A new approach to multi-channel strategies in financial services.
In today's competitive environment, customers are in full control of their relationship with their financial service providers. "Always on" access to information through the branch, call centre, Web and the mobile channel is turning financial products into commodities.
To compete, financial institutions must now realise that channel management is much more than a simple organisational enabler. Companies that create a robust strategy, migration plan and integrated multi-channel processes with a customer-focused approach can turn their channel management efforts into a key differentiator.
The channel management evolution
Financial services providers must evolve their business strategy to include channel management as an active part of the value proposition to their customers. A smooth, personalised and seamless multi-channel experience provides two benefits. It improves the customer experience and has a direct impact on the bottom line.
Smart companies are reconsidering multi-channel management as a tactical element to their overall business strategy. In order to understand the dos and don'ts of multi-channel management, one must understand the fundamental dimensions and components of channel management.
The graphic opposite depicts the three main dimensions of channel management.
The strategy dimension involves the activities related to decision-making on the ideal multi-channel state and channel functions. The migration dimension focuses on understanding the needs of customers in each segment and then designing the right channel mix to encourage migration activity that will increase profits and customer satisfaction. The management dimension incorporates the implementation of the proper multi-channel strategy with a sound organisational structure.
These processes must be measured to ensure that each channel is creating the desired outcome in terms of profits and customer engagement.
Financial institutions should consider each of these dimensions from a strategic standpoint. Do they improve the customer experience? Are they relevant to the overall strategy of the institution? Are they cost effective? Do they help retain customers? There is no ideal approach for each of these practices. However the first step is to begin asking the questions with a team of executives across all of the channels and functions within an organisation.
A focus on the migration dimension:
While all three dimensions are equally important, in this article we will focus on migration. Migration of customers to direct, so-called "low-cost" channels has significant benefits. However, it also can pose significant risks.
Opportunities for migration to low-cost channels may actually destroy customer value if implemented incorrectly because they can negatively impact the customer experience.
During the first stages of the internet boom, some institutions tried to move their customers to the internet by preventing them from using the branches via disincentives. In most cases the customers were directed to alternative channels.
However, these channels were not able to provide some of the services provided in the branch. The organisations ultimately reversed these push-migration tactics after facing a serious customer backlash in terms of increased churn and customer complaints.
To avoid making these costly customer experience mistakes, companies first need to understand their customers' needs and behaviours and then review their internal capabilities.
Understand your customer
Customer segmentation must be the starting point of a multi-channel migration strategy. In most cases, a three-pronged segmentation - based on value, needs and behaviour models - allows institutions to understand their customers and customise channel offerings accordingly. While designing the multi-channel strategy, the value segment of a customer determines the tactics for increased profits, while behaviour and needs draw the boundaries for these tactics.
Develop cross-channel customer journey scenarios
To develop a successful migration strategy, an enterprise must have an understanding of their customers' real-life channel experience. We recommend developing simulated scenarios for key customer segments. The figure overleaf demonstrates a sample scenario development methodology.
Understand internal cost and revenue structure
A majority of migration decisions are based on the assumption that direct channels such as the internet are less costly than traditional channels. However, for most institutions, working out the true cost of each transaction by channel is a daunting task because it is difficult to allocate overhead accurately to each channel. Legacy accounting practices make it impossible to work out the real activity-based cost structure by transaction type and channel.
In a recent consulting engagement, Peppers & Rogers Group worked with a large commercial bank with complicated legacy accounting systems.
The client reported that most transactions taking place at the call centre were more costly than those at a branch. Logic tells us that this is inaccurate. However, the legacy accounting system says otherwise.
As a result, the data provided by the accounting system was disregarded and a new cost calculation had to be made with some assumptions.
This example makes it clear that institutions, in order to design a sound multi-channel strategy, must understand the current cost and revenue structures and even make revisions if necessary before deciding to migrate a group of customers to another channel.
Understand your channels' capabilities
Before deciding on a migration strategy, executives must make sure that the targeted channel for migration provides at least the same capabilities as the original channel.
The organisation must analyse each channel according to functionalities in terms of interface-related capabilities like ability to receive input, provide output and system-related capabilities like presenting information, providing guidance, and cultivating timeliness.
It is also critical to understand the strengths and weaknesses of the various channels. For example: branches lack timeliness but do everything else well; phone agents provide personalised service but data ends up in silos; phone self-service is not flexible but is very quick.
You don't have to do it all at once
The process of managing the multi-channel customer experience can be daunting if you try to do everything at once. Start by focusing on where you can make the greatest impact. Implement pilots as a way to test a strategy before making a significant investment across the entire enterprise.
© Gulf Marketing Review 2010
