Executive summary
The Australian banking industry has undergone numerous transformations over the past centuries. One of the most evident transformations relates to numerous mergers and acquisitions. During its inception phase during the early 1800s and 1900s, the Australian banking industry had numerous industry players. However, large banks have acquired most of the small firms and thus the industry has become concentrated.
Currently, four main banks control the industry. In an effort to develop a high competitive advantage, firms in the industry are increasingly implementing customer relationship management.
This move has significantly contributed towards the firms developing an effective rapport with its individual and institutional customers. Implementation of CRM will significantly contribute towards attaining their profit maximisation objective, which is only realisable if an effective strategy is in place.
Additionally, banks in the industry should also undertake a comprehensive value evaluation chain, which will contribute remarkably towards the firms’ effectiveness in formulating their CRM strategies. The industry has also been characterised by the emergence of ATM and Internet banking services, credit card reward systems, and increased bundling.
Industry overview
The banking industry is an important component of the Australian economy. The industry provides a wide range of financial services to institutional and individual customers hence contributing to the country’s Gross Domestic Product (GDP). The industry promotes the country’s GDP through the creation of employment.
Investment in information and technology is one of the ways through which the industry creates employment directly. The Australian banking industry also contributes to the country’s economic growth through taxation. From 2006 to 2010, the banking industry had paid a total of $38 billion in tax revenue. The tax revenue collected from the banking industry in 2010 amounted to $ 7.9 billion (Harper 2011, p. 1).
The industry also contributes to the country’s economic growth by maximising the shareholder’s wealth. During the period ranging from 2006 to 2010, the banking industry paid dividends amounting to $ 70.5 to shareholders (Harper 2011, p. 2).
The Australian banking industry is characterised by a high degree of concentration arising from the large number of industry players (Mathews 2003). The industry players are both domestic and foreign owned. Findings of a study conducted in 2009 showed that there are approximately 56 banks in Australia.
Twelve (12) of these banks are domestically owned, 34 are foreign branch banks and 10 are foreign owned subsidiaries. The chart below illustrates some of the Australian-owned and foreign subsidiary banks.
Source: (APRA 2012)
The banking industry is also composed of 100 credit unions, 11 building societies, 66 providers of credit cards, 114 providers of various deposit accounts, and 111 providers of mortgage products.
Despite the large number of industry players, the market is dominated by four main nationally operated banks, which include the National Australian Bank, the Westpac Banking Corporation (WBC), and the Australian and New Zealand Banking Group (ANZ). The four banks account for 75 per cent of the total market share.
The control of the industry by these firms has arisen from the numerous mergers and acquisitions that the banks have been involved in over the past century. The mergers have significantly increased the degree of concentration. The industry has over the years continued to exhibit high profitability potential. The high degree of concentration is one of the reasons that explain why the industry is very profitable.
This trend is expected to continue into the future. However, one of the main challenges that the banking industry is experiencing relates to increase in pricing pressure emanating from commercial and retail deposits (Hall 2006).
Barriers to entry within the Australian banking industry are relatively high due to the intense regulation and industry consolidation. Over the past two centuries, a majority of small banks in Australia have been acquired by large banks. There has also been an increment in the number of international firms within the industry, which has led to generation of numerous factors stimulating barriers to entry.
For example, the mergers and acquisitions undertaken by the large four banks have been a challenge for small banks to enter the industry. This aspect arises from the fact that the new entrants will incur huge marketing cost in creating market awareness. The four major banks annual advertising cost is approximately $1 billion. Consequently, new entrants cannot match the large banks.
However, in an effort to ensure that the Australian banking industry is stable, the government is implementing numerous regulatory changes. Complying with these regulatory changes is relatively costly for small firms compared to large enterprises (Commonwealth of Australia 2011).
Customer Relationship Management in the Australian banking industry
Objectives
Most large firms in Australia have not implemented CRM. However, the case is different in the banking industry (Buttle 2004, p. 1). The large number of domestic and international players within the industry has made the Australian banking industry to become very challenging due to intense competition.
The large number of industry players has led to banks experiencing a significant reduction in the size of their deposits. Additionally, customers have the opportunity to select from a wide variety of banks from which they can deposit and borrow loans (Abbott 2006).
In an effort to attain a higher competitive advantage relative to their competitors, banks in the industry are increasingly becoming customer focused, and to attain this goal, banks are incorporating the concept of Consumer Relationship Management (CRM) amongst their best management practices.
CRM refers to a business model that aims at aligning an organisation’s sales and product strategy with its customers’ product requirements and preferences (Shanmugasundaram 2005).
Firms’ success with regard to CRM is dependent on the effectiveness with which they have implemented CRM technology solutions. One of the objectives why the banks are investing in CRM is to attain sufficient customer knowledge. Consequently, the firms will be in a position to achieve a number of objectives as outlined below:
- Increase in overall profitability because the banks will increase their customer base. Additionally, the banks will be in a position to deal with their customers more effectively.
- Customer segregation- The banks will stand a chance to segregate its customer base into divergent categories, for example with regard to the costs and benefits associated with the various customers.
- Integration of CRM also enables banks to undertake cross selling more efficiently and effectively.
- Customer satisfaction – focusing on customer satisfaction is paramount in firms’ effort to retain their customers. Banks require a high level of Return on Investment (ROI) in order to be competitive. A high level of customer satisfaction is one of the ways through which firms can increase their ROI.
- CRM will enable banks to attain their objective of developing a centralised information system by integrating processes, technology, and people.
- The CRM will also enhance the effectiveness with which banks develop customer understanding.
Over the years, the National Australia Bank (NAB) has been committed towards developing CRM. Recently, the bank developed an effective CRM infrastructure via developing a campaign management system, a data mart, a CRM database, and a global data warehouse.
Currently, the bank’s main concern is how to optimise its CRM investment so that the front-staff can utilise the CRM more effectively in interacting with its customers (Commonwealth of Australia 2011). The number of financial products, which an individual has, determines the degree of loyalty.
Holding a large number of financial products increases the probability of customers being loyal (Shanmugasundaram 2005). Therefore, to improve their effectiveness in retaining customers, financial institutions should ensure that they address customers’ needs and requirements more effectively. However, banks should ensure that they attain this goal in an economic way.
Strategy
Currently, the business environment has become very dynamic. One of the factors that have led to this transformation is the growing intensity of competition in different economic sectors (Finacle 2012). The competitive nature of the Australian banking industry has made the concept of CRM to not only be considered as a technological solution, but also a strategy.
Therefore, managers should integrate CRM within banks’ value generation and business model. Integrating CRM in banking is critical because it enhances competitive advantage, for CRM is an important source of differentiation in businesses. Ultimately, banks will be in a position to improve their sales capacity and increase customer base.
Australian banks are implementing new approaches to CRM in an effort to attain customer-centricity, and to attain this goal, banks are taking into account a number of components. These components entail formulation of business strategy and development of a comprehensive data infrastructure.
The strategy formulation phase entails identifying customers’ “hurt points”. Formulating business strategies contributes towards growth promoting in a firm. Data infrastructure enhances the effectiveness with which banks interact with their customers (Chaudhry 2006).
Traditionally, banks in Australia have been more focused on function-centred and product-centred rather than being customer focused. The traditional systems implemented by banks have been effective in facilitating balance maintenance, providing customers with periodic financial statements, and account opening. However, this trend is changing and banks are increasingly adopting customer-centred models.
In their effort to implement CRM strategy, the first step that banks undertake is developing intelligent Customer Information System. Through proper CIS, banks can maintain a comprehensive data warehouse regarding their customers. Banks can collect different types of customer information from their customers as outlined below:
- Purchasing behaviour, for example the frequency of purchase and purchasing power
- Credit-worthiness
- The customers’ background such as their demographics and lifestyle
- Customer communication record, which entails evaluation of how a customer has been in touch with the business for example through complaints or compliments
- Credit scoring, history, and performance rating- Some of the elements taken into account include loyalty and the probability of referrals.
Implementing customer-centred models attracts profitable customers, decreases capital costs due to carefully maintained customer relationship, and increases returns on capital invested coupled with providing an opportunity for firms to develop and introduce a new product (Benning 2012).
Retail CRM value chain
Customer Portfolio Analysis
Over the past few decades, Australian banks have become cognisant of the fact that their success is dependent on how well they understand their customers (Kerr 2003). One of the ways through which banks are attaining this goal is by undertaking customer portfolio analysis. Banks use various sources of information such as secondary sources and primary sources.
The secondary sources entail surveys conducted by credible market research companies. The research enables banks to understand the various customer categories. Consequently, they can formulate operational strategies that are more customer-focused and can contribute towards creating customer value.
Customer Intimacy
The Australian banks are committed at developing a comprehensive understanding of their customers. After collecting the customers’ data from various sources such as customer complaints, customer geo-demographic data, and market research, a comprehensive customer analysis is undertaken.
The analysis takes into account specific customer behaviour elements such as whom they are, how and what they do, together with where they are located. Banks attain this exercise by undertaking an intelligent data mining hence improving its CPA.
Develop the network
Firms within the banking industry understand that their success is not only dependent on how they counter the competition they face (Foss 2008). However, they are cognisant of the fact that their networks are paramount in their success. Consequently, banks are very committed in developing a strong network with stakeholders who enhance their ability to deliver value to their customers.
The networks that banks nurture cover employees, investors, shareholders, the government, and suppliers. One of the key elements in developing networks in the industry is trust. For example, banks have to develop strong networks with insurance companies. Additionally, banks are also concerned on how to manage, align, and satisfy the customers’ needs.
Value proposition development
At this stage, propositions on how to enhance customer value come into play for the firms have a comprehensive understanding of the customers’ needs. In their value proposition phase, different methods are utilised. Some of the methods include conducting public relation campaigns.
For example, the Westpac Bank conducted an advertising campaign that aimed at motivating its clients to speak to the managers on tax reduction. The value proposition process is also undertaken by engaging a number of issues such as their service offering, pricing, communication, people, product, people, and location.
Managing Customer Lifecycle
In a bid to remain competitive, firms in the Australian banking industry are continuously restructuring their operations and processes. One of the areas that banks are increasingly focusing on is the firm’s organisational structure.
Banks are increasingly adopting flatter structures to align themselves with the changing business environment. Additionally, they are incorporating front line staff and marketing managers who are customer conscious.
Banks are also implementing new customer acquisition, customer retention, and customer satisfaction measures. One of the customer acquisition strategies that Australian banks are using entails formulation of business plans.
The business plans enable customers to identify new target markets. In an effort to maximise the benefits posed by emerging communication technology, the ANZ bank has targeted online customers especially university students.
Successful CRM Strategies in the Australian Banking Industry
ATM and internet banking services
In an effort to maximise their deposits and loans, most Australian banks have become very innovative over the years, as evidenced by the fact that they have established extensive ATM networks within the country. Through the ATMs, customers can conduct a number of banking activities such as withdrawals and deposits. Consequently, the banks have significantly increased their operational efficiency and effectiveness. This has contributed towards the banks increasing their rate of customer retention.
The banks are also appreciating the concept of online and mobile banking by developing secure banking portals. Online banking has presented banks with an opportunity to attract new customers due to the high level of efficiency and effectiveness associated with Internet banking (Commonwealth of Australia 2011).
Credit and charge card reward programs
In line with their effort to attain a high degree of customer-centricity, Australian banks have been committed at delivering value to customers. One of the avenues that banks are increasingly turning to is the use of credit card and charge card programs.
These cards provide convenience to customers in their purchasing patterns. Additionally, the banks are also formulating reward programs that aimed at enhancing consumption amongst consumers especially with regard to certain products such as petro and airline products. This aspect increases the number of withdrawals that consumer’s make, hence maximising their profit (Switt 2011).
Bundling of financial services
Australian banks have made it impossible for individuals to access credit facilities in the form of loans, which has arisen from the increased bundling within the industry. The bundling is undertaken by offering credit facilities at favourable rates to customers who hold different products with the banks and discriminating those who do not. The downside of bundling is that it negatively affects customer relationship due to its stickiness.
Bundling within the Australian banking industry has compelled some CEO’s, such as Westpac Bank CEO, to brand the industry as a less competitive field.
Drivers of change in the Australian banking industry and implications for changes in CRM
The Australian banking industry has undergone extensive revolution over the past two centuries. Some of the factors that have contributed towards the industry’s transformation relates to intense competition, technological innovation, government regulation, and changes in consumer behaviour. The intense competition is stimulating firms in the industry to review their operational strategies from time to time.
One of the ways through which banks are attaining this goal is by transforming from conventional operational strategies such as being product-centred and becoming customer focused. This move will significantly improve the banks’ commitment towards implementing effective CRM strategies to remain competitive.
The high rate of technological innovation with regard to ICT is also a major driver of change for the banks will be in a position to implement more effective and efficient CRM technologies such as the CRM software. Intense technological innovation will lead to development of diverse CRM technologies. Consequently, implementing CRM technology will be more cost effective hence improving the firm’s competitive advantage.
Conclusion
This paper has revealed that the Australian banking sector has been very successful despite the negative effects of the recent global financial crisis. The industry has continued to exhibit a high degree of resilience. Despite the intense competition, the industry has a high potential for growth.
Therefore, it is paramount for firms in the industry to formulate and implement operational strategies that will contribute towards attaining a high level of competitiveness. One of the variables that banks should consider is the customer. Consequently, implementation of an effective CRM will contribute towards improvement of firms’ competitive advantage within the industry.
However, the success of Australian banks in CRM is dependent on how they take into account the various CRM components.
Reference List
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