CRM Implementation in HSBC

A CRM Case Study

Yuen Po Shan, Polly www.g-cem.org

Nowadays, quality service is the main goal for most of the business organizations in this challenging and fast changing commercial world. Customer satisfaction is one of the main concerns for them. An effective Customer Relationship Management could be able to help a company to compete in the market, acquire potential customers, retain profitable customers, lower operational costs, and finally bring in a profit. As the largest domestic bank in Hong Kong, HSBC adopted the Customer Relationship Management system in order to maximize customer convenience and provide anytime, anywhere and anyhow banking. Moreover, it is revolutionizing customer empowerment and beating its competitors in the market place. Company Background The HSBC Group, one of the world's largest banking and financial services organizations, had its beginnings in Hong Kong more than 130 years ago. Today, the HSBC Group has some 10,000 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East, and Africa. Globally speaking, at the Group's core lies domestic commercial banking and financial services, which fund themselves locally and do business locally. Highly efficient technology links these operations to deliver a wide range of international products and services, adapted to local customers' needs.

The Hong Kong and Shanghai Banking Corporation (HSBC) is the founding member of the HSBC Group. It is the Group's flagship in the Asia-Pacific region and the largest bank incorporated in Hong Kong. Known in Chinese as Wayfoong (which translates as "focus of wealth" or "abundance of remittances"), the bank is also one of the SAR's three note-issuing banks, accounting for more than 63.6% of its banknotes. HSBC provides a full range of personal financial and wealth management services in Hong Kong. These include HKD/USD currency and RMB/multicurrency savings accounts, integrated accounts, mortgage finance, personal credit services, hire purchase and leasing for motor vehicles, term deposits and credit/debit cards, financial planning, investment services such as unit trusts, bonds and certificates of deposit, local and overseas securities, broking services, Mandatory Provident Fund investment options, and insurance. Services are distributed through channels such as HSBC's ATM network, internet banking service, 24-hour phone banking centre, more than 20 Mortgage Advice Centers providing customized advice seven days a week, and a network of over 180 branches and offices. At the end of April 2004, online@hsbc, HSBC's internet banking service, was being used by over 700,000 customers. Define The Best Customer By performing customer segmentation, the company can make resource planning effectively and efficiently. Precise customer segmentation requires a huge amount of customer information and sales figures for analysis. To perform this, the company has to categorize its existing customers into active or inactive accounts. In addition, company should capture both the Prospectives whom the company's sales team has information on and communications with and the Possible customers with whom the company does not have direct communications. The customer pyramid model is one of the helpful tools for performing customer segmentation. It is the foundation of the 3C method. Below is the typical Customer pyramid which contains

customer groups of Top, Big, Medium, Small, Inactives, Prospects and Suspects.

HSBC Personal Banking categorized customers by their "Total Relationship Balance". To make it simple, it is the total amount of money flowing between the bank and the customer, including money deposits, investments, insurance, etc.

From the above Customer Pyramid, the customer categories of HSBC Personal Banking are as follow: 1. Top - this is the customer segment the customers of which are those who have a total relationship balance of over one billion Hong Kong Dollars. They are HSBC's Premier Customers, and are the top 5% of highly valuable customers of HSBC Personal Banking. 2. Big - this is the customer segment of those who have a total relationship balance of over one million Hong Kong Dollars. They are HSBC's Premier Customers as well and are in the next 15% of highly valuable customers 3. Medium - this is the customer segment of those who have a total relationship balance of over twenty thousand Hong Kong Dollars. They are the PowerVantage Customers of HSBC. They are the largest group amongst the customer segments, and make up 60% of HSBC's

Personal Banking customers. 4. Small - this is the customer segment of those who have a total relationship balance below twenty thousand Hong Kong Dollars. They are the normal customers of HSBC Personal Banking. 20% of HSBC Personal Banking customers fall into this segment. 5. Inactives - those customers whose account status is "Dormant" or "Closed". Accounts with a dormant status are those accounts that have not been in operation for a long period of time, say 2 years. Accounts with a closed status are those that have been formally closed by the customers. 6. Prospects - those customers who are using HSBC products other than Personal Banking, such as Corporate Banking. The bank has some data about them, and has already established communications with him/her through their use of that product. 7. Suspects - the customers of other banks. HSBC has collected some data about them, but has not yet established communications with them. As is the case in this fast changing and dynamic financial world, changes will occur due both to local and global factors, and the above figure of "Total Relationship Balance" in defining the customer segments should be changed accordingly. Therefore, it is suggested that the above segmentations should be done on a regular basis. Customer segmentation can also allow for more in-depth analysis of customer performance to point out where those 20% of profitable customers are located.

According to the customer pyramid of HSBC Personal Banking, the customer groups for Top, Big, Medium and Small have been figured out. However, in order to find out their profitability, there are some more customer value parameters that have to be looked into. . High profitability, multi-product packages usage - There are many personal banking products at HSBC. Investment and insurance are classified as high profitability so that HSBC will try its best to cross sell and up sell for its customers to buy more. On the other hand, money deposits are one of the low profit products. . Transaction amount per transaction - Transaction amount per transaction is the amount of money involved in every single transaction. If a customer always has a high transaction amount per transaction, the relative operational cost for serving that particular customer will be small, which means he or she is more profitable.

. Relationship over time - Relationship over time can show the levels of customer loyalty. The longer a customer stays with HSBC, the higher the level of customer loyalty that can be attributed to them. . Referral record - Referral record is concerned with the number of customers that are brought in by an existing customer. It also pertains to the willingness of the customer to refer HSBC products to his/her friends. Now, we can derive the customer profitability grouping as follow: 1. High profitability customers - they are the customers in the Top and Big categories. They use the high profitability, multi-product packages. They have a high transaction amount per transaction. They have a long relationship over time with HSBC. They have plenty of referral records. 2. Sustainable profitability customers - they are the customers in the Medium category. They use the medium profitability, multi-product packages. They have the medium transaction amount per transaction. They have a relationship over time with HSBC but not for very long. They have some referral records. 3. Negative profitability customers - they are the customers in the Small category. They seldom use the high profitability, multi-product packages. They have a small transaction amount per transaction. They have a short relationship over time with HSBC. They seldom have referral records. One of the main purposes of implementing a CRM program is to retain the profitable customers. Customers are only retainable when they are loyal to the products and services provided, and are satisfied with the features of the products, and the prices of the products and services offered. Below, by using Customer Experience Management, HSBC is going to retain its Personal Banking customers, especially the high profitability customers, by finding out and fulfilling their critical needs. Define the Best Experience A loyal customer is a good customer. There are two Customer Relationship Management principles about customer loyalty, customer satisfaction and customer experience: . Only very satisfied customers will be very loyal to a company. . Customer Satisfaction equals Customer Experience minus Customer Expectations. From the above two principles, customers can become very loyal if they are very satisfied. And, customer satisfaction can be achieved if they offer a better (i.e. higher level of) customer experience or meet with low customer expectations. As customer expectations are more or less uncontrollable, increasing customer satisfaction by increasing the quality of customer experiences is a big topic in Customer Relationship Management. By performing the Customer Experience Management (CEM), the company can find out the critical needs of and decisive stages in dealing with the customers, make resource planning, marketing, as well as company strategies effectively and efficiently. Under CEM, customer critical moments are defined accordingly under each part of the customer process cycle, which are the PRE-purchase/consumption, AT-purchase/consumption, and POSTpurchase/consumption. Each customer process cycle will have its own customer multi-channel touch points, and for simplification, they are grouped into "Physical Touch", "Call", "Internet" and "Others". Here is the CEM critical moment spreadsheet which lists the critical moments of HSBC Personal Banking customers in their customer process cycle of Pre-Purchase, At-Purchase and PostPurchase:

In the Pre-purchase Phase, there are eight customer touch-points, which include: . . . . . . . . . Customer Service Center - Financial Analysis On-site service - Financial Analysis Events - Exhibition Inbound Calls - Call for Enquiries Outbound Calls - Tele-Marketing Inbound Email - Email for Enquiries Outbound Email - e-Marketing Portal - FAQ session Advertising - Image Building

In the At-purchase Phase, there are ten customer touch-points, which include: . . . . . . . . . . Branch - Make Transaction Customer Service Center - Customer Package Upgrading On-site service - Contract Signing Events - Sales Road Show Inbound Calls - Place Order by Phone Outbound Calls - Tele-Sales Inbound Email - Make Transaction by Email Outbound Email - e-Sales Portal - e-Banking Advertising - Invitation to Use the Service

In the Post-purchase Phase, there are nine customer touch-points, which include: . . . . . . . . . Branch - Customer Enquiries Customer Service Center - Customer Enquires On-site service - Financial Review Events - VIP Gathering Inbound Calls - Call for Complaints Outbound Calls - Follow-up by Phone Inbound Email - Email for Complaints Outbound Email - e-Follow-up Portal - DIY services, e.g. customer information update.

Due to the different needs of customers in their Pre-purchase, At-purchase and Post-purchase,

customer critical moment will be different in every customer process cycle. For HSBC Personal Banking, the critical customer moments are Financial Analysis for Pre-purchase, Making Transaction for At-purchase and Customer Enquires for Post-purchase. PRE-Purchase Financial analysis in a customer service centre or as an on-site service - The most important mission in the customer PRE-purchase process is to attract new customers. In HSBC Personal Banking, financial analysis is an effective way for asking customers to buy the bank's product. So, it is regarded as the critical moment for the potential customers, which are still only a prospective ones at this stage. In order to serve the potential customers, HSBC Personal Banking employs many professional financial planers. Together with the internal training in customer service, banking service and investment knowledge, they are all well equipped in their own position. AT- Purchase Making transactions at the branch - Among all of the banking services, making a transaction is always the most critical service from the point of view of the customers. Customers expect that they can make and complete their transactions within a short period of time and in a convenient way. Once identified as a critical customer interaction point, the customer satisfaction levels in this specific area should be analyzed. With a network of over 180 branches and offices throughout Hong Kong, HSBC believes that the location of their branches are convenient enough for every single personal banking customer to reach within a short journey. However, due to the large numbers of its customer base, HSBC's Personal Banking service cannot meet the customers' need for "fast" service all the time: there are always long queues at HSBC branches that keep customers waiting for over 30 minutes. After considering the costs and effectiveness factors against the customer satisfaction factors, instead of opening more branches HSBC decided to improve this critical customer interaction moment in the following ways: 1. Dividing customers into customer groups, serving them separately according to their needs and value to the bank (similar to the customer segmentation of the previous section). 2. Changing general service branches into service centers for specific functions, for example, HP Centers, Mortgage Advice Centers, Day and Night Centres, etc. 3. Enhancing the automated channels which include the ATM network, internet banking service, 24-hour phone banking centre, etc. POST-Purchase Customer enquiries to the customer service centre or from inbound calls - It is understandable that customers need professional advice and assistance in their banking/financial service. So, at HSBC Personal Banking, customer enquiries are considered the critical service moment for customers in the Post-purchase customer process. For customer enquiries to the customer service centre, as mentioned in the At-purchase process, there are dozens of Day and Night Centers in Hong Kong to specially deal with customer enquiries. For the inbound customer enquiry calls, once again by considering the costs and effectiveness factors against the customer satisfaction factors, HSBC is moving its customer call center to a lower cost city, such as Genzheng, China.

Rollout After finding out about the best customers, and about their customer experience (critical moments), Customer Relationship Management is ready to undergo implementation by working together with the other four Customer Relationship Management factors, which are strategy, people, process and technology, a company-wide kick-off should be made by the top management of HSBC. Feedback Mechanism Having a tailor-made version of the CRM 3C Method that is best suited to the latest company conditions is essential as it will directly affect how successful the Customer Relationship Management can be. Therefore, adopting a good feedback mechanism, repeating cycles of running the implementation, and making adjustments, are all essential steps. Conclusion In this paper, we have simulated the implementation of Customer Relationship Management at HSBC Personal Banking by using the CRM 3C Method, and we have used Customer Segmentation and Customer Experience Management to explain how it works in the Personal Banking of HSBC. We can see that it (the 3C Method) works well. In the circumstances, it is really what HSBC Personal Banking is doing and planning to do now. However, of course, Customer Relationship Management in the REAL business world is much more complicated. More analysis and calculations should be involved in the various processes. As mentioned in the very beginning, there are five elements in a Customer Relationship Management implementation; they are customer, strategy, people, process and technology. Although this paper has focused on the Customer, it is good to always bear in mind that all of the other four elements are important as well. Successful Customer Relationship Management cannot be done without anyone of them.

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