Relationship Management By the Book

By Jack Milligan

Customer "books" are one tool to focus front-line efforts on retention and cross-selling.

As an increasing number of banks embrace a customer-focused strategy for their higher-end retail customers, some are using a relationship management tool called "book of business" to help manage retention and achieve a deeper household penetration.

Banks tend to divide their retail customers into two basic categories: a group of highly profitable customers they wish to hold on to, and a second group of less profitable customers with whom they'd like to have a deeper relationship. Book of business is a tool that enables banks to track and manage how they handle each of these two groups.

Book-of-business data typically contains detailed information about a customer's relationship with his bank, and usually indicates how much annual revenue he provides. This data is then aggregated by branch — generally it's the branch where the customer maintains a checking account if he has one, or the branch where the most transactions are performed. The customers so selected become part of that branch's "book of business."

In more advanced applications, individual customer service representatives (CSRs) are assigned their own customer books to manage, along with annual sales goals, and their compensation is linked to individual product sales and growth in the overall value of the book. At its simplest, the book-of-business approach helps drive a bank's retail results by focusing its sales force on two imperatives — retaining their most profitable customers while identifying others that represent cross-selling opportunities.

"It's the foundation of our sales and service process," says Leslie Hayes, retail sales and service manager at Charlotte-based Wachovia Corp., which has used the book-of-business approach for several years. "We track and measure a lot at Wachovia and this is how we track and measure it."

For all its usefulness, there are certain limits to what the book-of-business approach can accomplish on its own. Consultant Ron Burke, a principal at New York-based Towers, Perrin, Forster & Crosby, says an organization lacking a strong sales culture will probably struggle at cross-selling regardless of what management process it uses. Burke says that banks typically spend a lot of time training their CSRs when they introduce a new product, but often fail to provide them with ongoing sales support — including experienced sales managers "who can give the CSRs immediate feedback."

And without the support of a strong sales environment, a proven sales management tool like book of business will have only limited success, experts say.

Opportunity Lists

"Book of business" is a concept that encompasses a wide range of sales management techniques. And each institution puts its own stamp on the process. For example, San Francisco-based UnionBanCal Corp., parent company of the Union Bank of California, focuses mostly on deeper penetration of its existing customer base. "Our cross-sell initiative is probably the most important program in the bank right now," says, Joseph Benoit, a Union Bank market president whose territory includes San Diego.

Union Bank reviews household data to identify good prospects for cross-selling, and this information — organized into "opportunity lists" — is distributed weekly throughout its community banking and investment services group, which operates a 298-branch network in California, Oregon and Washington. Customers are segmented into five categories for the purpose of cross-selling. For example, one category is called "sleeping giants," which refers to profitable customers that for some reason have little contact with bank personnel. "They already have a significant relationship, but we never see them," says Benoit. "They never walk into our branches."

Union Bank CSRs call these "sleeping giant" customers periodically "to find out how we're doing at providing service and what they need," Benoit says.

For the last couple of years, New Orleans-based Hibernia Corp. has used a book-of-business approach to assign its best customers to individual CSRs in its 300-plus branch network throughout Louisiana and Texas. The CSRs are then charged with contacting those customers on a regular basis. "We want to make sure this subset is tended to with an eye towards retention and growth," says Randy Bryan, executive vice president for marketing and delivery channel management.

Hibernia sees the book-of-business approach as a good retention tool, since it creates an expectation that CSRs will stay in regular contact with the bank's best retail customers while also looking for opportunities to expand that relationship. "We really look at retention with expectations that there are opportunities to increase the relationship," he says.

Bryan says Hibernia is considering whether to apply this same process to a broader cross section of its retail customer base.

Customer Tiers

Another bank that has uses a book-of-business approach to manage a portion of its retail business is Memphis, Tenn.-based First Horizon Corp., parent company of First Tennessee Bank. Charles D. Newell, president of the bank's mid-south market, credits this system — known internally as "Bravo" — with helping the bank attain a 98.5% retention rate on its retail accounts. "And we're seeing our share of wallet grow rapidly as well," he adds. Indeed, First Horizon has a goal of doubling its penetration of wallet over the next three years, and Newell considers Bravo to be "a very integral part of our retail strategy."

First Horizon tends to see its book-of-business approach as equally important for retention and growth, particularly since the best prospects are often existing customers who purchase only one or two products from the bank.

First Horizon divides its retail customer base into five tiers, ranked from the most (Tier 1) to least (Tier 5) profitable. Financial service representatives (FSRs) in the bank's financial centers use Bravo to actively prospect customers in the first three categories for cross-selling. Customers in Tiers 4 and 5 may be contacted through direct marketing channels instead.

Typically, an FSR will receive a list of all customers in Tiers 1-3 whose accounts have been assigned to his or her branch. The system shows which products these customers are currently using and how much revenue they provide to the bank. If it identifies, for example, a Tier 1 customer who was providing $2,500 in annual revenue through just one product, "the FSR can start working with that customer on their other needs," Newell says.

First Horizon has even run promotions designed to offer such customers $100 to sit with one of its financial planners and receive a detailed financial plan. The bank has emphasized financial planning over the past five years, and it uses this tool to identify people with additional financial needs that it might be able to fulfill.

The bank's FSRs are not assigned their own individual book-of-business "portfolios" at this time, although First Horizon is gradually moving in this direction as it embraces more of a relationship banking strategy. Newell says it is piloting a project assigning approximately 15 FSRs specific responsibility for certain affluent customers.

"Sold" on Service

Perhaps no bank in the country is a more ardent user of the book-of-business approach than Wachovia, which started developing its "Sold" system in 1991 and has since deployed it throughout its 12-state region. This sales management system has approximately 30,000 monthly users throughout the company, including not only its branch bankers but also Wachovia mortgage bankers, investment advisors and call center representatives who work in separate divisions. "Anyone can use it," says Hayes. "This really drives how we deliver service to the customer."

Annually, at the beginning of every year, Wachovia organizes in one database all its customers who have transacted business in a particular branch in the prior year. These individuals are categorized as either deposit customers, high-value retention customers who are very profitable, or good cross-sell prospects. This data is then broken down by branch and can be sorted in a number of different ways. For instance, branch CSRs can see which customers had either large declines or increases in their deposit balances — or closed out an account altogether. And it will identify those deposit customers who don't have a loan with the bank, marking them as cross-sell prospects.

Wachovia customers who are in the system's retention pool are contacted twice a year by a CSR, who makes a "relationship call." The purpose of the call is to look at the customer's entire relationship with the bank, and for those who had become less active, find out why. This conversation can lead to a needs analysis, if the customer is receptive.

Wachovia uses the Sold system to drive its cross-sell effort, too. Each branch is given specific growth goals, and Wachovia senior vice president Benjamin Jenkins, head of the company's General Bank, reviews the branch system's lead management performance every month. New customers who come into the bank after the purchase of a product such as a home mortgage are actively pursued using what Hayes describes as a "two-by-two-by-two" approach, where customers receive a follow-up phone call from a Wachovia CSR two days, two weeks and two months after they purchased the product. In each instance, the CSR attempts to do a needs assessment to determine whether there are other products or services the bank could provide.

A book-of-business system can also be linked to incentive compensation plans, which most large banks now have in place to encourage their branch employees to sell. At Wachovia, a number of different factors are looked at to determine an individual employee's incentive, including individual product sales and referrals, the growth in revenue of a CSR's own book of business and the performance of the branch's book. The latter tends to act as a multiplier, Hayes explains. A strong showing by the branch can raise an individual CSR's compensation independent of his own performance, while poor performance can lower it. How well a CSR manages his book of business, combined with the branch's performance, "can have a significant impact" on compensation, Hayes adds.

Hibernia and First Horizon also provide their CSRs with additional incentives for product sales, and this data is captured off their book-of-business systems. Unlike Wachovia, however, neither bank compensates CSRs specifically for the growth in annual value from their portfolios, or for the growth in their branch's book.

Booking the Revenue

Bankers with experience using a book-of-business approach offer some cautionary words for institutions that haven't yet taken the plunge. As useful as it can be for managing sales activities, book of business is difficult to implement and offers no panacea for what ails a bank's sales culture.

"Understanding the dynamics of banking relationships and how to measure things appropriately is not a simple exercise," says Bryan, adding that Hibernia has worked hard to develop a set of metrics that will accurately measure the economic value of a specific retail account. While it's relatively easy to keep track of account closings, profitability can also be affected by activity changes and diminishing balances. "Those can have as big an impact as account closings on your revenue stream," Bryan says.

Wachovia's Hayes says a book-of-business structure requires goals for growth and retention that are aligned with the bank's overall strategy. If a bank wants to increase its percentage of core funding through the addition of low-cost checking accounts, or if it wants to increase its household penetration through a cross-sell program, it can load these goals into its book of business system down to the individual CSR level.

But a bank shouldn't stop there, because increased sales activity per se is not enough. Ultimately, experts say, that activity must turn out to be profitable as well.

"In concept, I think book of business is a good idea — especially for us because we're a relationship bank," says Susan Potter, executive vice president and director of retail business development at Cleveland-based KeyCorp, which has used its own book-of-business process to manage its retail banking operation for several years. But Potter cautions that the process also can be "a little bit deceptive." If the bank focuses too much on retention, for example, it will fail to get the growth necessary to drive its earnings. And if it worries too much about pursuing cross-sell opportunities, it may not provide the level of service that's required to keep good customers happy.

The secret, according to Potter, is to set specific profit-and-loss targets at the branch level and use book of business as a tool to hit the bull's eye. "Book of business isn't an end point," she says. "The end point is the branch P&L. Book of business helps you reach your objective, which should be profitable growth."

Mr. Milligan is a freelance writer based in Charlottesville, Va.

Copyright © 2004 by Banking Strategies, published by BAI.

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