Business Strategy for Retail Banks

Business Strategy and Models

• Having a strong business strategy and model is crucial for success, especially for banks.
• Strategy is applying strengths to weaknesses or opportunities.
• A business model outlines how an organization creates, delivers, and captures value.
• Retail banks must align their business model with their strategic objectives to achieve them.
• There are three main business models for retail banks:
  • Product-centric: Focuses on selling the best products on the market, not solving customer problems. This approach prioritizes product features and profitability over customer needs.
  • Channel-centric: Prioritizes efficient delivery channels and minimizes delivery costs, rather than customer needs. Often relies on a network of branches or other channels as the primary profit centers.
  • Customer-centric: Focuses on diagnosing customer problems and providing solutions. Seeks to create a valuable long-term relationship with the customer.

Comparison of Business Models

• Characteristic | Product-centric | Channel-centric | Customer-centric
• Orientation | Design the best product on the market | Offer the most channels on the market | Find solutions to customer problems
• Marketing | Push direct marketing | Push via channel banners | Event & life-cycle triggers, hierarchical product segments
• Processes | Defined by product | Defined by channel capability | Balancing customization and complexity through a range of actions.
• Organizational Structure | Rigid team silos, friction between teams | Rigid team silos, friction between teams | Cross-organizational teaming, low friction
• Metrics | Profit and market share | Cost and channel efficiency | Mutual value measures

Product-centric

• Banks lack information about customer needs and technology to analyze individual behavior.
• Often focused on product superiority, sales, and maximizing profitability.
• Driven by product profitability and market share, leading to complex product features that add cost without solving customer problems.
• Aim to offer multiple products, like a 'supermarket'.

Channel-centric

• Emphasizes cost-effective delivery channels.
• May prioritize cost over customer preference for certain channels.
• Often focuses on transaction efficiency through the defined channel and not on how the customer uses the channel.

Customer-centric

• Focuses on understanding customer problems, needs, and desires.
• Seeks to provide valuable solutions, and create a valuable relationship with the customer.
• Driven by a buyer-driven approach, rather than a sales-driven approach.
• Focuses on long-term values, relationships, and customer satisfaction.

Drivers of Change

• Banks face competition from challenger banks and digital players.
• Technological advancements have impacted customer expectations.
• Data privacy regulations influence the way banks collect and utilize customer data.
• Banks are losing customer trust due to their own actions.

Trust and Customer-centricity

• Consumers are less trusting of banks.
• Seeking financial advice, most people consult family, friends, or colleagues instead of their bank.
• Product-centric and Channel-centric banks often neglect to build loyalty and long-term relationships.

Customer-centricity: Building Trust

• Customer-centricity requires a deep understanding of customer behavior and needs.
• Measuring success is about customer satisfaction and mutual value creation.
• Interaction, communication, and responsiveness to customer needs are crucial, not just a series of transactions.
• Customer experience will build trust and loyalty.