

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To develop a customer segmentation approach which categorises the Market (existing and potential customers) into manageable groups indicative of -

o Current and future needs

o Current and future value to the marketplace

To develop a customer segmentation approach which is meaningful and usable at all levels within the business -

o Segments must be large enough - size and profit

o Segments must be identifiable - able to be “tagged” on database

o Segments must be practical and illustrate opportunity

o Segments must be managed - single point of accountability

CVM Approach – Segmentation Objectives are quite simple… but

challenging … to develop a practical model that can be implemented

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EXTERNAL INTERNALCVM

A C E R

Attitudinal/ Needs

Dem

og

rap

hic

Behavioural

Dem

og

/Va

lue

Strategic

Market

Management

Customer

Relationship

Management

ExpansionCustomer Management RetentionAcquisition

Customer Value Management

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Customer Value and Behavioural

analysis to select best primary CM

segmentation and RM approach to

optimise value vs cost to serve

Conduct / Review market

research to identify higher

market value customers and

attitudes/ needs drivers

Product and Behavioural analysis

to develop CRM approach to

optimise share of value

(Expansion & Retention)

CVM Framework – Our CVM framework is a simple and structured

way to better understand the market and your customers


Behavioural SegmentationVP Positioning Map Core Segmentation Model

A

RM Model

Segment Behavioural

Analysis & CRM Plans

Sub-Segmentation

Segment Focus

ChannelsSegment

RM Model

Segment VP

Positioning

Product

Channel

Expansion Retention

C E R

Segment

Offering

+

+

+

Focus

Segment

Strategies

6

Segmentation Architecture – The CVM Framework helps structure

and prioritise implementation planning


YYY Bank - Segment Management Model Adopted

Gold

Silver

Base

Platinum

Black

Cu

sto

me

r V

alu

e P

rop

os

itio

n T

ier

(Pro

du

ct

&

Se

rvic

e O

ffe

rin

g)

Attitudinal Sophistication (Ambition & Finance Confidence)

Traditionals Transitionals Conservatives Mainstreamers Conspicious

Strivers

Ambitious

AchieversComfortably

Achiveved

Low High

High

Basic BankingYouth Banking

Mainstream Banking

Professional Banking

Private Banking

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Different Models – At YYY Bank we segmented using; Value

Tier and Attitudinal DriversA

Acquisition


The importance of

understanding

purpose.

Problem Finding

Discovery

Invention

Prototyping

Integration

The process of gaining customer insight and

redefining the problem.

The difference between choosing the best

available alternative and actually creating a

more desirable outcome.

The practice of integrating

the design solution into

the organisation’s delivery

systems and practices.

The process of visualising and developing the

concepts generated during Invention.

Successful Customer Based Design involves having a well-defined understanding of purpose

(Strategic Conversation), developing a keen understanding of the customer and the problem

(Discovery), creating new ways to solve these problems (Invention), exploring the best ways

to actualise those solutions (Prototyping), and executing a well thought out plan for

dissemination of these solutions into the world (Implementation).

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Customer Based Design – Our Customer Based Design

process will clarify objectives and intent towards designing

ideal propositions

A

Acquisition


XXX Bank - Primary Segment Management Structure

Value Tier 1

Value Tier 2

Value Tier 3

Segment 3

60 Retail

Business

4530

Segment 2

Segment 1Segment 6

Segment 5

Segment 4

C

Customer

Management

9

Personal (Lifestage/Product)

Different Models – At XXX Bank we segmented according to 3

dimensions; Value, Life-Stage and “Lead” Business Need


1

2

3

H

L-

L+

M

Tier 3 - Responsive Relationship

Management / Branch Ownership

Tier 1 - Dedicated Relationship

Management / RM Ownership

Tier 2 - Pro-active Relationship

Management / Branch Ownership

10

Customer Management – Differentiating service models across

value tiers provides framework to align value to cost to serveC

Customer

Management


Share of Wallet

Value

Tier

HVMB HVL

POT O&C EYH

SPU

SOW 65%SOW17%

SOW

18%

SO

W

53%

SOW

44%

SOW 24%

SOW

73% SOW 122%

MAVD LVL

Customer Relationship Management Segmentation

E

Expansion

R

Retention

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Expansion & Retention – Behavioural Segmentation provides a

further strategic approach to manage expansion and retention


Core Segmentation Model

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CVM Strategy Focus – The CVM Framework helps develop overall

Customer Strategy direction and alignment to business priorities

CRM SegmentationMarket Segmentation RM Model

1

2

4

3

YS MC FM EN<25% 50% >75%

The Segmentation Model & Operational CVM Architecture will provide good alignment &

customer centric marketing & sales direction to Core Business Strategic Priorities

Market

Share

Growth

Increased

Cross-Sell

Increased

Retention

Employee Engagement & Customer Engagement Platforms

Cost

Management

A C E R



A C E R


Segment Behavioural

Analysis & CRM Plans

Sub-Segmentation

Segment

Focus ChannelsSegment

RM Model

Segment VP Positioning

Product

Channel

Expansion Retention

Segment

Offering

+

+

+

Focus

Segment

Strategies

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Focus Segment Management – CVM Framework can also be

applied for individual Segment Management Implementation…


Acquisition – Further sub-segmentation allows correlation of

sub-segment needs with value proposition development

Mortgage

Customer

Segment

New Entrant

Home

Buyers

Home

Owner/Equity

Accumulators

Property Investors

Low Equity

Entrant Buyer

Affluent

Entrant Buyer

Accelerating

Equity Builders

Minimal

Equity Builders

Affluent Investor

Equity Investor

Primary Retail

Segment

Sub-Segment

based on

core lending

cycle need

Sub-Segment

based on

value, need, &

lending attitude

First Home Buyer

Package with Extensive

“Advice”

Extras for Affluent

Entrant Buyer

Value

Proposition &

Packages

Value Proposition and/or

Package based on value,

needs & financial attitudes

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A

Acquisition


Retail Loan Portfolio (Incl Securitised Loans)

Ju

l-0

4

Au

g-0

4

Se

p-0

4

Oct-

04

No

v-0

4

De

c-0

4

Ja

n-0

5

Fe

b-0

5

Ma

r-0

5

Ap

r-0

5

Ma

y-0

5

Ju

n-0

5

$b

Actual Budget Last Year

1.39

0.79

1.16 1.21 1.221.14 1.20

1.271.39 1.34

1.58

1.12 1.13

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Jun

-04

Jul-

04

Aug

-04

Sep

-04

Oct-

04

No

v-

04

Dec-

04

Jan

-05

Feb-

05

Mar-

05

Ap

r-05

May-

05

Jun

-05

Housing Growth vs System

15

Does it work? – This focused strategy allowed XXX Bank to

optimise acquisition and grow ahead of systemA

Acquisition


Share of Wallet of Products Used by Segment

59%

10%5%

58%

67%

16%

41%

23%

22%

28%

11%

16%

60%44%

34%39%

12%

35%

13%

33%

41%

34% 34%

3%

54%

4%

7%

68%

22%

60% 63%

27%

73%

26%

49%

0%

20%

40%

60%

80%

100%

HVL HVMB EYH O&C Pots LVL SPU MAVD

Perc

en

t

< 25% 25-50% 50-75% 75% Plus All (median) SOW

Expansion & Retention – SOW & Behavioural analysis gave

direction on where to focus Expansion & Retention

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E

Expansion

R

Retention


Home Insurance to Home Loans

Jun-

04

Jul-

04

Aug-

04

Sep-

04

Oct-

04

Nov-

04

Dec-

04

Jan-

05

Feb-

05

Mar-

05

Apr-

05

M

ay-

05

Jun-

05

Month

% P

en

etr

ati

on

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

% C

ro

ss-S

ell

Month

Credit Cards to HL

Does it work? - Total Products per Customer grew

significantly, with some particularly good product successes

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E

Expansion


Retention... Mortgage Run-off was analysing by reviewing Run-

off factors and putting in place contact programs to manage

Monthly Runoff Factors % - Total View

Jul-03

Sep-0

3

Nov-0

3

Jan-0

4

Mar-

04

May-0

4

Jul-04

Sep-0

4

Nov-0

4

Jan-0

5

Mar-

05

May-0

5

Jul-05

Sep-0

5

Ext Refinance Payouts Accelerated Repayments M inimum Repayments

18

R

Retention


Does it work? - Retention results consistently improved in an

increasingly toughening competitive climate

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R

Retention

Progress Partners - Insights, Strategy, Solutions20

Implementation – Typically the implementation of Customer Value

Management Model can be accomplished over 3 phases...

Initial Hypothesis Model development timeframes depend on quality of existing research and customer data can vary between 1-2 weeks and 2-4 weeks.

Stage 1 Hypothesis Model

Stage 2 Model Validation via

Market Research &

Customer Analysis

Stage 3Model

Implementation

Further validation of Hypothesis Model can be conducted using combination of existing & new external market research and full internal customer analysis.

Typically 3-4 weeks of segment model validation work will be required to appropriately validate the initial segment model depending on confidence levels required.

Implementation of model typically covers 3 aspects;

Technical operationalisation of model - allocation, rules, migration rule and technical structure.

Segment Management capability & processes to deliver on segment management requirements.

Focus Segment strategy development & specific business initiative support


Our CVM Framework (ACER Model) provides us with a practical and logical framework to

plan and implement effective Customer Value Management Programs to achieve the

following objectives:

To acquire the most profitable and highest growth customers

To develop appropriate customer relationship models to manage customers profitably

To expand share of wallet and increase profitability

To retain most valuable customers ensuring sustainable profitability

EXTERNAL INTERNALCVM

A C E R

Attitudinal/ Needs

Dem

og

rap

hic Behavioural

Dem

og

/Valu

e

Strategic

Market

Management

Customer

Relationship

Management



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In Summary – An integrated approach to Segmentation & Customer

Value Management will help effectively grow customer value

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Insights, Strategy, Solutions

Kevin Decker

Managing Partner

www.progresspartners.com.au

[email protected]

+61 422 377 318

Building Integrated Customer Value Management Strategies · CVM Strategy Focus –The CVM Framework...

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