A distribution and a customer service strategy in the financial services

ACHIEVING THE OPTIMUM DELIVERY MIX – A DISTRIBUTION AND A CUSTOMER SERVICE STRATEGY (*)


Good afternoon, Ladies and Gentlemen. It is a pleasure to be here. In fact, it is the first time I am coming to Argentina.
It might be pure common sense to say this. Everyone will tell this everywhere. But, you know, the Portuguese have soon liked to travel, to go far away and contact new lands.

In the 15th century we began to travel by sea, and in the 16th century we have reached Africa, Brazil, India.

"It is in our blood"-as we use to say-the will and love to travel.

I must tell you that, there might be a danger when someone comes from abroad, some thousand miles away, and begins to talk about market environment and conditions, marketing and banking management.
In fact, each country faces a different reality. Environmental, policies, behaviors, expectations, customer needs, have certainly specificities that are generally linked with different traditions and history.

Although, having been invited by the Lafferty Group, I gladly accepted.
Firstly, for me it is always exciting to face new realities, learn from different experiences.

Secondly, financial markets have been crossing, all along the last two decades, a way of liberalization and deregulation and, in the end, # do frontiers still exist with the actual level of information and technology ?

Thirdly, the "books" are always the same, whether in Europe or in South America, and so are basic theories and eventually best practices.

In the fourth place, I believe that the kind of changes I have experienced, in a way, have happened, are happening or will have to happen, sooner or later, in any financial institution.

So, I hope that even if my comments will be able to give, just a little help, to any of your banks, I will leave the country with my mission accomplished.


INTRODUCTION
The Portuguese banking system was nationalized in 1975, following a political revolution in 1974. So, in exception of three small foreign banks, all the banks in the market remained state-owned until 1986. Interest rates were administratively fixed by the Central Bank, exchange rates were controlled, and the scope of banking operations was practically designed by the government. Little room for competition was left In that environment, anyhow, banks were left with comfortable financial margins, and those who minimized risks, had a careful management and were able to maintain a sort of private management, would perform quite successfully, as my bank did.

In 1986, when Portugal became a full member of the European Economic Community, now the European Union, all the legislative and administrative environment began to change.
The basis for a new field of competition was launched in the financial industry!

The Government, ever since, has been developing a huge privatization program, and Portuguese banks began to be re-privatized in 1990.

In the last seven years, new Portuguese banks were incorporated and some of the world big names started their operation in the country.
The opening of the market has created a completely new scenario of real competition among those that were in the business for decades- but generally had heavy structures and too much white-collars- and the well-equipped newcomers, with quite well trained personnel.

So, for us, in the middle of the eighties some of the greatest challenges were:
- HOW TO TAKE ADVANTAGE OF BEING IN THE MARKET FOR 100 YEARS?
- HOW TO TAKE ADVANTAGE OF, EVENTUALLY, HAVING A CONFORTABLE MARKET SHARE?
- HOW TO BENEFIT FROM HAVING A GOOD BRANCH NETWORK?
and,
- "HOW TO INTEGRATE A SERVICE CULTURE INTO OUR ORGANIZATION?"
- "HOW TO IMPROVE CUSTOMER SERVICE? AND WIN MORE CUSTOMERS?"

All along the year of 1991, we began to feel at the bank that, although Banco Espirito Santo was one of the most important, healthy and recognized bank in the Portuguese market and even abroad, we had to react rapidly, in order to fight with the increasing competition and to keep, and eventually grow, our market share.
For years, banks waited their customers to go into their branches, or eventually sent representatives to some companies hoping, in a not very active way, that a deposit would be made or a loan could be granted.
Although, the eighties brought up new products and services and customers began to demand a new approach from their traditional banks.
Banks began to realize that the way to survive was to act in a very proactive way, finding their real customers' needs and even anticipating them, in order to launch products and services that would satisfy and give solution to the different cycles of their customers' life.
Start-ups, investment, production and treasury cycles, in enterprises. Consumption, saving, leisure and credit needs, for individuals.
In the meantime, and I mean in Europe, where in most countries law allows banks to be universal, branches became a global distribution channel and managers found good opportunities to develop cross-selling activities.
Clients were there!
Why not profit from it, and develop contacts, with real and/or potential customers who had always had a good image of their bankers?
Banks soon realized it, and even more did insurance companies! So, it looked like the secret was to find out how to take advantage of this positive position. The answer was simple enough: to strengthen relationship with customers.
And how? Through cross-selling programs and overall quality projects in order to improve customer service.
And how could we proceed with these objectives?
That is exactly what I am going to try to elaborate giving, notwithstanding, my experience, what I think could be put into action in any bank, facing the same problems and targeting the same objectives.

STEP 1: DEFINITION OF STRATEGIC OBJECTIVES
This should really be the first step of any project, namely the one I have experienced.
The general objective was to develop a new concept of an integrated customer service and quality program, differentiating the service provided by our bank.
We have also defined as specific objectives:
-To create a customer friendly branch environment;
-To develop client segmentation at the branch;
-To integrate planning, marketing (merchandising, segmentation, promotion) and sales;
-To intensify cross-selling.

STEP 2: INTERNAL DYAGNOSIS
The second step is to make an internal evaluation on how the level of the bank’s service is understood by the ones that provide the service, I mean, the employees of the branches.
It is an interesting step because one can find out and even measure the profile of competences of the personnel and evaluate internal strengths and weaknesses, problems and solutions.
This analysis, which is supposed to be participated by all the members of the branch, also helps to discover the different profiles of each employee and the possibility of recon version.
One can expect that such an analysis will lead to conclusions like:
-The need to develop polyvalence of the employees of the branch;
-The need to intensify team work;
-The need to simplify administrative circuits and to concentrate on selling actions;
-The need to develop training programs in order to increase expertise and motivation.
A survey conducted, in 1992, by an independent consultancy firm, on behalf of the European Finance and Marketing Association (EFMA) revealed that:

-Bank representatives devote less than 50% of their time to commercial contacts, that is to say, to sales; Their commercial efforts are especially directed to existing clients;
-An important part of the clientele is rarely contacted;
-In some European countries (like France, Spain, Germany, Great Britain) commission-based salaries or annual rewards are used as sale incentives.
Just for the sake of curiosity, and at the same time showing an Europe of contrasts, the EFMA
study concluded on the ideal profile of the staff of a branch designing an efficient bank's representative as the one that:
- devotes the same amount of time to commercial activities as a French does (around 60% of the time);
- manages a portfolio the way a German does;
- prospects like a British;
- makes as many contacts as a Spaniard;
- has the same access to information technology and commercial tools (segmentation) as a French;
- has the commercial animation system of a British or a French.
Another survey, also made last year in the United States by the Advisory Board Company, an independent association of banks all over the world, stated on the need to create sales opportunities, concluding that "many branches rely on the flow of natural branch traffic, managing "order-takers" rather than true salespersons".

STEP 3: EXTERNAL DYAGNOSIS
It is absolutely crucial to study how the banks' customers see their own bank, which are the clients expectations and what suggestions do they have to improve the service provided. In order to achieve this goal, quantitative and qualitative studies must be done.
In our evaluation we found out that 50% of our clients came, at least, once a week to the branch, and the remaining 50%,once or twice a month.
Considering the objectives of their visit, 85% of them came to make a simple deposit in a current account or to write a cheque.
The results of the external questionnaire told us that these clients expected the banks' service to be provided with:
- Speediness
- Sympathy
- Competence.
Important reasons to choose a bank were also, the geographical localization (proximity), word-of-mouth and competitiveness of rates.
Company managers give a great importance to the availability of products, the ability to provide taylor-made services and the expertise and know-how of the employees.
In consequence, we concluded that:
-We had to make externalization efforts, in order to turn simple operations into quick contacts with the bank.
With this objective we have developed an internal automatic area, where simple operations could be rapidly done.
-This automatic area had to be transitional, to facilitate contacts with the internal staff, should our clients require any information, and also to allow us, by means of a merchandising system, to "attrack" them into the branch;
-We expanded the deliverance of debit cards, under the principle one customer/one card, in order to promote automatic operations, inside the bank and at P.O.S.;
-We continued to develop home and office-banking services, specially for corporate customers;
-We have initiated direct sales, at first, by mailing and, afterwards, by telephone.
-We had to transform an organizational system with a traditional operational focus into a market-based organization, with a segmented distribution network, namely:
* Retail Business(individuals and SME's)
* Private Banking
* Corporate Business
-We had to make the most of our customers' visits to the branch, I mean to try to cross-sell them our products.
This simple word sell, really meant something new to a bank some years ago.
How could a typical public-service, sell products?
Surely, this was the threshold of a new era for the banking business!
And so it was... In fact, we were talking about an enormous change... in settled practices, in attitudes, in employees' behavior...
And once more, the question was simple to answer:
-To evaluate customer needs
-To look into our offer
and, to search for the products and the level of service that, would give an answer/satisfy the needs of our clients and could have a positive effect on our P.& L.

STEP 4: TO DEVELOP A CONCEPT OF CUSTOMER SERVICE
It is absolutely necessary to develop a concept of customer service based on differentiation and quality. A well-made definition can be the basis and give the guidelines to build a new organization system leading to a both-sided satisfaction process: customer satisfaction and employees' satisfaction.
The customer service concept was defined as the means used by the bank to answer our customers' needs and expectations, creating a friendly environment inside the branch, based on our corporate image and cultural values, in order to facilitate a business relationship with our customers.

STEP 5: SECTORIAL IMPLICATIONS
An integrated management of a customer service concept shall take into account the following elements:
-Objectives of the Bank
-Reception
-Logistics
-Organization system
-Information system
-Capabilities and expertise of the employees
-Leadership
So, one has to consider that it is really a global and interactive process, with consequences all over the bank.

STEP 6: PROJECT ORGANIZATION AND MANAGEMENT
Any project needs to be managed, and definitely a process of change like the one facing the introduction of a service culture, needs a special and careful management.
Most of all, it is really necessary that all the organization understands the senior management commitment to the success of such a project. We came to the conclusion that we had to engage most of the bank departments namely, marketing, commercial, human resources and EDP.
In consequence, a Steering Committee was put in place with all the departments involved in the project, coordinated by the Marketing Manager and with the presence of a member of the Board.
A Permanent Coordination Committee, also led by the Marketing Manager, assumed the necessary current decisions, such as lay out changes, training programs, EDP developments.
The third level and, eventually, one of the most important, is the management of the branch, covering the team coordination and animation, putting in action local commercial strategies and controlling performances.
It was found extremely useful to develop in-branch permanent training, rotating tasks among the staff and the promotion of every day meetings, in order to evaluate the previous day's performance and to establish actions for the new-coming day.

STEP 7: BRANCH ORGANIZATION AND LAY-OUT
It was felt that if we wanted to sale products in the branch we had to transform it into a real selling point, to satisfy and give an answer to the customers' expectations and needs.
In consequence, some measures had to be taken in order to:
-develop a flexible organization model envisaging polyvalence and multifunctionality.
-organize the staff of the branch around a model of team work.
-develop a type of organization based on a double concept, of sales team and back-office support staff.
-develop an external team of bank promoters with the objective of getting new customers and post-selling assistance to the branch's customers.
-develop a service culture, not only at the level of the branch, but also at the level of the central services.
-establish a sales planning process.
-organize the branches in accordance to the new concept, dividing each branch into three differentiated areas:
-AUTOMATIC AREA
-GENERAL SERVICE
-PRIVATE SERVICE
These well-identified areas are divided according to the types of operations and can be chosen, by the decision of a customer, or employees' suggestion depending on the type of service requested by the client.
A merchandising system is used to help the integration of products and services information; to rationalize and organizes in-branch traffic; support the development of the corporate identity, and product promotion.

The main characteristics of each area in which a branch is divided are:

- AUTOMATIC AREA
-Transitional area, at the lobby of the branch, which can be opened 24/24h.
-Equipped with Automatic Teller Machines.
-Possibility of making different kinds of operations without human intervention.

- GENERAL SERVICE AREA (Pre-selling)
(Quality, simplicity and quickness)
In this area, general, simple and quick operations are provided as, for instance, those made by traditional tellers. Staff working in this area is expected to make pre-selling efforts as to promote products and services, and to explain the characteristics of the products which are, at the moment, being promoted through the merchandising system or media campaigns.

- PRIVATE SERVICE (Consultative Selling
(Privacy, Availability of information)
First contacts of newcomer customers are made in this area. The act of opening an account is really the first step, and one of the best opportunities, to the possibility of providing a global offer of products and services, and so to develop cross-selling efforts.

Employees are trained to provide detailed information and consultancy on services and to make all the operations required by the customers, over the principle one client-one contact.
In two words, the main tasks are to keep and retain existing clients.

EXTERNAL SERVICE (Prospective selling)
(Extension of in-door organization)
Commercial external delegates are responsible for market prospection and for outdoor efforts of promoting and sale products and services.
The main tasks are to search for new clients and to assist the existing ones, namely professionals and SME's.

STEP 8: TO DEVELOP A TRAINING MODEL
The establishment of a training model is, eventually, the most important step in a process of change, and mostly in a process of introduction of a sales culture, of a really service culture.
Some particular objectives must be achieved:
-To change attitudes and staff behavior.
-To promote and build a team work.
-Introduce the concept of quality.
-Introduce the concept of sale.
-Specific training on products and services, not only on technical subjects, but on sales arguments and techniques.
It is important that the sales team knows deeply the offer of the bank. I mean offer and not only the knowledge of each product or service. In my opinion, it is crucial that the offer of the bank shall be structured around some concepts, if possible on a matrix-based system, considering the customer's financial needs, the segmentation of the market, and the typical moments of contact with the clients. To give an example, which is the offer of the bank that can be sold to a client when he comes to open a current account? Which are the products that the bank can offer to satisfy the need of saving?

-Specific training on sales support instruments.
Having these objectives in mind, a complete and detailed training program was established, covering different levels of responsibility, as bank clerks, promoters, branch and regional managers and even information sessions have been provided to central managers and to the executive board of directors.
An initial training package covered, among other subjects, sales techniques, the development of leadership behavior, the ability to work as a team.
All along four to five weeks, the branch staff worked in several teams, in order to strengthen interpersonal relationship, through simulated new environments. Apart from traditional methods of training, outdoor programs were established in order to create totally new environments, and to motivate people to the need of changing practices and attitudes.
We have also concluded on the need to maintain permanent and constant training activities, with self-training developments, even on a post-laboral basis, in order to keep the team up-dated with new products and services that were launched.
We have also found most useful to produce Marketing Manuals of each service launched by the Bank. In these manuals, beyond the technical details of each product on service, one can find the targeted segment and the main sale arguments concerning the product.

STEP 9:TO ESTABLISH A GOOD COMMERCIAL MANAGEMENT
One of the key factors of success is definitely the commercial management of the branch.
Having so in mind, we have established a careful commercial planning system, aiming to organize the overall activity of the branch.
Taking the environmental objectives and the global commercial policy of the bank, we have established quantitative targets of sales.
Each branch has, in consequence, to draw its own commercial action plan, considering the different priorities, as far as segments, products and staff are concerned.
Priorities of contacts are established, through an analysis of our customers' database. Then, product and cross-selling targets are established, in order to achieve the quantitative targets of the branch.
Branch transference ratios among the different areas of the branch are also fixed, so as to organize pre-selling and selling activities, and to create a global commitment and motivation to sale.
Each employee, or should I call salesman (?), has each week to fulfill contact targets and, inconsequence, a certain and quantified level of contacts must be successful.
When I talk about success I mean sales or, at least, some positive information on the possibility of a future contact. A track record of this commercial action will immediately be registered on the customers' database, through the EDP system.
Team coordination and animation is held by a commercial coordinator who shall really be a sales manager.
Leadership is another of the key elements of the project. Any program facing such a cultural change in an organization, needs a good deal of leadership and motivation of the branch manager.

STEP 10:TO ESTABLISH A SALES PLANNING PROCESS
To organize a sales force, it is necessary to establish a sale concept, based on the opportunity of a contact with a customer to be transformed into a transaction.

This contact can happen by customer's own will or by initiative of the bank.
In the banking industry, it is important that the act of sale will be the beginning of a relationship with a client.
So, the development of arguments on how to negotiate, argue and persuade to buy a product, should be, at last, understood by the client as a possibility to satisfy a certain need.
A retained customer is typically the one that feels his bank is selling him products and services he really needs, and not a product that he has, by any means, been pushed to buy.
In order to target the adjusted product to the exact customer, a management information system will give the support for the segmentation and definition of profiles.
A sales planning process will be needed to organize and quantify contacts with customers, and to measure the accomplishment of sales objectives.
A permanent follow-up of commercial action will allow the staff of the branch to evaluate its financial performance.

STEP 11: TO ESTABLISH A PERFORMANCE MOTIVATION SCHEME
Internal motivation can also be increased by means of a performance-based criteria which transforms each individual result, linked with the achievement of global profitability and productivity targets, into an annual premium (money, travel facilities,etc.).
Some countries have put in action commission-based salaries or bonus systems, trying to increase staff motivation.
These bonus are generally given to branch staff who are directly linked to sales.
We came to the conclusion that a bonus system also covering back office employees would help to increase the overall motivation of staff.

STEP 12: TO MEASURE THE DEGREE OF OUR CUSTOMERS' SATISFACTION
At the beginning of my exposé I have said that the main objectives of our project were to increase the degree of our customers' and our employees' satisfaction.
In order to reevaluate periodically our customer service program, we have established regular surveys to allow us to measure its degree of success.
As our bank, as a universal bank, has products and services available to all sorts of customers, we have been trying to evaluate, on a segmented basis,the perceived level of service, in order to compare it with the objectives of the project and the need to introduce any changes that can be felt as important by our customers.
If any conclusions can be taken,from mypaper I would say that, if one bank wants to integrate a service culture, improving customer service in its own organization, the main elements it will have to deal with, are:
-TO DEVELOP A TRAINING MODEL, BASED ON SALE TECHNIQUES.
-TO ESTABLISH AN EFFICIENT COMMERCIAL MANAGEMENT OF THE BRANCH.
-TO ESTABLISH A SALES PLANNING PROCESS, MEASURING CONTACTS AND FINANCIAL PERFORMANCE.
-TO ESTABLISH A PERFORMANCE MOTIVATION SCHEME.
-TO CREATE AN INTERNAL PROMOTION ENVIROMNENT, THROUGH AN INTEGRATED MERCHANDISING SYSTEM AND A FRIENDLY LAY-OUT AT THE BRANCH.



SEGMENTING DISTRIBUTION - The delivery mix


Theory and, I think, experience has been proving as necessary to segment the distribution channels.

In fact, if we consider that each homogeneous group of customers - I mean segment - has its own needs, tastes and behavior- as far as financial services are concerned- we easily come to the conclusion that a customized set of products and services, a special distribution channel, an identifiable sort of communication, are needed.

We are certainly talking about a specific marketing-mix for each specific group of customers If we want to create value in our services, we need to segment our customer base.

Banco Espirito Santo has been, since its foundation, a universal bank, with no specific channels to deliver its products to the different segments, apart from traditional branches. But,as I previously said, in the middle of the eighties, with the opening of the market and deregulation in the financial industry, the global environment began to change.

Increased competition and new needs began to justify a different market approach.

Finally, privatizations moved the way to new changes.

As a universal bank, BES has been serving all sorts of customers, from retail to high affluent, from individual and small to big-sized companies.

We understood that if we wanted to keep the bank as one of the most profitable in the market, we had to change. And so we did...

Different solutions could be taken into account. We thought, and we think, that our large customer base and all our branch experience along the years had built a real goodwill that had to be preserved. Basically, we kept our branches providing a global

service. But, to improve the level of service we had to specialize and train those who were dealing with the different sort of customers.

And so, considering corporate customers, we created a specific division with a specific channel to deal with corporate business.

Small and medium-sized companies continued to deal directly with the branch management.

As far as private customers are concerned, we launched a private banking channel, a service to high-income individuals and we specialized and improved the service through our retail branch network.

At the moment, we are launching a telephone-service network to those who, in spite of their level of income, need to accede fast services and do not exactly need to go, personally, to their branch.


This move is also a part of our externalization program. We have been making an effort to externalize out of the branch, banking operations that can be automatised, in special lobbies in each branch, by telephone or by personal computers in the customers' premises.


We are trying to keep, inside the branch, added--value services, but we are still "in the middle of the way".

Our approach is really customer-based. We understood that, nowadays, customers have lesser time or do not want to spare their time in banking queues. If they need a special, financial or fiscal, advice they do not mind to go to their branch and talk to their account manager. But if they need to make their basic banking operations, they do not want to take a long time and, eventually want to go to an ATM or use their phone or computer.

So, in a few words I tried to tell you the experience of my bank, as far as distribution channels are concerned.


We feel, at the moment, that we have to be flexible and be able to adapt to a moving competitive market, in order to find the solutions that are most adaptable to our customers' needs.


We shall constantly think and rethink the way to move forward.

____________________________________________________

Carlos Manuel de Oliveira
(*) Comunicação à Conferência “1st Financial Services Conference for Latin America”
Buenos Aires, 5 September 1994