Catering to snowbirds has resulted in a higher than average number of products per client in that subsegment. And for RBC, that translated to a 250 percent increase in net income per client before taxes. Equally stunning is the 45 percent decrease in the defection rate among the snowbirds. Because acquiring a new customer costs RBC a projected five to 10 times more than holding on to an existing customer, Lippert says that a reduction in the defection rate adds significantly to the bank's overall P&L. The package has been so successful that the bank now offers a similar RBC Access USA package to other groups of customers, such as students and executives, who spend a lot of time in the US.
Although the snowbird subsegment turned out to be highly profitable, unearthing other subsegments may reveal that they are financial drains on the institution. When RBC uncovers unprofitable behaviour patterns, it looks for ways to more efficiently address those customers' needs. For example, the least profitable group within the preservers segment turned out to contain a number of Canadian retirees whose fixed incomes plummeted in value when interest rates fell and stock returns diminished. Because of the poor return on their investments, they were highly dissatisfied - as well as frustrated with the limited advice offered by financial institutions. Although unprofitable, they were valuable customers who carried twice as many products and services as the average preserver. It turned out they were keeping large balances in short-term guaranteed investment certificates (GICs, the Canadian equivalent of a fixed-term deposit) that they were rolling over instead of cashing in. And because they were good at negotiating higher rates when they rolled over their GICs, they were that much more unprofitable for RBC. So the bank developed a group of cash-flow model portfolios to offer these customers. The portfolios, which typically include mutual funds as well as GICs and vary by level of risk and expected return on investment, deliver a better return as well as tax breaks. The customers are happy because they make more money and get to keep more of what they've invested. And within two years, RBC has generated 21,000 new retirement-income plans and achieved a net growth of $US1 billion in account balances.
The Value of All That Slicing and Dicing
Companies that get the most from their segmentation strategies don't just pay lip service to the importance of segmentation, they organize their operations around addressing customer needs. At RBC, a senior manager with P&L responsibility manages each segment. In addition, RBC offers very specific, actionable data to customer-facing employees.
"Different people can interpret data in a different manner," says Lefebvre. "We didn't want to provide data that anyone would have to interpret. So we give them something very specific, such as: 'For this client, offer a pre-approved line of credit', or 'Call this client about a registered investment [The Canadian equivalent of the employer superannuation policy]'." So whether a customer dials in to the call centre, visits a branch or talks to a manager, she will be given the same offer because the employee who interacts with her will be prompted by the CRM system to do so. "Delivering data on a real-time basis to reps when they are engaging the client has a tremendous lift," says Lippert. "Some organizations are pushing home equity lines this month, credit cards next month. Our folks are asking clients about particular products that we have intelligence are the ones that those clients are likely to purchase."
By segmenting its customers to offer them targeted, relevant offers, RBC's personal and commercial division reached its goal of increasing revenue by $US1 billion. Since October 2003, client defection has also decreased from 8.4 percent to 6.2 percent, while the number of high-value clients has increased from 17.1 percent to 19.1 percent of the client base today. RBC also boasts a return on equity of nearly 25 percent.
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