Royal Bank of Canada - Creating Profitable Relations with Small Business Clients

By the late 90s, the Royal Bank of Canada's long-held market dominance was under serious threat. Associate Professor of Accounting and Control, Regine Slagmulder, illustrates how RBC made canny use of customer profitability analysis and customer relationship management (CRM) to target, attract, retain and nurture a profitable clientele in a long-neglected sector - SMEs and agricultural enterprises. RBC exploited the many insights its Value Analyzer data provided, and reaped the rewards from the subsequent targeted sales and marketing efforts informed by it.

by Régine Slagmulder, Robin Cooper
Last Updated: 23 Jul 2013

By the late 90s, the relative comfort that Canadian banks had enjoyed for so long was drawing to a close. The gradual lessening of legislative protection from foreign banks, as well as the boom in Internet banking meant that a dramatic change in the domestic environment was unavoidable. The Royal Bank of Canada -- for so long the largest national player, by far - had seen its market share coming under increasing, concerted pressure throughout the decade.

Associate Professor of Accounting and Control, Regine Slagmulder, illustrates how RBC made canny use of customer profitability analysis and customer relationship management (CRM) to target, attract, retain and nurture a profitable clientele. The bank's chief weapon in its CRM-based efforts to outmanoeuvre its competitors was its Value Analyzer software suite. This system measured profitability at a very granular level through calculating the profit of individual SME client accounts, based on five key factors.

As Slagmulder details, the new system permitted RBC to convert elaborate and sophisticated transactional and "behavioural" data, such as transaction volumes and account balances, into account- and client-level profitability information. This was then used as input into product and customer mix decisions, and gave the bank a major edge in developing insights into current client behaviour and likely developing trends.

The case describes how RBC exploited the many eye-opening insights the Value Analyzer data provided, and how the bank reaped the rewards from the subsequent targeted sales and marketing efforts informed by this. The result was a dramatic boost in profitability.

After several years of using customer profitability analysis in its Personal Markets departments, RBC sought to reproduce its success in its Business Markets. This was the catalyst for its concentration on SMEs - a radical change of heart for its sales force, which had long held with conventional financial services wisdom that "bigger was always better".

The author explains how RBC undertook a full-scale analysis of SME client needs, based on their combined personal or professional servicing requirements. RBC discovered a highly profitable market segment in what the sector as a whole had generally long disregarded as a low-growth, low-margin market - SMEs and agricultural enterprises.

The case study concludes with a concise consideration of how RBC intends to leverage its competitive advantage, gained largely via its savvy use of customer value analytics. In 2003, RBC started to record investments at the account and client level, and to include these into client profitability calculations. The logical next step, in Slagmulder's view, will be to extend customer profitability to insurance products.

INSEAD 2005

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