Customer and their Needs in Banking - Essay Example

Executive summary Due to the highly competitive and volatile banking industry, relational banking has become essential. Relationship banking can be enhanced through the application of Customer Relationship Management (CRM) which is a tool that integrates technologies and business processes to satisfy the needs of the customer. National Bank of Bahrain (NBB) has demonstrated how with the use of CRM they could reduce the turnaround time in service delivery. NBB has also been successful in maintaining a balance between the needs of the customers and the interest of the shareholders. They have applied the right marketing mix towards meeting this end and have been able to register sustained growth. Again, with the help of CEM and other methods, they constantly obtain feedback from the customers. This helps to rectify or resolve issues and continuously enhance their services. To ensure that customers participate in the feedback mechanisms, they institute rewards for those registering complaints or suggestions. Overall, the NBB has been successful in implementing the CRM despite the country being slow in its adaptation. 1.0 Introduction The banks in UK are unable to meet the customer expectations as they do not follow the principles of relationship marketing. Relationship marketing can be defined as an integrated effort to identify, maintain and build up a network with individuals. It also requires continuously strengthening the network for the mutual benefits of both sides through interactive, individualized and value-added contacts over a long period of time (Gebert et al., 2003). A customer-centric approach treats every customer uniquely and individually. This requires that the value of the customer is calculated over his entire relationship with the firm and not based on any particular transaction (Bose, 2002). The UK banks, through their responses, amply demonstrate that shareholders come first and not the customers. They have done little to invest in customer relationship management (CRM), which helps in many ways. The banks have to diversify and include different products like retail banking. The traditional current account for companies is not at all remunerative and most services on these accounts are free of charge. This poses the questions of sustainability and hence the banks have to compromise on services. Today the customer is willing to pay for the services, provided he receives the services. Services in banks have been automated as can be seen by the services offered by National Bank of Bahrain (NBB). They have incorporated IT to improve the services and enhance the customer experience. Internet banking has allowed the banks to redefine their relationships with their customers and redesign their services. The expectations of customers have been high because promises were made. When the promises are not fulfilled, they react. Customer delight can be obtained by delivering more than the expectations. Hence, before making any promises, the system must be in order. 2.0 Findings 2.1 Customer Relationship Management Relationship banking is a lending decision-making technology widely used for making financing decisions for small, young and high risk firms (Boot, 2000; Binks and Ennew, 1997 cited by Ashton and Pressey, 2004). A ‘relationship manager’ is designated the responsibility to keep constant and close association with the customers and apprise them of the financial products, facilities that the bank grants. This benefits the bank in decision-making, in profitability and in assessing the requirements of the customers. 2.1.1 Introduction of NBB National Bank of Bahrain (NBB) is one of the two companies that are implementing CRM in Bahrain (Al-Alawi, 2004). A survey revealed that the participants had only some theoretical knowledge on CRM with no physical implementation in their work processes. While they did show high regards for customers and customer services, the notable response was, “depends on customer choices”. This demonstrates the NBB exists for the purpose of serving the customers and when the customers demand more focused attention, CRM could be successfully implemented. A few cited costs and lack of appropriate technology as reasons for not implementing the CRM at NBB. Some also felt that since the customers were satisfied, they did not find it necessary bring changes or implement CRM. Some even felt that introducing CRM would be against the Bahraini culture and hence unethical. It basically revealed that the participants were not aware of the full benefits that CRM could bring to the customer service and to the organization as a whole. CRM requires a lot of data to be collected and at NBB they felt that culture was a hindrance to complete success of CRM as trying to procure complete data on their customers brings back the issue of “info phobia”. At the same time, the Bank has high regard for customer services and they are trying to use the CRM techniques to secure customer relationships, maximize customer profitability and create a customer-oriented culture. CRM is of more value to the customer than the business itself as it offers easy interaction and better services. 2.1.2 NBB applies CRM Based on the concept of CRM, NBB has developed a system to enhance its customer experience and increase loyalty among the customers. They have employed the latest technology and added value to the services offered. Technology has pervaded every field in any business today. Customer Relationship Management (CRM) is one such tool that integrates technologies and business processes to satisfy the needs of the customer (Bose, 2002). CRM has been defined as an interactive process that achieves an optimum balance between corporate investments and the satisfaction of customer needs to generate the maximum profit (Gebert, Geib, Kolbe & Brenner, 2003). CRM involves acquisition, analysis and use of knowledge about customers in order to sell more goods or services. It involves integration of technologies working together like data warehouse, website, intranet/extranet, accounting, sales, marketing and production. CRM warehouse contains all the information about customers, employees, products, sales, costs, inventory, shipments and other data sources (McKim & Hughes, 2000). The retail banking segment at NBB focuses on high customer service. NBB has segmented its customers and launches new and re-packaged value added financial products for each customer segment (TAIB). In the business banking segment, they actively participate in several loan syndications to finance diverse needs of all segments of the trade and industry. They are always looking for newer sources of fee-based business. Normally, as seen in the UK bank, the current accounts of businesses do not fetch any revenue and the banks are forced to compromise on services to maintain shareholders’; interest. NBB has the leading position and its ratings are among the highest for banking firms in the Gulf Region. A good manager would aim different messages to each group with products and offers appropriate to the group (McKim & Hughes). Kutner and Cripps (1997) also agree that customers should be managed as important assets, not all customers are equally desirable as profitability varies, customers differ in their choices and sensitivity, and offerings can be customized to maximize benefits (cited by Ryals & Payne, 2001). Newell (2000) contends that CRM helps to identify the right customer groups and then decide which customers to focus on (cited by Bull, 2003). The financial services sector has been the first to observe that not all customers leverage the same advantage to the company. The customer relationship manager must have the ability to distinguish between the transaction and relationship customers. Transaction customers are those that have no loyalty and are only looking for the best bargain. Relationship customers on the other hand are prepared to pay a premium price for a range of reliable services or goods. Relationship customers are less likely to defect if they continue to receive the same service quality. Such customers are also cost effective as they require less persuasion to buy the company’s products or services. NBB has extensively used IT to enhance their banking services in all segments. Because of the customer database collected by them, NBB has launched Priority Banking where they aim the High Net Worth clients. While offering personalized service, it helps them to strengthen their relationship with the High Net Worth Clients. Vermeulen and Crous (2000) believe that the best way to institute quality into an organization, and particularly a bank, is to train the people to do their jobs better. During the past two decades or so, regulatory, structural and technological factors have significantly changed the banking environment throughout the world (Angur et al., 1999, cited by Yavas et al., 2003). To gain competitive advantage, banks across nations have concentrated on human capital as one of the greatest assets. As part of the customer services, NBB has started Sweep services where a customer can maintain a pre-defined balance in one account and the system will automatically transfer any excess balance to another high interest earning or any other designated account (NBB, 2006). This service is executed automatically at the end of each day. Companies can use this service to pool all funds from different accounts under one head. It also helps companies to retrieve funds from one account to cover the shortfall in another account. They charge a nominal fee for this service. They have customer feedback system and they reward their employees, which serves as a great motivating factor. 2.2 Needs of shareholders – marketing mix Banks in UK have compromised the customer services at the cost of shareholders’ interest. NBB however has maintained a balance between the needs of the customers and the shareholders by applying the principles of the marketing mix. The four P’s of marketing was introduced by McCarthy as a means of translating marketing planning into practice. The four P’s namely product, place, price and promotion were treated as the unchallenged basic model of marketing. According to the American marketing Association, ‘marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange and satisfy individual and organizational objectives’ (Grönroos, 1997). The concept of marketing mix emerged from the notion of the marketer as a ‘mixer of ingredients’. The marketer blends the elements of the marketing mix to optimize profits. The product (which includes services) is priced according to the buyer’s ability, made available to the customer (place) and is promoted to make the customer gather as much information as required before the purchase takes place (Bennett, 1997). Thus the marketing mix of any product would include the right product at the right time in the right place with the right sales and promotion strategy and at the right price. Marketing mix strategy applied at NBB 2.2.1 Product NBB has used this principle to maintain a balance between the shareholders’ interest and customer service. They have a wide range of products/services on offer. They are engaged in providing retail and wholesale banking services, treasury and capital market activities and investment advisory services. NBB offers a wide range of retail banking products and services, designed to suit a variety of lifestyles. In the Business Banking Division, they provide a wide range of banking services to prime industrial and commercial companies in the entire Gulf region. They focus on the on the corporate, commercial, regional, corporate finance, trade finance and financial institutions sectors. To manage the banks liquidity and servicing the banks clients in the area of FX, FX Margin Trading, Deposits, Metal trading and Treasury-related activities, NBB has the Treasury and Capital Markets Unit. They also have highly successful and quality investment solutions tailor-made to the risk-return aspirations of its valued client base. They offer a wide choice in equity investments and investments in mutual funds. In offering these services, the NBB generates profits for it self by way of a service charge in some cases and by way of commissions in some. This contributes towards its profits growth and enables it to keep the shareholders’ interest in synergy with the customer needs. 2.2.2 Place NBB has the largest network in the country with 25 branches, 42 ATMs and over 2650 point-of-sales (POS) terminals (TAIB, 2007). It also has an overseas branch in Dubai. To build good relationships with customers, it is necessary to serve each customer in his preferred way. This requires management of customer knowledge, which can result in high-quality relationships. Bull (2003) states that the success of CRM depends upon the extent to which the customer relationship manager is familiar with database technologies like data warehousing and data mining. Customer management has become critical to success as customers increasingly use digital technologies. Effective leadership is important in this area as CRM involves business process change and introduction of new information technology. 2.2.3 Price Focusing the right employees on the right customers is critical to fulfill a CRM vision. To maximize the returns on investment, the manager would shift attention from attracting new customers to retaining existing customers (McKim & Hughes). The right strategy would be to spend less on unprofitable customers. The offerings should be based on the relative value of the different customers to the company. Such a customer relationship strategy is critical to attract, retain and cultivate. CRM is about identifying the best customers and maximizing the value for them by satisfying and retaining them (Ryals & Payne). Bull (2003) also agrees that customer retention affects the company profitability as it is more efficient to maintain an existing relation than to create a new one. 2.2.4 Promotion As a part of their promotional strategy and to enhance the customer experience, the branch staff have been empowered to respond to customer queries thus improving productivity and as well as service turnarounds. The System of Knowledge (SoK) facility provides information on new products, services, policies and procedures, making information available to branches on-line and minimising the need to physically refer to files. As part of training and development of the staff, they have an interactive tutorial that shortens the learning curve, thus strengthening service delivery. They spend on grooming and developing the employees to take up managerial roles. An environment of action and learning has to be created. This requires empowering the subordinates, giving them the freedom to act, to try out their own ideas and be responsible for their own actions (Galbreath & Rogers). This is often difficult for a customer relationship manager but being a rigid authoritarian can thwart the learning process. It would fail to harness the spirit, enthusiasm and knowledge through out the organization. The right environment of action and learning results in low attrition rates. To attract savings, they devise promotional strategies where they offer rewards under different saving slabs. The deposits at NBB are protected under the Deposit Protection Scheme established by the Central Bank of Bahrain. They have robust business strategies, prudent risk philosophy and sound risk management practices (Gulf Base, 2006). The net interest income increase is testimony to the expansion in bank loans and deposits. This proves that their promotional strategies are effective. While extending services to the customers, they are also generating income commissions from lending and trade finance activities. NBB also receives good returns on their own investments in managed funds and higher foreign exchange income. The income thus keeps the interests of the shareholders protected. The steady growth in loans and advances and customers deposits, improved yield on surplus liquidity deployment, successful interest rate gapping strategies and cost efficient operations have allowed NBB to propose a 40 per cent equal to BD25.9 million and a one-for-five bonus share issue (Rafique, 2008). They have been able to achieve this despite the turmoil in the global financial markets and liquidity crunch faced by the banking industry. Das (2001) concedes that there has been a shift in the management styles and administrative practices to survive and prosper against competition. A cohesive framework is essential to maximize organizational effectiveness. Yavas et al., assert that service quality is a critical measure of organizational performance. High service quality leads to customer satisfaction, loyalty, recommendation to others, reduction in complaints and retention of customers. McKim & Hughes report that CRM reduces operating costs, increases the propensity to buy, enhances the image of the customer and the company, adds value to the customer relationship and manages customer behavior to achieve profitable results. 2.2.5 Balance between shareholders’ needs and customer service The NBB has demonstrated through various strategies that it maintains a balance between the needs of the customers the shareholders’ interest. This is the reason that cash and stock dividend payouts for 2007 would amount to 60% and the bonus share issue is proposed through the General Reserve. This demonstrates that earnings have been high and the growth itself suggests customer satisfaction and loyalty. Through the right marketing mix NBB has been able to register growth and stability despite the volatile banking industry. It has a wide variety of products on offer; it is able to promote the products and services through trained and educated staff. The bank charges a fee for some services and generates income through commissions on others. This helps the bank to sustain itself. As far as place is concerned, it has a wide network all over Bahrain including the ATMS and POS terminals. Thus, it has been able to leverage the benefit, register growth and balance the needs of the customers as well as the shareholders. 2.3 Customer satisfaction 2.3.1 Introduction Customer service in the financial sector has evolved to a large extent in the last few years. The customers expect to be able to interact with their service provider round the clock through different channels of communication which voice to email, web collaboration and more recently, video. All the requests and enquiries must be attended to at the shortest possible time. 2.3.2 Training To attain customer satisfaction, the training and development of the employees has to be ongoing. In any banking environment, various roles are necessary to perform various tasks; each role describes the specific behaviour associated with given positions. Roles are standardized patterns of behaviour required of all persons playing a part in a given functional relationship, regardless of personal wishes, or interpersonal obligations irrelevant to the functional relationship (Katz & Kahn, 1978, cited by Das). According to Clinton et al., (1994), employees in the commercial banking industry require three basic areas of training and development in the TQM process – instruction in the philosophy and principles of TQM, specific skills training to learn the use of TQM tools, and interpersonal skills training to improve team and problem-solving abilities (cited by Vermeulen & Crous). There has to be an integrated approach to the instruction process. CRM manages knowledge for, from and about the customers. Knowledge for customers is generated in research and development and production. CRM manages knowledge transparency and dissemination of knowledge to customers. Knowledge about customers must also be transparent and its dissemination beyond the boundaries of the organization must be controlled. This knowledge can be transformed into competitive advantages and this is the responsibility of the customer relationship manager. Knowledge is expensive as knowledge explication takes time. Valuable knowledge from customers is gained at the service points and this requires analyzing the CRM processes. The role of the customer relationship manager exerts greater influence in utilizing this information for enhancing the sales. He must have the ability to use the customer information to the best advantage of the company (Ryals & Payne, 2001). This requires feedback mechanisms and controls to be in place. Marketing techniques like issuing certificates which need redemption is a sure way of attracting the existing customers. The customer relationship manager would ensure such a feedback and then create further segments of the existing customers based on their lifestyles, purchase patterns and preferences. As mentioned earlier, each customer has to be served in his own preferred way. Based on this information, communications can be customized. 2.3.3 Steps taken by NBB NBB offers online services and as a part of their ongoing strategy to improve their services, they commission surveys to obtain feedback regarding their services. Selected users are invited to participate in the survey focusing on a range of topics related to the users’ experience in using the services. To ensure an impartial assessment, the survey data is analyzed by a professional, independent research company. This feedback of customer satisfaction helps them to improve their services. They have a customer Feedback and Complaints form where they invite complaints which require resolution. Since their aim is to provide a positive experience to their customers, they invite feedback and suggestions regarding their products and services. They would like both positive and negative experience to be narrated so that they could still improve on their services. To strengthen the relationship with the customer they carry out checks and surveys. If a customer has once used the ATM, in a subsequent transaction, the call centre operator would check whether he had a satisfactory experience. It is thus the responsibility of the customer relationship manager to see that all relevant data about the customer is stored in a way that it is can be easily retrieved and used. Data of customers keep increasing but these have to be constantly collected, stored, analyzed and cleaned. The marketing professionals have plenty to gain from such data. Bose (2002) too agrees that information should lead to enduring management decisions and ultimately to higher customer satisfaction. This requires information about new product development, product changes, marketing mix factors, budgeting, scheduling and financing. All of these data need to be accurate, clean and organized but higher quality information may actually create poorer decisions. This can happen if the customer relationship manager does not have knowledge about the relationships among the variables. Hence the decision quality may degrade with higher information quality. Bose contends that training is essential both on the use of CRM and in the interpretation of information. Otherwise just pressing a few buttons could result in misleading information. NBB follows relationship banking blended with innovative new ideas and they work closely with the customers to develop their business and provide cost-effective solutions. The tailored solutions help in achieving business goals. They have innovative methods to promote their products to the target group so that the right information reaches the right segment at the right time. To maximize the returns on investment, the manager would shift attention from attracting new customers to retaining existing customers (McKim & Hughes, 2000). The right strategy would be to spend less on unprofitable customers. The offerings should be based on the relative value of the different customers to the company. Such a customer relationship strategy is critical to attract, retain and cultivate. CRM is about identifying the best customers and maximizing the value for them by satisfying and retaining them (Ryals & Payne, 2001). Bull (2003) also agrees that customer retention affects the company profitability as it is more efficient to maintain an existing relation than to create a new one. Keeping these factors in mind, NBB has introduced innovative awards program. This is meant to recognize and reward the customers whose complaints or suggestions lead to a process or service improvement in the bank (Ameinfo, 2004). This is a new channel that they have opened and it reinforces to the customer that the bank is committed to providing excellent customer service. This helps to improve service quality and delivery, increase customer satisfaction and loyalty, and enhance customer relationships with the Bank. They select two such customers every quarter and reward them with a special gift, an award certificate and a plaque in recognition of their contribution to improving service quality. Besides, a bank committee meets regularly to evaluate customers’ suggestions and complaints that have resulted in service enhancement or a reduction in turnaround time or an innovative and creative idea that led to improved or new products or services. 4.0 Conclusion & recommendations Even though the concept of CRM has yet to pick up in full swing in Bahrain, NBB has been using technology to enhance its services and provide enhanced service to the customers. To carry out all of their customer relationship activities, NBB ensures the use of information between the knowledge systems and the delivery channels. Strategies have been formed around the use of information in the day-to-day contact with the customers. They also ensure that technology and procedures do not interfere with the customer’s privacy and hence they trained the employees in all aspects of CRM and delivery of service. They are able to strike a balance between the interest of the shareholders and the customers by the right approach of marketing mix. 5.0 Methodology Only secondary data has been obtained through various methods. The details about the bank have been searched through www.scholar.google.com as it brings out academic papers. Academic journals have been used from Emerald while updated information about the bank has been obtained through search engines like Google and yahoo. Some details have also been obtained from their Bank’s website and/or dailies. 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