documenthk

Title A case study of management information system in HongKong Bank

Author(s) Yan, Hiu-kwan, Andy.; 甄曉君.

Citation

Issue Date 1996

URL http://hdl.handle.net/10722/37282

Rights The author retains all proprietary rights, (such as patentrights) and the right to use in future works.

The University of Hong Kong

Business School

Master of Business Administration

-Dissertation

A Case Study of Management

Information System in Hong Kong Bank

• How to Gain Competitive Edge

Attention

From

Date

Dr. John Whitman

YAN Hiu Kwan

(UID-9393022)

27 August 1996

The University of Hong Kong Master of Business Administration

TABLE O F CONTENT

1. Introduction

1.1 Objective of This Paper

1.2 Organization of This Paper

1.3 Introduction to The Hongkong Bank

Strategic Analysis on Hongkong Bank 5

2.1 PEST Analysis 5

2.2 Five Forces Analysis 10

2.3 SWOT Analysis 13

2.4 Critical Issues 16

2.5 Strategic Alternatives 17

2.6 Strategic Recommendations 20

A Case Study of Management Information Systems in Hongkong Bank


TABLE O F CONTENT (Cont'd)

3. Database Marketing - the Strategic Tool 23

3.1 What is Database Marketing 23

3.2 The Strategic Role of Database Marketing 27

3.3 Benefits Offered by Database Marketing 34

4. The Design of Database Marketing System 49

4.1 The Current Infrastructure of the Bank's

Information Systems 49

4.2 Overview of the Database Marketing System 56

4.3 Work Examples of Database Marketing System 70

4.4 How to Implement a Database Marketing System 75

4.5 Avoiding Common Pitfalls 86

Appendix I Application Modules of the Bank's Database

Marketing System 88



TABLE O F CONTENT (Cont'd)

Appendix 11 Live Examples of Database Marketing

Systems in North America 9 3

Appendix III References 105



Chapter 1. Introduction

1.1 Objective of This Paper

The objective of this paper is to provide a conceptual framework of

how Hongkong and Shanghai Banking Corporation (referred to as "the

Bank" in this paper) can leverage the database marketing capability as

a strategic tool for the bank to defend and improve its position in Hong

Kong's retail banking sector. Therefore, this paper will concentrate

on the retail banking business.

Nowadays, Hong Kong's retail banking business is extremely

competitive. This cut-throat competition is carrying out in terms of

distribution network, services, products and pricing. It makes retail

banks in Hong Kong more and more difficult to operate and profit

margin drops. This paper tries to explore the opportunities offered by

information technology (IT) for retail banks in Hong Kong to gain

competitive advantages. For the purpose of illustration and in-depth

analysis, Hongkong and Shanghai Banking Corporation will be used as

an example throughout the paper. As the largest bank in Hong Kong,

such experience should be valuable and applicable to other banks,

financial institutions and service-related companies to take it as a

reference.


P . l


1.2 Organization of This Paper

In Chapter 2, the environment where the Bank is operating is carefully

examined by applying the PEST, Five Forces and SWOT analysis.

Then, strategic alternatives are proposed and recommendations are

made for the Bank to overcome the difficulties and handle the critical

issues. In Chapter 3, to implement the recommended strategies,

database marketing is proposed as a strategic tool for the Bank. The

benefits, usage, structure and other implications of the database

marketing tool are also elaborated. In Chapter 4，the infrastructure of

the Bank's existing Information Systems is analyzed and a design of

the Bank's Database Marketing System is proposed. Implementation

plan for this Database Marketing System is drafted. Finally, in

Chapter 5，learning points for other banks/companies are summarized

for gaining competitive advantages by applying the right marketing

concept and information technology.


P . l

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1.3 Introduction to The Hongkong and Shanghai Banking Corporation

The Hongkong and Shanghai Banking Corporation Limited, more

usually known as Hongkong Bank, was founded in Hong Kong in 1865

to finance trade between Asia, Europe and North America.

Nowadays, Hongkong Bank and its subsidiary companies continue to

serve an international customer base and provide a wide range of retail

banking, commercial banking and related financial services. Its

extensive services are provided through around 535 branch offices in

19 countries throughout Asia, the largest network in the region, and

40 offices in 9 countries around the world. The Hongkong Bank

Group employs more than 32,000 people and had consolidated assets

of HK$ 1,079 billion at 31 December 1994.

Based on the Hongkong Bank Group, the HSBC Holdings pic was

established in 1987 to build up its global business network. Under the

umbrella of HSBC Holding pic, there are Hongkong Bank Group in

Asia Pacific region, Midland Bank in Europe, Marine Midland and

Hongkong Bank of Canada in North America, and the British Bank of

Middle East in the middle east. Basically, it has an extensive coverage

on the world's major business centers. With over 3,000 offices in 68

countries and assets of BP 202 billion, the HSBC Group is one of the

world's largest banking and financial services organization, and

probably the most profitable one.

In Hong Kong, Hongkong Bank (will be referred as "the Bank") offers

3 major services, i.e. retail, corporate and merchant/treasury banking


P.3


services. Retail banking mainly acts as a net fund provider to other

areas of the Bank for their credit business. Retail banking's major

credit products include home mortgage loan, credit card, tax loan,

personal loan and etc.

The Bank has a dominating position together with its subsidiary, Hang

Seng Bank, in the retail banking sector. It has an extensive

distribution network of more than 3 hundred branches and over 600

ATMs. In addition to the normal banking accounts and services, it

also provide wide range of other financial and insurance services and

products, like Unit Trusts, margin trading, stocks, life insurance,

general insurance and etc. Basically it is a supermarket of financial

and insurance services. It aims at providing all-rounded financial and

insurance service to its customers at a one-stop-shop.


P.4


Chapter 2 . Strategic Analysis on Hongkong Bank

As described in Chapter 1，the Bank is the market leader in Hong Kong but

facing more and more challenges from the environment, competitors, and even

itself. This is the situation the Bank has never experienced. To help the Bank

overcome these challenges, we need to first of all understand the environment

where the Bank is operating and its critical issues. As a result, a

comprehensive strategic analysis is conducted below for the Bank's retail

banking business in the territory by employing PEST, Five Forces Model, and

SWOT analysis. Then, critical issues will be identified for proper action.

2.1 PEST Analysis

2.1.1 Political

In 1991, Soviet Union broke down and the cold war ended.

The world generally entered a period of peace and this should

be very beneficial to the overall development of the world's

economy. Even those countries closed for a long period of

time, like Vietnam, Cambodia and Burma, have gradually

opened themselves to the global economy. This will add to the

volume of world trade, especially in the Asian Pacific region.

As a trading hub and financial center of the region, Hong Kong

will get the most from this political environment by doing more

business.

On the other hand, protectionism in Europe and North America


P.5


by forming alliances, like European Union and NAFTA, may

have negative impact on Hong Kong's economy.

In Hong Kong, there may be some political instability or worry

over its hand-over to China in 1997.

The Bank will lose its status of quasi-central bank of Hong

Kong. For instance, the central clearing of cheque will be

taken over by Monetary Authority and the money issuing

function will be shared by Bank of China.

Its chairman will lose its seat in the highest authority in Hong

Kong - Executive Council. This may have direct or indirect

impact on its business development in Hong Kong.

Other Chinese banks, such as the Bank of China group, and

local banks will play a more active role in both business and

political arena.

However, as a British Company (registered in London and

managed by Britons), Hongkong Bank maintains good

relationship with China authority comparing to other British

companies in the territory. It is believed that the political

environment is a bit unfavourable to the Bank comparing with

the past years. Nevertheless, the greatest positive sign is the

enormous potential of China market for the Bank.


P.6


2.1.2 Economy

Hong Kong's economy is transferring from industrial to service

and entered its maturity so the growth would not be so high as

the past twenty years. It may remain in 5 - 7% annual growth

in the next few years.

Mainland China's economy is still rapidly growing with

inflation seemingly under control. With its vast market and

huge development potential, China's economy will have the

greatest impact on Hong Kong in the future, especially after

1997.

As estimated by the World Bank, the developed countries will

maintain around 2 - 3 % annual growth in the next ten years

and the South East Asia will have annual growth of around 6 -

8% in the same period. As a business center of South East

Asia, Hongkong's economy will benefit a lot from this

development and international trading, and so will Hongkong

Bank.

Lured by the ever-growing business opportunities, more and

more banking, financial and insurance institutes are coming to

Hong Kong and intensify the competition as a result. For

instance, ABN, a Bank from Nederlands, introduced the first

fixed rate home mortgage loan to the market with much lower

interest rate to fight for business.


P.7


Despite of the growing competition, Hongkong Bank's

economy environment is still good in view of growing

economy. However, Hong Kong's inflation rate has been

maintained at a high level around 8 - 12% in recent years and

this trend is predicted to carry on. The Bank's operating costs

have been driving upwards fiercely and this has an important

impact on its profitability.

2.1.3 Social

As Hong Kong people are more well-educated and sophisticated

in using banking services, they are becoming more and more

demanding and customer needs are becoming more segmented.

Some of them require general banking services, some require

specialized and personalized services, some require security

while others require high return. The Bank has to carefully

analyze and identify ks customers，needs and provide suitable

services, and project the corresponding image.

As Hongkong is getting more liberal and democratic,

consumer's power is getting larger and larger. For example.

Hong Kong Association of Banks have to cancel the cartel on

time deposit interest rates facing the pressure from the public

and Consumer Council.


P.8


2.1.4 Technology

Nowadays, technology development is faster than ever and

technology cycle is getting shorter and shorter. Banks usually

have much investment in technology, especially Information

Technology (IT). This will impose a burden on Bank's

operating costs in short-term, however, it may induce more

business and reduce the operating costs in longer-term.

Hong Kong people are relatively more receptive than in the

past to the use of new technology in banking services, e.g.

phone banking, video banking, ATM's (Automated Teller

Machines) and etc.

As the Bank's IT infrastructure was developed some 20 - 30

years ago plus its conservative and cost-conscious attitude

towards IT investment, it is a bit unfavourable to the Bank in

this aspect.

In summary, although there is some uncertainty and worry on the

political aspect, the economic environment for the Bank is very good,

and social and technology environment are fair.


P.9


2.2 Five Forces Analysis

Reference was made to the article with Reference No. 36 in

conducting five forces analysis for the Bank.

2.2.1 Threat of Entry

Apparently, the establishment of a bank needs a huge lump sum

of capital, large operational size to achieve economies of scale.

Furthermore, it needs access to distribution channels which

means branches, ATM network and telephone banking center.

Therefore, it should be difficult for companies from other

industry to enter the banking industry.

However, banks from other countries have been attracted by

the business in Hong Kong and the potential in China so they

continue to expand their business in the territory or keep

coming in. In short, the threat of entry should be moderate to

the Bank.

2.2.2 Power of Consumer

The power of consumer is extremely high since there are a lot

of choices and the competitors' products are more or less the

same, and transfer cost is low or minimal.

Consumers' power will get higher and higher as they become


P. 10


well-educated and more and more sophisticated in using

banking services, and the society is becoming more liberal and

democratic. The best example to illustrate this is the

dissolution of interest rate agreement among all banks in Hong

Kong as a result of attacks from the Consumer's Council and

public.

2*2.3 Power of Supplier

Employees' negotiation power with the Bank is low because

there is no union in the Bank. Furthermore, it is a well-

managed and systematic organization. No one is inexpensable

within the company. The most important thing is that most

employees are relying on the Bank's fringe benefit to house

their family. It could be very costly for them to leave the

Bank. Especially when Hong Kong's unemployment rate is

relatively high, employees bargaining power is very low.

2.2.4 Competition

As there are lot of banks providing similar products and

services to 汪 population of 6.1 million people, competition is

traditionally and extremely keen in Hong Kong's retail banking

business. The competition exists in both deposit products and

loan products.

Stimulated by the invasion of foreign banks, many traditionally


P . l l


conservative local banks woke up and counter-attack. The

result is that the market has become more competitive and

customers are more price-sensitive. For instance, Bank of East

Asia and BOC banks cut their home mortgage loan interest rate

almost to the level of the cost of fund. Hang Seng Bank and

Overseas Trust Bank compete on credit card business fiercely.

In addition, since Hong Kong's economy growth rate will be

lower than before, such competition will be keener than ever.

2.2.5 Substitution

The threat of substitution for banking products and services

should be moderate. On one hand, some investment

companies, such as Unit Trust, Insurance, Foreign Exchange

and Stock exchange, may attract some of the deposit customers

from banks. On the other hand, no company can compete in

the loans market other than banks and financial institutes.


R 1 2


2.3 SWOT Analysis

2.3.1 Strength

It has a very large customer base in Hong Kong, i.e. around 4

million customers. It represents 汪 huge business potential by

cross-selling different products to its existing customers. We

all know that attracting new customers are much costly than

cross-selling to the existing customers.

It provides an extensive range of products and services to

facilitate the above-mentioned cross-selling exercise.

It has a reliable and secured image amongst customers.

It has an extensive distribution network in Hong Kong as well

as globally so that it can provide convenient 24-hour round the

globe service to its customers, which is unrivalled by any bank

in Hong Kong.

In addition to retail banking, The Bank also has

dominating/important position in other areas, such corporate

banking, foreign exchange, trading finance, private banking and

etc, in both Hong Kong and worldwide. They can reinforce

and refer business to one another. This ability is only

challenged by a number of banks in Hong Kong.


P. 13


It has a team of well-educated and trained, sophisticated, stable

and loyal staff which are the most important assets of the Bank.

It has been extremely profitable and probably the most

profitable bank in the world. After acquiring other banks in

Europe and North America, and rationalize their operations,

the Bank's profitability will be further improved in the future.

2.3.2 Weaknesses

Hongkong Bank is a big organization so it is inevitable that it

may response slowly to the environment, slower than the

American or small banks.

As Hongkong Bank has been the number one in Hong Kong for

many years, some of its staff have become complacent to the

status quo. They are not so aware of the rapidly changing

environment, not so willing to change themselves or unable to

deliver good services to customers.

As it is a well-established bank, it has invested a lot in the IT

infrastructure. It could be very costly and difficult to change

and catch up with the pace of contemporary technology which

can determine the result of competition.


P. 14


2.3.3 Opportunities

Hong Kong people are adopting more and more aggressive

approach in managing their money and financial related

matters, especially as 1997 approaches. There should be a lot

of rooms for further developing the financial services in Hong

Kong. For instance, the average number of credit cards used

by Hong Kong people is 1.7 versus 4.7 in developed countries.

Hong Kong people will be more receptive to the concept of

insurance, life-time saving and investment plan for their house-

hold, unit trust, margin trading, personal loan and etc.

Furthermore, as China's and South East Asian economies are

growing rapidly, Hong Kong's economy will be benefitted a lot

and so will the Bank. The Bank also has large branch network

in this area and will directly benefit from its economic

development.

2.3.4 Threats

During the hand-over of Hong Kong to China, there may be

some instability and worry over the territory. And it may

affect business confidence in Hong Kong, particularly the

overseas investors, and in turn imposes negative impact on the

territory's economy.

Attracted by the lucrative Hong Kong banking business and


P. 15


enormous potential China market, many foreign banks will

come to Hong Kong and the existing banks will intensify the

competitive actions. This sometimes cut-throat competition

will never stop and will become keener and keener.

Under the cut-throat competition, some small or poorly-

managed banks may go bankrupt and this will affect the

stability and reputation of banking industry in Hong Kong.

2.4 Critical Issues

In summary, if Hongkong Bank wants to be successful in the next few

years or even decades, it has to address the following issues/challenges

very well:

(i) Keen and growing competition which leads to narrower profit

margin, higher level of customer defection and fund attrition,

high cost and reduced effectiveness in customer acquisition,

retention and relationship building.

(ii) More and more sophisticated customers demanding for good

products, good services but with lower loyalty

(iii) Increasing operating costs driven by inflation

Moreover, the Bank should capitalise and leverage its opportunities

and strength well, such as its huge and precious customer base, rich


P.16


marketing experience and etc.

2.5 Strategic Alternatives

Viewing the environment and critical issues, the following strategic

alternatives are suggested to the Bank:

2.5.1 To be more aggressive

With the biggest size and highest profit, the Bank can squeeze

the competitors' resources by aggressive pricing, and delivering

more competitive services and products.

2.5.2 To streamline internal operations

It can reduce and control the Bank's operating costs to enable

it to compete with other banks on cost and acts as a

supplementary strategy to the above one.

2.5.3 To focus on more profitable customers

As the Bank has an enormous customer base, i.e. 4.2 millions

customers. It has to make its resources deployment as much

effective as possible. That means it should concentrate more

resources to provide better and personal services to the

profitable customers. Meanwhile, it can provide lower-cost

services, e.g. automated banking services, to those less


P. 17


profitable customers

2.5.4 To be more pro-active

To maintain its position as the industry leader, the Bank should

be pro-active rather than re-active to the market and customer

needs.

2.5.5 Acquisition and merge

To acquire or merge with other banks so as to obtain greater

bargaining and marketing power, and to achieve more business

synergy.

2.5.6 Strategic alliance

To maintain its position as industry leader, the Bank can form

strategic alliance with other major banks in the territory, such

as Bank of China group or Standard Chartered Bank, to drive

and control the market.

2.5.7 Diversification

As the retail banking business is already mature in Hong Kong,

the Bank can consider diversifying into other business and

geographical areas. It can strengthen its personal finance

services, sell more unit trusts, insurance, margin trading,


P.18


securities services and other service or products.

Geographically, it can explore the newly opened countries in

the region, like Vietnam，Cambodia and Burma.

2.5.8 To merge the operations with Hang Seng Bank

Although the Bank holds 62% stake of Hang Seng Bank, Hang

Seng operates wholly on its own management. There is no

operation integration or service/product rationalization. Two

banks provide exactly the same set of retail banking products

and services. It can reduce cost in both banks and gain further

business synergy by fully integrate Hang Seng's operations and

products/services into the Bank.

2.5.9 Cultural revolution

To better meet customer needs and market competition, the

Bank should change its culture to be more service and sales

oriented. In addition, its staff appraisal and remuneration

system should also be changed to cope with this cultural

change.


P. 19


2.6 Strategic Recommendations

After careful evaluation and comparison, the following alternatives are

recommended for the Bank to take actions:

2.6.1 To be more aggressive

2.6.2 To streamline internal operations

2.6.3 To focus on more profitable customers

2.6.4 To be more pro-active

2.6.5 Cultural revolution

However, the following alternatives are not recommended:

2.6.6 Acquisition and merge

This alternative may arouse attention and refusal from the local

community because people are afraid that the whole retail

banking business may be controlled by the Bank. Furthermore,

this will impose negative impact to Hong Kong's image as a

free port and international business center.

On the other hand, the Bank itself is large enough to operate

efficiently in Hong Kong. It can hardly find an acquisition or


P.20


merging candidate that can brings further business synergy.

2.6.7 Strategic alliance

Similar to the last point，strategic alliance will be strongly

opposed by the community as Hong Kong is going to be a

more and more open and democratic society. It will also

impose negative effect to the Bank's image.

2.6.8 Diversification

The Bank is already well-diversified in various financial

services, like selling unit trusts, providing securities services

and etc. Geographically, it is progressively diversifying to the

newly opened countries in the region. It now has one office

and one representative office in Vietnam, and one

representative office in Burma. It also has one of the most

extensive branch network amongst the foreign banks in China,

more than 10 branches and representative offices. The Bank

is extremely keen on developing its business in China which is

believed to be the largest potential market in the world.

2.6.9 To merge the operations with Hang Seng Bank

With a different brand name, reputation of excellent customer

services and a quite different customer base, Hang Seng Bank

still has its contribution to the Bank. It may be too early to


P.21


fully integrate Hang Seng's operations into the Bank.

To summaries the above recommendations into a single focused and

actionable strategy, the Bank should focus more resources to provide

better services to and maintain better relationship with the profitable

customers. More effective front-line sales and services in terms of

cross-selling, customer response handling and relationship management

should be facilitated. In addition, more timely and responsive

management decision, and anticipative product development and

management should be adopted to out-perform competitors in this fast

changing world and contain risks.

However, it cannot lose the unprofitable customers who form the

critical mass and share the overall operating costs of the Bank. The

Bank can maintain relationship with these customers by providing

lower cost services and foster them to be profitable. In short, a

segmented or differentiated marketing strategy should be adopted.


P. 22


Chapter 3. Database Marketing • the Strategic Tool

To achieve the integrated strategy recommended in Section 2.6, it is proposed

that the Bank has to build up a Database Marketing System to capitalise and

leverage its huge customer base, marketing expertise, technical strength and

financial soundness.

3.1 What Is Database Marketing

As a matter of fact, there is no universally accepted definition of

Database Marketing. In this paper, a definition consolidated with

different perspectives are used. Database Marketing starts with 汪 data

warehouse which contains the company's information about its

customers in every aspect, including customer's demographic,

psychographic, product usage, transaction details, financial

information, and etc. Based on this data warehouse, people in the

Bank can share the same, accurate and up-to-date or even up-to-second

information to perform their marketing or supporting functions as

shown in the following page.

At the operational front-end, there are interactive decision support

systems to assist sales and customer service staff in selling customers,

delivering services, credit approval and managing customer

relationship. At the back office, there will be powerful data mining

tools to help analyzing customer/product potential, monitoring business

risks, conducting campaign programmes, developing new products and

so forth as shown below.


P.23


Dimensions/Applications of Database Marketing

圓 f Decision support tools

Sources ; American Management Systems

A Case Study of Management Information Systems in Hongkong Bank P. 24


Decision Support Tools < — > Data Warehouse < > Data Mining Tools

(Front-end) (Central) (Back Office)

The characteristics of Database Marketing are described as follows

(Reference was made to the article with Reference No.34):

(i) Each actual or potential customer is identified as a record in

the marketing database. Markets and market segments are not

identified primarily through aggregate data, which cannot be

broken down into individual customers, but as agglomeration

of individual customers.

(ii) Each customer record contains not only identification and

access information, e.g. HK ID card number, name, address

and telephone number, but also a range of marketing

information. This includes information about customer needs

and characteristics. Such information is used to identify likely

purchasers of particular products and how they should be

approached. Each customer record also includes information

about campaign communications (whether the customer has

contacted by certain marketing campaigns), about customer's

past responses to marketing campaigns, and about past

transactions.

(iii) The information is available to the company during the process

of each communication with the customer, to enable it to

decide how to respond to the customer's needs.


P.25


(iv) The database is used to record responses of customers to the

Bank's marketing initiatives, like direct mailing, telephone sales

and face-to-face sales activities.

(v) The information is also available to marketing policy makers.

This enables them to decide such points as which target

markets or segments are appropriate for which product or

service, and what marketing mix (price, place，product,

promotion and people) is appropriate for each product in each

target market.

(vi) In large corporations like the Bank, selling many products to

each customer, the database can be used to ensure that the

approach to the same customer is coordinated, and a consistent

approach developed.

(vii) The database eventually replaces part of the functions market

research serves. Marketing campaigns are devised such that

the response of customers to the campaign provides information

which the company is looking for.

(viii) Together with the development of the automation of customer

information via the development of a large database and the

tools to access it to handle transactions with customers,

marketing management automation is also developed. This is

needed to handle the vast volume of information generated by

database marketing. It ensures that marketing opportunities and


P.26


threats are identified more or less automatically, and that ways

of capturing these opportunities and neutralizing these threats

are also recommended. It makes higher quality information on

marketing performance available to senior management,

allowing them to allocate resources more effectively.

3.2 The Strategic Role of Database Marketing

Database Marketing is made possible by advances in information

technology. Much of the understanding of the strategic role of

information technology in general comes from work undertaken by

Michael Porter at Harvard Business School, i.e. the Five Competitive

Forces model on the next page. It is believed that for many

companies, Database Marketing offers opportunities in all these five

forces and deserves strategic evaluation. Let us look at these forces

in more detail. (Reference was made to the article with Reference No.

36)

3.2.1 Changing the Basis of Competition

A company can establish a position of competitive superiority

by building and exploiting a database with comprehensive

coverage of its existing and potential customers for current and

future products and services. By doing so, it can change the

basis of competition. (Reference was made to the article with

Reference No. 3)


P.27


Suppliers — | v O M P E T I T I V E | Buyers RIVALRY

power x / power

Source : Adapted fromMlE. Porter, Competitive Strategy, Free Press, 1980, p.4. Copyright by The Free Press, a division ofMacmillan Publishing Co., Inc. Reproduced with permission

Five Competitive Forces Model


P. 28


One of the most aggressive uses of the database would be to

win customers from competitors. For example, a US

automobile manufacturer regularly attacks its competitors by

using the automobile license database to target mail

questionnaires at their competitor's customers. Typically 20 -

30 per cent of them respond. Their responses provide valuable

market research data. The data allow the company to identify,

for instance, those customers who are unhappy with their last

purchase. These customers are then targeted for that

company's product.

Another example of changing the nature of competition is

where Database Marketing is used to transform how a field

sales force works. The sales force can be used where the face

to face call is needed, such as

- Personal service is considered essential

- An important new contact is being made

- A difficult and sensitive problem needs to be solved

- A complex presentation needs to be made

- In-depth diagnostic work needs to be carried out

- The customer asks for a sales visit.

A tele-marketing team working off the marketing database can

be used to cover all other sales and service activities. It would

reduce the company's operation costs substantially.


P.29


3.2.2 Strengthening Customer Relationship

Database Marketing can be used to improve a company's

relationship with its customers, not only in acquiring them and

defending them, but also in stimulating revenue growth,

Database Marketing can be particularly effective in establishing

the new customer relationships required to ensure the success

of a new product launch. For existing products, Database

Marketing provides an ideal way of building loyalty and

maximize revenue.

To better illustrate this point, a diagram of customer Life Time

Value is shown on the next page.

Each customer has a different need at a different life stage.

That means a different sales opportunity to the Bank at the

different life stage of each customer. By using the Database

Marketing System, the Bank is able to understand which life

stage each individual customer is and sell them the appropriate

product, for example a car loan, a housing loan or a personal

loan. By doing so, the Bank not only make more profit from

the existing customer base, but also defend its customer base

from competitors or substitute products.


P.30


cumulative profit to bank

differential products for demanding custom

' l i g i Investment and asset management

Insurance and

bundled

and credit

customer age

Customer Life Time Value


P.31


3.2.3 Overcoming Supplier Problems

Many businesses find that their ability to serve the growing and

changing needs of their customers is constrained by the cost of

accessing them - the cost of the sale. The supply of cost-

effective skilled labour for selling and promoting sales for

servicing the customer after the sale is becoming increasingly

scarce. Many businesses are turning to Database Marketing to

solve this supply problem. Database Marketing can lower the

cost of sale through transforming the sales and service

skills, the applications such as tele-marketing, mail order,

enquiry management, and the like.

3.2.4 Building Barriers Against New Entrants

Businesses which do not have a relevant marketing database

may find themselves unable to enter a market, when faced with

competitors who hold such 区 database and use it effectively.

In some cases, this database can be a unique asset. For

example, some companies that sell through dealers have a

unique asset in their dealer database, covering a wide variety

of personal, financial and marketing data. The cost of setting

up such a database may make entry difficult or even impossible

for other contenders.

Conversely, possession of a database marketing capability may

be the key to entering new markets. Thus, database marketers


P.32


from other industries, e.g. car owner's association and retail

credit card operators, have used their Database Marketing

capability to break into the financial service industry.

3.2.5 Generating New Products

Besides using the information contained in the marketing

database to invent new products and services, information is

increasingly being regarded as a product to be sold on its own

right. Database Marketing is by itself creating new products

and services. This new information market is in the earliest

stages of development. It is impossible to foresee the final

shape it will take, but certain patterns are emerging.

Strategic alliances between Database Marketers are beginning

to be formed. Banks, automobile manufacturers, financial

service companies and publishers are planning new joint

ventures by pooling the data that each possesses to build a

complete picture of their customers.


P.33


3.3 Benefits Offered by Database Marketing

Database Marketing is a new, powerful approach to marketing for

large companies. Many companies are spending large budgets on it.

They include telecommunications, computer and office equipment

suppliers such as AT&T, IBM and Xerox, automobile companies like

Ford and Volvo, and financial institutes, e.g. banks and insurance.

(Reference was made to the articles with Reference No. 1 and 2)

In other words, Database Marketing works by creating a bank of

information about individual customers, using it to analyze their

buying and product usage behaviour, and thereby creating the

opportunity and ability to cross-sell products and services more

accurately towards specific customers rather than the less effective

mass marketing. For example, it may be used to promote the benefits

of brand loyalty to customers at risk from competition. It can fuel

revenue growth by identifying which customers are most likely to buy

new products or services. It can increase sales effectiveness. It can

support low cost alternatives to traditional sales methods. These

include tele-marketing and direct mail, which can be of strategic

importance in markets where margin is being erode, i.e. the retail

banking in Hong Kong.

By extending more coordinated forms of help to customers, through

the use of a unitary marketing database, and by measuring customers'

responses to promotional campaigns, Database Marketing makes the

marketing function more accountable for its results. By sharing


P.34


marketing information and using it to promote corporate and brand

image, it offers a way of improving the link between advertising and

sales promotion, product management and sales channels. By closing

the gap between various elements of the sales process, it reduces the

likelihood of the customer being neglected.

The benefits offered by Database Marketing to the Bank are further

elaborated below.

3.3.1 Increase Response Rate

The ability to increase response rate, for direct mailing

campaigns or face-to-face sales, is perhaps the most obvious

benefit of Database Marketing. By more accurately matching

a given product with the correct audience, companies have seen

response rates increase by as much as 100% to 200%. the

reason is very simple. Instead of sending an advertising

message to the universe of potential customers, a company

sends only to those who are most likely to respond.

Applying the time-honoured Pareto principle (80% of sales

come from 20% of customers), the Bank can analyze its

customer database to select those who are most likely to

respond to an offer. It can thus avoid wasting money to send

mailings to the less-interested customers.

Database Marketing can often provide response rates that make


P.35

The University of Hong Kong Master of Business Administratkm

direct marketing profitable even low-margin products. For

example, Para Publishing, a direct-mail book publisher, uses

the popular PC software dBASE to segment and target its

promotional mailings. The program enables the company to

select and target those customers who are most likely to buy its

books.

Database Marketing systems typically rank customers using

what is called the recency-frequency-monetary model. The

model keeps track of all the customers' recency (how recently

did they buy), frequency (how frequently did they buy), and

monetary ( how much money did they spend) factors. Points

are assigned to on the basis of these three quantities and

customers are ranked on the basis of point totals. Customers

with the greatest point totals are considered the best prospects.

3.3.2 Steering Product Development

Database Marketing can identify specific needs and wants of

individual customers. In a full-blown marketing system,

customer service personnel enter customer complaints into the

database; order entry personnel enter customer orders and

inquiries regarding additional products or features which may

not be currently available, and market researchers enter

customer opinions. The consolidated information is invaluable

in identifying potential product refinements, suggesting line

extensions, and in some cases leading to radically new


P.36


products. Database Marketing allows a company to determine

what products customers want, how they want them packaged,

delivered, priced, performed and etc.

Although product development efforts often focus on heavy

users, light users should not be ignored as a source of

opportunity. It is this segment that Database Marketers can

examine to determine whether these potential customers have

unmet needs.

Database Marketing can also be used to communicate new

product features to competitors' customers. For instance, Ford

obtains lists of people who have bought Cadillacs because these

people share the characteristics with those who buy Lincoln (a

Ford subsidiary) Continentals. Ford then uses these lists to

periodically send out announcements of new features available

in the Lincoln Continental. In this way, Ford maintains contact

with the Cadillac owners in an effort to persuade them to

switch to Lincoln Continental.

Companies can use the database itself as a source of additional

revenue. Database that are rich in information are highly

valuable and can be saleable. Some magazines rent their

subscriber database to product manufacturers who are interested

in marketing to the same target customer. Of course, it should

take great care with consideration of competitive risks and the

implication of information privacy law.


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3.3.3 Accurate Sales Forecast

Statistical analysis is the key to effectively using Database

Marketing. With statistical techniques, companies can

determine which customers attributes are the best predictors of

customer buying behaviour. This allows companies to retain

only the most cost-effective variables in their database.

Statistics are also used to build models for predicting sales.

Using customer attributes, these models can predict sales

response for given customer segments with a high degree of

accuracy.

The Canondale Corporation, a specialty bicycle manufacturer

in the USA, recently built a series of predictive models.

Within limits, these models can estimate the market potential

under alternative marketing strategies.

3.3.4 Testing the Marketing Mix

Database Marketing is the most testable type of marketing

available. By means of controlled, scientific experiments, the

various marketing mix elements can be tested. This includes

testing which products to market, which promotional methods

to use, and what pricing level to set. In this way, companies

can more accurately identify which factors caused a new

product to succeed (or fail) in the market.


P.38


Although many of these benefits are true of direct marketing in

general, they are accentuated by Database Marketing. This is

because all the promotional mix information, customer

information, and sales response information is stored on a

computer, which allows sophisticated and powerful statistical

analysis to be quickly performed.

Split-run testing, a popular Database Marketing technique,

involves randomly splitting the target market into two or more

sections and approaching each differently. For example, a

product might be sold at different price levels in each segment.

Using the computer to compare subsequent response rates

obtained from the two segments allows marketers to determine

the best pricing strategy.

3.3.5 Improving Mass Marketing Decisions

Companies can make better mass marketing decisions if they

collect and analyze more detailed information about their

customers. This includes selecting which media to be used,

e.g. radio, newspaper, magazine, TV or others. It also

includes selecting which vehicles to be used, e.g. which

specific TV station to be used.

New products sometimes fail not because the product was

poorly designed but because the wrong media or vehicles were

used. A better job of making these decisions can reduce such


P. 39


failures. For example, a database might contain the TV

stations which segment of customers watch to. By using this

information, the marketer can decide which medium is more

cost-effective and which vehicles are best for placing

advertisements. One of the most important variables the

Database Marketing System can compute and compare is the

cost per 1,000 people in the target market reached by each

medium and vehicle. This calculation provides the marketer

with a measure of efficiency for comparing the various media

and vehicles.

3.3.6 Personalizing Advertising Messages

Database Marketing allows the Bank to vary the message across

different segments and vary the often on the basis of what the

customers want. Using information from the database, the

Bank can narrowcast a message to a customer's particular

industry, geographic location and product needs.

If desk-top publishing software is integrated with the marketing

database, the customer's name can appear not only on a

personalized cover letter but also within the advertising

brochure itself. For example, Porsche recently mailed

attractive photographs of Porsche automobiles to customers

considered to be good prospects. The Porsche in the

photograph had a vanity plate on which the target customer's

name was printed. Highly customized messages can cite


P.40


product benefits that appeal to 汪 customer's individual

characteristics.

3.3.7 Cloning New Customers

After a company has analyzed its database and developed a

profile of its best customers, new customers can be cloned.

This involves providing the company's ideal customer

specifications to a list-compiler service. The list compiler can

then search its own database and extract those customers who

have the same characteristics as specified.

Dun's Marketing Services in the UAs has developed a software

to carry out the cloning process for business-to-business

marketers. With this program, Dun's Marketing Services

analyzes its clients' best customers to identify the customers'

characteristics. This may include such parameters as standard

industrial classification (SIC), industry size, or geographic

location. The company uses these characteristics to examine its

database of nine million records and extract those customer

records that have the specified characteristics. They then

estimate the total market potential associated with the extracted

records.

After the list compiler extracts the those customers having the

specified characteristics, the two customer list (i.e. the existing

list and the compiler's list) can go through a merge and purge


P.41


process. This involves putting two lists together (merging) and

eliminating (purging) any duplicated records to produce the

combined list.

3.3.8 Cross-selling Other Products

By having dealt information about its customers, the Bank can

try to sell related products that are likely to appeal to the

existing customers. One way of doing this is by building up an

extensive customer database. The Bank can collect and

maintain its customers' background and household information,

and then to identify prospective customers for various

products/services from the existing customer list. Once these

prospects are identified, the name list and contact number and

address can be used for direct mailing and telephone-sales

activities.

Citicorp also makes extensive use of Database Marketing for

cross-selling. Citicorp collects background information on a

family when a mortgage application is completed. Using this

information, the company is able to launch a sales pitch for

college loans when a family's children reach a specified age.

3.3.9 Maintaining Customer Loyalty

Repeat customers are often desirable because lower selling and

advertising costs are required to stimulate repeat sales. More


P.42


important is that selling to existing customers is much cheaper

and easier than selling to new customers, especially when the

Bank already has a huge customer base and 75 % share of the

whole population. By retaining the identification of a customer

and continuing to compile information. Database Marketing

allows the Bank to stay close to its customers and treat them

well after a sale.

The Bank can make its customers feel important and help

sustain long-term relationships by using Database Marketing.

A Nissan car dealer in USA illustrates this benefit well. The

dealer telephones customers two weeks after customers' cars

have been serviced. The dealer thanks the customers for their

patronage and asks if they are satisfied with the service they

received. Six months later, the dealer sends a postcard to

remind the customer that a six-month oil change and check-up

is due. Twelve months later, the dealer sends another postcard

to remind the customers that it is time to change filters and

tune-up engines.

With Database Marketing, the dealer's system of scheduling

follow-up mailings and performing mail merges requires

minimal work. Mailing dates can be automatically scheduled

by the computer, personalized letters generated through a mail

merge, and mailing labels printed. Without the database, it

would much more costly and complicated to implement such a

marketing programme.


P.43


Frequent flyer programmes are another good examples of the

use of Database Marketing to sustain customer loyalty and

finally contribute the company's profitability. By tracking the

miles flown by an individual customer and award bonus trips

and gifts based on these miles, the airlines are awarding

customers for coming back. Trying to perform the same

functions without a customer database would be not only

cumbersome but probably very costly.

Companies can use Database Marketing to maintain their

customers and sustain long-term relationships. The one-to-one

dialogue allows companies to detect any rising dissatisfaction

levels and take pro-active actions before losing the customer.

For example, a journal in the midwest of USA periodically

surveys its readers to assess their satisfaction levels with

various parts of the journal, e.g. topics, book reviews, printing

quality and etc. The response information is entered into the

marketing database and analyzed by reader segment. This

enables the journal's editors to experiment with different

editorial strategies and closely monitor readership and

responses.

3.3.10 Establishing Barriers to Entry

By amassing a large information-rich database over years, it

may be possible for the company to create barriers that prevent

new firms from entering a specific market. It is very similar


P. 44


to capital intensive industries, like the automobile industry,

where the fixed costs of entering deter many firms.

Although industry experts cannot point to specific instances in

which Database Marketing has created barriers to entry at this

moment, they all agree that it may be possible in situations

where building a good database requires a number of years,

many transactions and high development costs. In such cases,

new firms may be discouraged from entering the market when

they realize the high costs necessary to establish a competitive

database.

3.3.11 Supporting the Sales Force

A good marketing database can be a real benefit in terms of

supporting a company's sales force, particularly in the case of

one-to-one sales. It is because one-to-one sales is very

expensive. Using Database Marketing, a company can qualify

sales leads so sales force can concentrate its efforts on the best

prospects. The qualifying is accomplished by analyzing the

database to determine which customer attributes correlate

highly with sales. Using these attributes, the company can

select the best prospects for sales calls.

Database Marketing can also be useful to a company that has

high turnover among its sales force, there is exactly the same

situation in the Bank. Few things can be more irritating than


P.45


having to breaking into a new salesperson. By keeping detailed

information on sales calls, newly hired salesperson can review

the database's detailed contact history and quickly be brought

up to speed. The database can be also used to schedule follow-

up customer calls by automatically triggering reports that

indicate when it is time to contact the customer again.

3.3.12 Enhancing Channel Relations

Database Marketing can help a company manage its channel

members. By analyzing the database to understand where the

customers are located, the best distributor locations can be

selected and distributor performance measures based on market

potential can be established. A manufacturer can also use the

database to project sales levels for new products, thereby

helping distributors do a better job of inventory planning.

Because these manufacturers are able to track their customers

better, distributors profit more from the relationship and

therefore more treasure it.

3.3.13 Shielding Promotions From Competitors

Companies can select the best prospects from their marketing

database and target these prospects using tele-marketing or

direct mailings. By the time competitors find out about these

strategies, it will be too late for the competitors to respond and

counter with promotions. Database Marketing allows a


P.46


company to contact the customer and build up a relationship

without its competitors knowing what it is doing.

3.3.14 Determining a Customer's Life Time Value

By recording the entire transaction history for a particular

customer, companies are able to estimate the lifetime value of

customer. This calculation takes into consideration the costs

incurred in obtaining and keeping the customer，as well as the

revenue generated by the customer. This way, the company

maintains a mini profit and loss statement for each customer.

For example，a company might segment its customers into

heavy, medium and light users. By analyzing the cost/benefit

ratio of each segment, the company can determine whether to

concentrate only on heavy users or both heavy and medium

users, and etc. This ability of keeping track of revenues and

costs and to quickly analyze the data is what sets Database

Marketing apart from traditional direct marketing. Companies

that are heavily involved in Database Marketing reported that

they have doubled or tripled the lifetime value of their

customers as a result of tracking customer needs and wants

carefully over time.

These are most of the business benefits offered by Database Marketing

and its related decision support tools. Most important of all, these

benefits are already proven in many companies. It is believed that it


P.47


can definitely help the Bank to retain and deepen the relationships with

its customers, concentrate resources on the profitable customers,

increase market share and pocket share (percentage of money put in

the Bank for each customer), increase revenue and profit margin,

improve customer service and deter competition in the longer run.


P.48


Chapter 4. The Design of Database Marketing System

4.1 The Current Infrastructure of the Bank's Information Systems

In this chapter, the Bank's information technology infrastructure will

be examined and analyzed. Then, the design of the proposed Database

Marketing System will be elaborated and implementation plan will be

drafted.

4.1.1 The On-line Transaction Processing Systems

In the Bank's retail banking sector, the business operations are

highly automated. That means all customer and transaction

information are stored in computer systems, i.e. what we call

the OLTP (On-line Transaction Processing) systems. However,

they are stored in 15 different banking operation systems each

specialized in providing certain kind of service to customers.

For example, the Savings system provides services on the

Savings accounts, the Current system provides services on

Current accounts, ATM system provides ATM services and so

forth.

These banking operation systems keep track of the necessary

information of those customers using that particular service and

their transaction details. These systems are designed for

different kind of customers to carry out particular transactions

and provide different kind of services. The most important


P.49


things in designing these systems are to provide on-line

accurate, speedy transactions and keep track of the transaction

details for audit trail instead of providing integrated banking

service to customers or managing customer information from

a enterprise-wide perspective. As a result, these systems

seldom talk to one another or exchange information to have a

set of synchronous information. They may contain some

duplicated, insynchronous or even contradicting information

while some important customer information are not stored in

any system. For instance, many customers' demographic data,

like sex, salutation, occupation and etc, are missing or have no

input source because these data are not critical in carrying out

customers' transactions. However, this imposes a diverse

implication on the other usage of customer information, such

as cross-selling, providing personalized services to customers,

conducting extensive and in-depth customer analysis and etc.

In addition, as these banking operation systems are mainly

designed for on-line transaction processing, they allow little

room for future expansion and enterprise-wide customer

analysis.

4.1.2 The Data Analyzer System

In order to produce the necessary customer analysis on the

customer data stored in those on-line transaction processing

systems mentioned above, the Bank adopts a system called Data


P.50


Analyzer. This system provides a computer language similar

to COBOL for the programmers to produce computer

programmes which can retrieve information from on-line

transaction processing systems to conduct customer analysis.

As this system requires computer programming knowledge and

its users must be knowledgeable of the details of OLTP files,

it can only be utilized by a specialized department. The end-

users have to submit requests to this department who will then

conduct the analysis on their behalf.

This leads to several negative outcomes. First of all, the

utilization of customer information is limited to the hands of a

group of IT people who are not affluent with the market or

customer needs/behaviour. This can deter the effectiveness and

efficiency of customer information usage. Secondly, it imposes

a long lead time in doing market/customer analysis. At

present, the standard lead time for such analysis is 4 - 6 weeks

which is very unacceptable to facilitate the Bank to take speedy

and proper actions in responding to the challenge from

competitors or demands from customers, not mentioning taking

pro-active actions to pre-empt the competitors. Thirdly, this

Data Analyzer system is basically a computer language lacking

of statistical or other advanced analytical ability, such as neural

networking. It limits the scope of analysis conducted.


P.51


4.1.3 Retail Marketing Information System

To improve its ability on conducting customer/ marketing

analysis, the Bank started to build up a Retail Marketing

Information System called REMARKS. This system contains

the demographics, product usage and transaction data of its 4

millions retail customers. However, not every piece of

customer data are stored in REMARKS. Only those considered

necessary for marketing analysis are included to avoid

overloading the system. At each month-end, customer data are

extracted from the various on-line transaction processing

systems into REMARKS to update its database which keeps

track of 5 years' historical data. Its database occupies around

30 giga bytes hard disk space on the mainframe computer.

The structural diagram of REMARKS is shown on the next

page.

Based on its extensive customer database, REMARKS provides

some analytical and marketing tools. End-users, typically the

staff in marketing department, can make use of its English-like

Structured Query Language (SQL) and Windows-based manual-

driven user interface to produce marketing/customer analysis,

or use its campaign management tool to conduct marketing

programmes, such as direct mailing and customer survey.

REMARKS improves the Bank's ability substantially in

analyzing and utilizing its rich and precious customer

information to achieve strategic and tactical goals.


P.52


REMARKS OVERVIEW

Database

Tool for Marketing

Survey

Tool for Campaign

Management

Tool for Customer Behaviour Forecast

Analysis

Tool for

Functions available now

Functions not yet available

A Case Study of Management Information System in Hongkong Bank

P.53


Strategically, the Bank can identify its long-term opportunities

and threats faster and explore the possible strategies more

thoroughly and in turn formulate better business strategies.

Tactically, it helps the Bank in conducting various marketing

programmes to defend its leading position and fight for market

share.

Nonetheless, REMARKS does have its shortcomings. The

most important one is its database limitation, i.e. only selected

customer data are stored in REMARKS. When any data

element required is not in REMARKS database, that analysis

has to go back to the Data Analyzer system. As the market is

very dynamic and any change in REMARKS data extraction

process would take at least 2 - 3 months, it turns out that

around 60 - 70% of the marketing analysis have to go back to

the Data Analyzer system. Secondly, Because of the limitation

of computing power, REMARKS database is updated monthly

and this updating process takes 3 - 4 days. This imposes

difficulties in doing analysis which requires weekly or even

daily monitoring on customer behaviours, for instance to

monitor the customer response to direct mailing or other

promotional programmes. Thirdly, although SQL is a English-

like computing language, it is still a computing language which

requires the end-user to memories some technical details. On

the other hand, its manual-driven user interface only requires

normal PC knowledge to operate, but it can only provide some

standardized reports with certain flexibility to change the report


P.54


content. These issues limit the usage and affect the

effectiveness of REMARKS. Lacking of the powerful and

user-friendly tools, REMARKS cannot be used by the front-end

sales people and is limited to the use of back-office, like the

marketing department. Finally, a fundamental issue is that

quite a lot of customers' important data are missing because the

on-line transaction processing systems fail to capture these data

from customers. It can directly affect the ability and quality of

conducting market/customer analysis.

4.1.4 Cost and Revenue Information System

The Bank's cost and revenue information are handled by

another system, called Integrated Management Information

System (IMIS). This system calculates and stores the cost and

revenue of each product provided by the Bank, and for each

cost center. It also provides a computer language similar to

COBOL for users to generate reports on its database.


P.55


4.2 Overview of the Database Marketing System

The Bank's future Database Marketing System will include a

centralized customer data warehouse with essential customer and

marketing data, decision support software tools with different user

friendly interfaces at the front-end, and powerful data mining tools at

the back office. (Reference was made to the articles with Reference

No.7 and 8)

A pictorial overview of the Database Marketing System is shown at the

following page.

As described in the picture, there are 3 key development components

- Data warehouse including data cleansing, enrichment and

updating,

- System design/architecture,

- Decision support tools/software development.

Further details on each area are elaborated in following sections

4.2.1 Data Warehouse

The most fundamental and important part of a Database

Marketing System is its enterprise-wide comprehensive

customer and marketing data stored in a Data Warehouse. To

implement the recommended strategies for the Bank, it needs


P.56


T h e Bank，s D a t a b a s e M a r k e t i n g S y s t e m

a A l

100-150 users

Customi Sales Sc Session Response Handling Reiitionshq) Management Credit Evaluation & Risk Management Tdemvketing (Sales

Decision Support Tools Customer Sales & Services, Rdatioiiship

ng (online)

Datalnp datdng

External Account

:Appbca & Sovic

Analytical Support Tools Strat^ic Marketing, Product Planning & Management, DM & Promotion (off-line)

0 Phone-b« Remote 1

S t n t ^ i c Maiketiiig & Product Development Customer Markedly DM & ]

i Information Datal

kedng ibase Mmke lagement R e

Customer Profile lOiting

Analysis

A Case Study of Management Information Systems in Hongkong Bank P. 57


the following data to be stored in the Data Warehouse.

(i) Product Usage Data

For each customer, how many products he/she is using

or has ever used in the Bank, and the details of the

usage of these products, e.g. account balance/status,

from when to when, etc.

(ii) Transaction Data

To facilitate better understanding on customer behaviour

and needs, detailed transaction data for each customer

and each account must be available.

(iii) Demographic Data

Customer's demographic data, like age, sex, education,

occupation, household information and etc, can be very

useful in conducting marketing programmes and cross-

selling.

(iv) Psychographic Data

In order to provide better service to the premium

customers, their psychographic information can be

valuable, such as their attitude towards risk or the


P.58


problem of 97, their preferred cuisine/ airline and etc.

(v) Derived Data

To facilitate better cross-selling and service activities at

the front-end operation, some data elements for each

customer can be derived from the above data. For

example, there can be the likelihood to use a certain

product, the credit risk, the likelihood to drop a certain

product or leave the Bank and etc. When the front-end

staff, no matter a branch teller or a telephone sales,

notice such indicators of a customer, he/she can take

pro-active action to take advantage of the information.

Furthermore, each customer's behaviour score can be

calculated and stored to help the risk control, loans

approval, fraud/money laundrying detection and other

operations.

In addition to putting the above customer and marketing data

into the Data Warehouse, the data need to be cleansed,

enriched and updated.

(i) Cleansing the Data

There are mainly four issues in this area:


P.59


Inconsistency

The existing customer records kept in the underlying

systems are not entirely compatible with each other. A

customer's record in one system may differ from

another either because some of the data formats are

different, or part of the information are outdated (e.g.

address information, marital status etc.).

Data Format

existing data stored are not in the most useable format

from Marketing perspective, e.g. both name and

address fields are in free format, posing difficulties in

development of more personalized communication,

distribution planning and design of localized (by

geographic) campaigns.

Classification of Data

There exists areas where data classification is not

aligned/updated according to Government/ external

published data, (e.g. in business industry classification),

this posts constraints in integrating data from external

sources for more advanced marketing/front-line

applications.

Quality of Data Input

There are considerable missing non accounting customer

information (e.g. sex, occupation) in the existing


P.60


database, and there is no stringent measures to ensure

completeness and accuracy in form filling and data

entry/coding for such information.

(ii) Capturing New Customer Data/Ongoing Data

Feeding and Updating

A Centralized/Standardized Approach

In customer data collection at account opening, a

centralized or standardized approach is preferred over

the current practice of multiple application forms with

different customer data requirement for different

accounts, and repetitive customer form filling/data entry

into various on-line transaction processing systems.

Initial customer data collection and purification would

be done ideally through account opening, loan

application and passbook renewal. Each month

approximately 33,000 customers come to open a

HongkongBank account, while about 9,000 customers

apply for loan/overdraft and 45,000 renew their saving

passbooks. Therefore, it may be possible to collect and

cleanse around 750,000 customer data in the first year

(after deduction for the double-counted 250,000

assuming 25 % of these customers are the same person).

It would also be more efficient that all non-accounting


P.61


personal data be captured and maintained in a central

customer database linked to the underlying operational

systems where personal data, except an ID key for

linkage, would no longer be necessary. This would

largely improve consistency and reliability of customer

records within the bank and facilitate efficient customer

information updating. Also, customers would no longer

need to be bothered filling in personal data repeatedly

when applying for additional account or service in

HongkongBank.

Data Enrichment

There is a need to collect additional demographic and

lifestyle particulars of customers on an ongoing basis

(establishing a dialogue with customers), such data are

essential to facilitate a better understanding of customer

needs and potential, which form the basis for the Bank

to taking proactive steps in anticipation of their needs

and reinforce customer loyalty.

Furthermore, input from external database (e.g.

Government census) and other internal customer sources

(e.g. customer responses) would be selectively retrieved

into the data warehouse to enrich understanding of

individual customers.


P.62


Data Updating

Ongoing updating of customer data would be needed,

for example each customer may be asked to validate

and update his particulars, say, every three years.

Furthermore, more frequent/daily updating of selective

accounting/transacting information in the centralized

customer database would be required to improve quality

of decisions.

The entire customer data collection and purification programme

may take a few years to complete. It is envisaged that supports

from both technical support and operational departments would

also be required in such program implementation.


P.63


4.2.2 System Design/Architecture

With the expected increase in customer data volume, an

extended user base to include front-line and more

frequent/complex data interrogation for a wider variety of

applications, it is important that the database system

design/architecture could facilitate speedy delivery of the

required information support.

The following are some design parameters that should be taken

into consideration:

(i) Data Storage

Additional demographic and lifestyle data of around 50

fields or more for each customer would have to be

incorporated in the central customer database.

Including other current data items such as

correspondence data, basic ID data etc., it is roughly

estimated that this central customer database would

require at least about 12 gigabyte non-accounting data

storage capacity (i.e. average 2.8k bytes for each of the

4.3 million customer). For accounting and transacting

data, both aggregated and non-aggregated, the storage

requirement would be expanded to include up to 3

years' historical data. As 汪 rough indication, this could

amount up to 100 or more gigabytes initially and may


P.64


demand for greater capacity as applicatioas/modelling

become more complicated. Furthermore, It is

envisaged that more detailed customer information on

credit card spending behaviour should be integrated in

the Data Warehouse, which means provision for storage

expansion would have to be catered for to meet future

requirements.

(ii) User Connectivity

As a crude estimation, at peak hours simultaneous

online users at branches and phonebanldng service

center could be closed to a hundred, mainly for sales

and services decision making and customer relationship

handling at individual customer level; plus maybe 10 to

20 back office users working at the same time on other

more sophisticated data analyses, usually offline on

skim files of 100k to 300k customers or on the entire

customer database.

(iii) Complexity of Analysis

Examples of some of the more complex analysis are

scoring models which may involve up to 50 or more

selection and mathematical steps on each customer data

set, whereby historical accounting/transacting or even

response data would have to be taken into calculation.


P.65


(iv) Turnaround Time

It could only be indicative at this stage to specify

turnaround time for system performance. As a general

rule of thumb, improvement is required to facilitate fast

decisions, especially in frontline applications.

Existing Processing Targeted Processing

& Turnaround Time & Turnaround Time

Weeks / Days > Hours

Hours / Minutes > Minutes/Seconds

(v) Processing Power

In order to process and manipulate the vast amount of

data efficiently, and to support the needed applications

and produce results promptly for fast decision making，

a data warehouse specially designed and configured to

provide rapid data searching and retrieval, together

hardware improvement to enhance processing power

would help to support the large data warehouse, and

reduce the time of providing solution to complex

queries.

There is also a need to provide flexibility in hardware

investment to allow for future growth in


P.66


database/ users/applications.

4.2.3 Decision Support Tools

To enable delivery of quality service to retain loyal customers,

and to market/cross sell customers the right product at the right

time and at the right place, systematic and objective analytical

tools would need to be developed. These analytical tools could

be developed for a variety of standardized or diversified

applications, mainly:

(i) Data Mining Tools

Mathematical and statistical modelling/data mining tools

are required to help predicting customer behaviour,

gauging propensity of buying certain products/ services,

profitability etc. Examples of various applications of

these tools are listed as follows:


P.67


Examples Applications

* transacting behaviour

models

to plan distribution and service delivery

* product acquisition

propensity models

to improve sales targeting and

effectiveness for direct mail/frontline

cross-selling

* credit risk models to assess and contain retail risk

processing at customer level

* product growth and attrition

models

to predict product portfolio

* fiind movement models to predict fund movements

* segmentation models to help devise segment strategic

marketing plan

* customer profitability

models

to estimate customer/product profitability

(ii) Applications Software

Simple and ready made application software are also

needed to facilitate customer response handling,

interactive selling and relationship management for

frontline/tele-marketing staff.


P.68


(iii) Management Reporting Tools

Ready made management reporting software are

required to facilitate standard reporting on customer

profitability, product performance review etc.

To enable usage by non-technical staff, it is critical to develop

graphic user interface (GUI) on Windows environment to help

users to point-and-click instead of writing query language

commands. It is expected that over 80% of

applications/analytical support tasks should be facilitated by

user-friendly customized screens. It is also expected that

powerful PCs may need to be installed for users in the

implementation stage.

To facilitate more extensive usage of information for decision

making, more specific user applications/software should be

defined, prioritized and developed in a coordinated manner at

a later stage as part of the Database Msrketing Systeni

development initiatives.

For the detailed description of various applications of this

decision support system both at the front-line or back office,

please refer to the Appendix I.


P.69


4 3 Work Examples of the Database Marketing System

To further illustrate the changes required to the existing customer

information system in developing the new Database Marketing Systeni

and its foreseeable applications and benefits, the following work

examples are cited. It is anticipated there are other applications that

could be developed in the first two years, and detailed benefits would

be quantified later in the business case.

Example 1 - Relationship Management

Customer Relationship Managers (CRMs) at branches will be able to

perform their tasks more efficiently，and be able to provide higher

service quality to our valuable customers. The following

improvements are envisaged :

Where the Bank is

Knowledge of customers is based

on various paper-based reports

from different departments,

which makes it difficult

inefficient for CRMs to refer to,

and information are often

outdated by more than a month,

leading to misinformed decision

making and customer handling.

Where the Bank wants to be

Full realization of daily update

customer level information

centralized database and user

f r i e n d l y r e l a t i o n s h i p

management software to

facilitate data capture/ direct

analysis at frontline, which

make planning of local

c a m p a i g n t r a c k i n g o f


P.70


This indirect approach takes

weeks and creates bottleneck

situation at DMC/ RMP which is

most inefficient. Not to mention

the time cost and inefficiency in

coordination/ meetings involved

among various related parties on

an ongoing basis. Consequently,

results of management activities

can only be tracked and assessed

after a long period, and frontline

planning of local campaigns

based on customer people

analysis is much handicapped.

Lack of effective propensity

modelling capability to predict

fund movement and cross selling

opportunities; and even if such

tools are available, direct

frontline access to such decision

support information is not

available due to the lack of a

central data warehouse, data

from various sources are

sometimes incomplete and

inconsistent, causing confusion

management activities and

customer handling more

efficient and effective.

Availability of effective

propensity modelling capability

to predict fund movement and

cross selling opportunities, and

such information could be

accessed directly at frontline to

take more immediate action.

Data are well organized and

disseminated appropriately to

needed parties for actions

leading to long term and

profitable customer relationship.


P.71


and leading to inadequate

decision.

Example 2 - Direct Mailing Programme Execution

At present, over 40 direct mail programmes (excluding re-run) are

carried out yearly at Retail Marketing & Planning department alone,

this involves 5 millions and incurring $14M direct production cost.

With enhanced Database Marketing capability, the following changes

and improvements are expected :

Where the Bank is

Turnaround time for generating

target lists = 4 - 6 weeks

depending on availability of

support resources. Turnaround

time is expected to deteriorate

with more direct mailing

programmes planned to meet

competition. There is a

bottleneck situation at the

supporting department, and

making it inflexible to quickly

respond to market changes.

Where the Bank wants to be

Direct access to central

customer data warehouse by

marketing staff, which should

shorten the lead-time to generate

target list to 2 days.

Response rates = 0.5% - 8%

based on advanced propensity

scoring models with the

availability of more customer

data (product take up and

profitability would be largely

improved).


P.72


Response rates = 0.1% - 2%

based on traditional subjective

selection criteria methods.

Almost impossible to provide

instant tracking and online sales

and services enquiries. Normal

post campaign tracking via

supporting department or

REMARKS would take another

4-6 weeks turnaround time.

Weekly tracking during campaign

period must be handled by

supporting department as

REMARKS does not provide

weekly data.

Users to able to closely track

direct mailing performance,

d a i l y / w e e k l y r e sponses

monitoring via user-friendly

software matching direct mailing

customer base with account

opening on a daily basis.

For live examples of how Database Marketing is being applied in

banking and financial institutes in North America, please refer to

Appendix II.

In view of the extension of user base to facilitate more direct/effective

access to customer information through decision support tools, the

development of Database Marketing System would need to address the

issues of user training, not only on technical skill required to master

the software tools’ but also in effective use of customer information.


P.73


i.e. to avoid information overload and misinterpretation, which are

potential traps for most information users which often result in

unnecessary high cost to the Bank in terms of CPU time, slower

response time for other users or unnecessary hardware investment to

upgrade processing capability unnecessary data confusion/useless data

on shelf, and more detrimentally, wrong decisions made due to

incorrect data interpretation.

It is expected that intensive user training would be required and same

form of data usage/access control mechanism need to be in place to

minimize abuse in data usage, as well as to protect confidentiality of

customer information.


P.74


4.4 How to Implement A Database Marketing System

After defining the overall business requirements of the

Database Marketing System, we can start to draw up its

development plan and the road-map to build up such a large

system.

Developing a Database Marketing System is much like

constructing a building. Design must conform to set standards,

provide maximum flexibility, make use of available

technologies, be efficient, be rapidly developed, and serve the

needs of its tenants. The major steps should be taken to

develop an effective Database Marketing System are described

below. (Reference was made to the articles with Reference

No. 4，5 and 6)

4.4.1 Gaining Senior Management Commitment

Critical to development is the commitment from senior

management that resources will be made available

throughout the process of design and development.

Proceeding without this commitment can affect the

quality, overall effectiveness, and completeness of the

required capability.


P.75


4.4.2 Determining Information Needs and Requirements

This effort should focus on determining what specific

types of information will be required by the

organization to plan for, initiate, monitor, and evaluate

corporate marketing programs. It is at this time that

knowledgeable staff or expert resources should be

involved or used to define the needs and requirements

of the proposed Database Marketing System.

This step gets the project off to an efficient start by

providing a candid and objective assessment of which

particular types of information are either essential,

optional, or largely irrelevant. For everyone, the goal

of this step should be to develop a benchmark or

methodology within which internal and external data

can be evaluated during the next two steps.

4.4.3 Reviewing Internally Available Information

This step should develop a thorough understanding of

the company's internal information resources. It is

intended to comprehensively identify and assess the in-

house information related to the specific marketing

program. Work in this step should focus on interviews

with a cross-section of the company's staff and reviews

of marketing focuses and related planning documents


P.76

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and analysis.

Information identified from this process should be

mapped into the relevant marketing functions involved,

e.g. pricing, advertising, and customer behaviour

research. Sufficient detail concerning the

appropriateness and importance of the information must

be captured to adequately determine the usefulness of

the information in the proposed system.

4.4.4 Reviewing Externally Available Information

On the basis of the information collected in the previous

step, this step should develop a focused understanding

of system-related public information that does not

currently reside in the organization. Similar to the

previous step，this step should identify and assess the

importance of this information. Again, sufficient detail

concerning the appropriateness and importance of the

information must be captured to adequately determine

the usefulness of the information in the proposed

system.

4.4.5 Identifying Information Gaps

Special focus should be applied to determine if any of

the required system marketing information (either


P.77


internal or external data) cannot or should not be used.

For example, this step should allow the company to

identify instances in which information gaps preclude

the required data or reports from being reasonably

provided.

Typically, information gaps occur either because the

data does not exist or the data is inappropriate for use

by the company. This step should adequately provide

the company with a list of the information requirements

both specially and by category or functions in which

gaps exist. There should be sufficient detail to describe

the qualitative sizes of these gaps and why they exist.

This particular information is useful in the

implementation plan step primarily because

implementation recommendations should address the

need to develop specific types of data,

4.4.6 Structuring Relationships Within the Database

This step should provide the organization with a clear,

accurate, and flexible structure of the Database

Marketing System. Specifically, this document should

describe specific marketing information relationships to

provide the required access to information that is

necessary to support and manage company programmes.

This document should build on the information needs


P.78


and requirements previously defined, factor in the

pragmatic assessment of the available data, and

incorporate relevant applications of database marketing

techniques employed by other similar systems.

4.4.7 Preparing an Implementation Plan

Getting the project off the ground requires the

development of an implementation requirements, i.e.

migration, plan that maximizes the timeliness and

usefulness of Database Marketing to the organization.

To ensure commitment and support internally, the plan

must evaluate current technological considerations,

applications, and organizational issues specific to the

organization. The plan should identify the phasing in

the project that will make up the Database Marketing

System architecture. Phasing in projects provides

immediate benefits but most important establishes

corporate confidence in the Database Marketing

concept.


P.79


4.4,8 Internal organization

Given the extensive scale of the project, it would

probably take a few years to implement, and would

have to involve all relevant departments in the Bank at

the early planning stage, in order to minimize work

duplication, identify and agree on development priority,

and achieve development efficiency.

To kick off the project, cross department project team

is proposed to be set up and it would report to a

steering committee of senior management headed by

Assistant General Manager Retail Banking as project

sponsor.

It is expected that smaller work groups could be formed

to handle specific tasks, once the master work plan is

devised by the project team. A steering committee for

this development is proposed on the following page.


P.80


Database Marketing System Steering Committee

(project sponsor)

Executive Scni< ior Marketing Executive

Senior Executive Sui upports

Seni-or E » Scrvic

:ccutivc ces Card Centre

Database Maritcting System Project Team

Retail Marketing & Planning Department (project coordinator)

Technical Services Department

Network Operations & Systems, OAS

Network Services Centre, OAS

Data Management & Control, OAS

Retail Banking Area Offices, RSS

Retail Risk 办

Card Centre

lg Area Offic

lanagement


P. 81


4.4.9 External Consultancy

It is suggested that external consultancy could be

explored to provide assistance through their experience

in implementation of Decision Support Systems in other

organizations, as this may help the Bank in short-

cutting the learning process. Except in collection of

new customer data/ongoing data feeding and updating

which are mainly internal exercises, it is possible that

an external consultant would contribute in other

development tasks, notably in data scrubbing, system

design/architecture, setting up of new data warehouse

and provision of ready-made decision support

application software/user interface.

The IT department would be a key party contributing to

evaluation/selection of the appropriate consultant for

such development tasks, as well as working with the

consultant on technical aspects including internal

customisation exercise which are critical to the success

of Database Marketing System.

4.4.10 The Development Road-map

Rome is not built in one day and neither is a Database

Marketing System. It should be built step by step and


P. 82


show to management its capability as soon as possible.

Otherwise, management may lose confidence on it

without witnessing any benefit after huge and long-time

investment. Logically, the Bank's Database Marketing

System can be built in 3 major steps and the pictorial

view of the development road-map is presented on the

next page.

(i) Build up the data warehouse and data mining

tools as the first step.

(ii) Based upon the data warehouse and data mining

tools, we can build up the back-end applications:

targeting models, behavioural models, risk

management tools, management reporting tools

and etc as the second step.

(iii) Making use of the results calculated by the back-

end applications, it is time to establish the front-

line applications: cross-selling, relationship

management, tele-marketing, risk management

and etc.

Then, the whole Database Marketing System is

completed and it can show off its capability in various

stages.


P.83


The Bank's Database Marketing System Applications

FRONT-LINE APPLICATIONS (for both branches and call centre)

(4) (3) (2b) (3)

Sales Relationship Applicat

Appro，

Possibly

ised Infonnation for Front-line Sales & Cust* ion, plus propensity scoi

tomcr Servii •res, fund

lumtnan! Genera • informal“

;ores IBIS Central Customer Data Warehouse Detailed Customer Infonnation for Back-cnd Application:

Extraction I Tools

and Updating Including Data Cleansing,

CUS Dat ase (Mid-97)

Query/Report Tools Data Mining Tools and

Profitability Model (A,B,C)

(3) (2a) (2a) (2a)

BACK-END APPLICATIONS

Note: Numbers in blanket denote the tentative development phase while the characters denote the ^plication modules which are described in Appendix I in details.


P. 84


The next immediate and critical step is for the project

team to prioritize development tasks from both user and

technical perspectives, i.e. usage implication/benefits

and technical complexity/ development process

requirements. This would also facilitate decisions on

consultant evaluation/ participation in the developing

process.

One pragmatic/ effective approach is to start

development with an application in mind. In terms of

application prioritization, the above mentioned work

examples may offer good opportunities as pilots for

Database Marketing System development in the early

stages.

However, this should be further investigated and

determined by the project team to come up with final

recommendations.


P.85


4.5 Avoiding Common Pitfalls

According to past experience by the pioneers, the following pitfalls are

the most often encountered in the development of a Database

Marketing System: (Reference was made to the article with Reference

No. 35)

(i) Relying only on internal information systeni resources.

(ii) Using only internally available software to implement the

Database Marketing System.

(iii) Replacing responsibility and control for development totally

with the in-house information systems department.

(iv) Failing to regularly update database information.

(v) Failing to provide adequate security and access to this valuable

information resource.

(vi) Underestimating resources requirements and time to complete

and maintain the system.

(vii) Failing to realize that the system needs constant maintenance

and attention.


P.86


(viii) Failing to get senior management commitment.

Avoiding most of these traps will help the Bank to make this capability

a more useful and effective resource than will survive for many years

to come.


P.87

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APPENDIX H. LIVE EXAMPLES OF DATABASE MARKETING

SYSTEMS 取 NORTH AMERICA

Bank of Amer ica , (BofA) the $187 billion San Francisco-based bank and the

nation's second largest, uses a 600 gigabyte Temdata database for target and cross-

marketing, relationship banking, portfolio analysis, acquisitions, credit card tracking,

retail banking, and credit risk management. It is the largest in the banking industry

and holds information on 36 million customer accounts from 23 different operational

systems "including data on checking, savings, time deposits, ATM, real estate,

consumer loans, bank cards, and commercial loans. It resides on a Teradata

DBC 1012 Model 4 massively parallel machine with 162 486 66-MHZ processors."

(Bartholomew, Informationweek, 7/25/94, p. 16). "BofA users the Teradata machine

to analyze trends in its relationships with customers to determine which are likely to

purchase a particular bank product or service. The bank can thus tailor promotional

mailings to the interests of specific customers." (InformationWeek, 1/17/94, p.28).

Information regarding the bank's $28 billion mortgage-loan portfolio also resides on

Teradata. These loans may also be sold as securities to Fannie Mae, Ginnie Mae,

Freddie Mac, or to private investors. The system proved useful in the aftermath of

the devastating Jan. 17，1994 Los Angeles earthquake.

The residential lending group was able to discern within minutes its potential losses.

"They were able to go in mA set by dp code how many and what type of real estate

loans we had in those areas where the earthquake hit', says Charles Griffin, a VP at

the bank's Concord, Calif., data center" (Bartholomew, Informationweek, 7/25/94,


P. 93


p.16). Potential acquisitions are also analyzed on Teradata. "The system can

quickly compute the value of takeover candidates by integrating those companies'

master-file tapes into BofA's investment analysis format." It's impossible to perform

these computing tasks with anything else.", states James Ferguson, manager of

portfolio analysis at BofA. (from InformationWeek, 1/17/94，p.28). Interstate

banking deregulation has allowed the bank to further expand through acquisition. A

newly acquired regional bank's customer information can be quickly integrated on

Teradata with the 36 million existing accounts in the Teradata data warehouse. In

1993 BofA merged with Security Pacific (also a Teradata user) and subsequently

increased their Teradata capacity to accommodate it. In July of 1994 the Federal

Reserve approved BofA's $1.9 billion purchase of Chicago's Continental Bank,

giving it a major presence in mid western business banking. (Dallas Morning News,

7/19/94). BofA has been expanding eastward by merger and acquisition from its base

in San Francisco for several years. In July of 1994 the bank began allowing non-

technical managers access to the database directly from their desktops using a

windows-based GUI end user tool from Andyne of Toronto known as GQL, or

Graphical Query Language. (Bartholomew, Informationweek, 7/25/94, p.16). This

represented a paradigm shift at BofA in that users no longer had to come to MIS with

their requests but could access the data warehouse directly. Other access tools in use

include Micro Decisionware's PC/SQL-link and Must Software's NOMAD.

Microsoft's Access with ODBC and NeXT ConiputBr's NeXTStep are under

evaluation. NeXTStep (ala Steven Jobs, formerly of Apple) is a "truly" Object

Oriented, Unix-based, multi-threading, multi-tasking software package that is targeted

to run on many hardware platforms, says Karin Zahorik, BofA manager of

information projects, who accesses the Teradata data warehouse with NeXTStep on

a Hewlett Packard workstation via the LAN.


P.94


At the 1992 Fall Partners Conference, BofA presented, "Banking on TpraHata-

Innovative Uses of Teradata at Rank of America". At that time, BofA had over

3,000 ATMs and 960 branches in California with access to over 4,500 ATMs

throughout the Western US. BofA operated in 36 countries. They brought in

Teradata in 1986 because they wanted to create a single repository from many data

sources that could be accessed in a timely manner. As of 1992 their configuration

had 1 COP, 18 EFPs, 126 Intel 486-based AMP processors, 264 1.2 gigabyte disks,

and 120 2.5 gigabyte disks. The system is connected to VM, MVS, and a LAN. In

1992 its commercial loans were valued at $13.8 billion, bank cards at $7.7 billion,

checking & savings at $18 billion, consumer loans at $10 billion, and real estate loans

at $18.9 billion. They keep 33 months of history with 12 months online. Data is

loaded daily, weekly, and monthly. In 1992 BofA had a total of about $7 million

invested in Teradata and estimated the benefits at about $30 million. They also

planned expanding their system in 1993 to accommodate a planned merger with

Security Pacific. In 1992 they had about 450 users and about 460 gigabytes of data.

They planned to increase the number of users in 1993 through "direct connect" or

PC/LAN access through the COPs. BofA's strategy using Teradata is a three-part

iterative process: 1) Growing the business through marketing support and

acquisition; 2) Cross-selling by "householding"', target marketing support, and

branch support; 3) Increasing profitability by lowering risk, creating opportunities,

and improving auditing processes and compliance to regulatory agencies such as the

Federal Reserve. Householding involves creating a unified picture of all of the

different accounts 汪 household might have including credit cards, checking & savings

as well as consumer, house, & car loans. In the above three-step process, one can

see how one step feeds into the next in a continuous cycle. As regional banks are

acquired, new opportunities to cross sell are found. Risk is spread out over more

custonicrs whose profiles End paynient histories cjui be monitored to avoid bad


P.95


decisions when granting credit. In summary BofA stated their belief that this process

is powered by the integrated view, flexible access, timely data, and cost-effectiveness that Teradata provides.

Chase Manhattan, the New York-based bank, uses an AT&T GIS System 3600

running the Sybase Navigation Server "to help it compete in the cutthroat credit-card

business. The system offers several advantages in decision support, says Jane

London, VP of end-user computing at Chase." "We'll save $29 million over the next

four years". (Moran, Informationweek, 8/15/94，p. 13). At the 1994 Partners

Conference Paul Bass, Sr. product manager at Sybase, referenced Chase in a

presentation entitled, "Online Data Warehousing Serving the Data Explosion." Chase

uses Sybase MPP for target marketing, credit risk management, and customer

service support. There are 60 months of data on 6 million customers (250 gig, 600

gig planned in 1995). Chase expects $11 million in annual operational savings.

Benchmark results: A 3-way large table join which took 12 hours on the mainframe,

took only 31 minutes on a 32 processor 3600 ~ and only 16 minutes on a 64

processor system. Also at the 1994 conference Chase VP Brian T. Farrell presented,

"Massively Parallel Processing (MPP) at Chase Bankcard Services". The data

warehouse will transform the Infocenter into 汪 large-scale, relational-MPP, client-

server, operating, and analytical environment. The Infocenter handles MIS reporting,

business analysis, transaction level reporting, list processing extracts, time series, and

performance tracking and reporting.

Chase plans to have full ad-hoc capability against all account level data by 1Q95 and

a major MIS application by 2Q95. Pre-3600 situation: There were 240 active users

(business knowledge workers) and about 230 gigabytes of online data residing on 24


P.96


production databases (VSAM, DB2, Focus, SAS, flat files). Staffers used Focus,

SAS，Easytrieve, and COBOL to access the data. Large amounts of tape processing

was required. Reasons for the switch to MPP include: 1) credit card marketing has

become very competitive, 2) product targeting is now "the science of data", 3)

users' needs demanded more functionality, 4) the creative, iterative, targeting

process was hampered bv processing time. 5) current tool sets were difficult to use,

6) and the data structures were difficult to translate into business terms. MPP

benefits include: 1) on-demand access to full the set of infocenter data and Chase

Bankcard Services information, 2) the use of off the shelf client packages, 3) faster,

easier and more cost-effective processing, 4) and the near elimination of request

programming, wherein a request for a report is sent to a programming department,

which and can take days, weeks, or even months to deliver. AT&T's Sybase solution

was chosen because it is open, already the corporate standard, and cost effective with

high performance. A smaller "proof-of-concept" system was installed first to validate

the configuration simulation results. They prototyped their largest, most complex

application (with positive results.). The current configuration includes a total of 128

Intel 486-based processors (16 APs with 8 processors each). A total of 64 Sybase

servers (4 Sybase Navigation servers per AP). A total of 640 gigabytes (192 gig for

Sybase) on 16 disk arrays. Software components include AT&T Unix V.4,

Navigation Server Manager, and Sybase Navigation Servers with DBA, control, and

data servers. There are 35 tables. 1500 attributes. 600 million rows of data. Future

plans call for a total of 60 entities. 2000 attributes, and 2000 million rows of data.

The two largest history tables are partitioned horizontally and vertically in their own

database. The stage and result database are set up on fast read/write devices (raid

0,1). All updates to the operational, production systems are captured by mainframe

COBOL and transformed into BCP load files. A Unix script initiates FTP

transmissions from MVS. A reservation system intelligently controls the file

downloads, which are then BCP'd into stage tables. Parallel updates and inserts are


P.97


then executed (set processing). The account level database is backed up nightly, the

large history database is done monthly, archive history is done yearly. Benchmark

timings : 1.2 gig/hour * 28 drives = 33 gig/hour (2 SQL servers per 8 mm drive).

2-3 hours for account level, 7 hours for history. REEL librarian is used. The 3600

is located in Cranbury, NJ and connected via NETEX and T3 circuits to the Triad

datacenter. From there it is connected via token rings, WANs, and routers to Tempe,

Tampa, CMP, Delaware, and Metrotech.

Ci t icorp , the largest bank in the US was Teradata's first large customer and an

early venture capital investor in Teradata Corp. in 1985. Citicorp "uses nine parallel

processing machines from Teradata Corp. to merge data about checking and savings

accounts, credit cards, and mortgages to provide a complete financial picture of each

customer." (Anthes, ComputerWorld, 12/6/93，pi, 14.). In this way, information

from many disparate systems is put in one place. Traditionally banks have had

separate systems for each function or product offered. In addition, Citicorp has

acquired 11 subsidiaries over the years — all with their own systems. Getting a

simple report by customer that listed all the products a certain household had was a

major undertaking — and often out-of-date.

With Teradata a bank officer can pull up a customer's profile and try to cross market

whatever services that the household doesn't yet have. They can also look for

opportunities by product or region by "sifting" through the data. For instance, to sell

home equity loans, an officer might ask to see a list of all the customers in, say,

Schenectady, NY, who have taken out mortgages but who have not yet taken oat 汪

home equity loan - and only in those zip codes where property values have increased

for two consecutive years. Mailers can then be targeted to that group. Analysts also

ask "what-ir - type questions to discern what policy changes will yield bigger profits

on certain products. Risk is also minimized in that an officer won't, say, raise a


P.98


credit limit if she knows that the mortgage or car payment is delinquent, (from

Bekey, LA Magazine, 3/91). Citicorp reported record 1994 profits of $3.4 billion.

(Bloomberg, AP, Int'l Herald Tribune, 1/18/95，p.9). 1993 profits were $2.2 billion

- - a n all time record — up from 1992's $722 million. (Dallas Morning News,

1/19/94, p.2D). At the 1991 Fall Partners Conference Bob Sommer of Citibank

participated in a customer panel entitled, "Release 4.1.2 User Experiences" The panel

included other large and small VM and MVS Teradata customers such as American

Airlines, Karsten/Ping, and Procter & Gamble. At the 1990 conference Tong Espiritu

and Jim Umberger of Citibank participated in a customer panel with AT&T and

Liberty Mutual entitled, "Release 4.1 Early User Experiences".

Citicorp Mortgage of St. Louis tracks over 732,000 loans valued at $69.6 billion using Teradata MPP. At the 1991 Fall Partners Conference Marge Tripp,

Citicorp information specialist, presented, "How to do a Strategic Plan in Four Easy

Notes". She detailed the formal steps used by a group of technicians to address the

placement of Teradata into the corporate data processing environment. Also at the

1991 conference Ms. Tripp participated in a joint vendor-customer presentation with

Ed Wood of Micro Decisionware detailing their beta testing of the vendor's Database

Gateway product (MDI gateway).

Freddie Mac , the Federal Home Load Mortgage Corporation, uses Teradata to

gather data from different platforms and geographic locations, to maintain referential

integrity, and, to perform more efficient updates and aggregations. They brought in

Teradate because their legacy IMS databases were too large for sequential scans ~ but

they also recognized that their Teradata configuration was not adequate for high

volume transaction processing. At the 1992 Fall Partners Conference Dan Kole and


P.99


Ken Gathmann presented. "DBC Implementation and Tool PevelopmCTt" Freddie

Mac is a stockholder owned, Fortune 50 company that was charted by Congress in

1970 to create ”a continuous flow of funds to mortgage lenders for home ownership

and rental housing. “ Freddie Mac also takes mortgages from the lenders and sells

mortgage-backed securities to investors. They have an 80 gigabyte 486-based system

and a 38 gigabyte 386-based system that are channel attached to Amdahl mainframes

running MVS TSO/ISPF. Mainframe query tools include BTEQ/SQL, COBOL, and

SAS. PC/SQL is both mainframe and network attached. They built an MIS online

data dictionary that includes models, tables, master index, loan basic columns, and

multifamily columns. In MVS/ISPF they built an MIS interactive SQL user interface,

a DBC run facility, and an MIS developers interface. Standard scripts include

SELECT, COBOL COPYBOOK, fastload, bulk update, and VIEW.

They averaged about 30,000 queries during the last three quarters of 1992. In the

future they would like to see transaction-based roll-ups and a "union in a view".

They also plan to bring in a GUI interface, an Executive Information System (EIS),

and a report writing tool for users.

T S B , a major British bank with 1,500 branches, chose Teradata in order to build a

Customer Information Database (CID) to track over 8 million customers and their

product holdings. At the 1991 Fall Partners Conference Keith Bagnall of TSB

presented, "TSB's Experiences of a DBC Within a Multihost Environment". CID is

planned to be online at all 1,500 branches and provide DSB to about 100 analysts.

TSB plans to consolidate data from many disparate systems including branch banking,

credit cards, and insurance facilities. These operational systems run on Unisys,

Amdahl, and IBM mainframes and are scattered among four data centers.

"Consequently TSB has had to deal with the issues of remotely connecting (Teradata)

to multiple hosts."


P. 100


Chcmicd.! BEnk uses Teradata MPP for Relationship Banking, Branch Performance

Monitoring, and Credit Card Applications. The systems are channel attached to IBM

and Amdahl mainframes running MVX/XA. Staffers and analysts access the data

using Micro Decisionware's PC/SQL-link.

Dime Savings Bank of New York, the 9.7 billion regional bank, knew they

had all the detail data they needed, however "its accounting staff and financial

analysts had a hard time getting their hands on data when they needed i t " says Helen

Oehrlein, and IS business consultant assigned to Dime's accounting department."

(InformationWeek, 1/17/94, p.28). Before Teradata, Dime's Info Technology

Division couldn't keep up with the work requests pouring in from the business units.

Now, IT's job is to ensure that the data is available and to train the users in how to

get what they want. IT used to feed their staff the infonnation dish-by-dish, now

they set out the data "buffet style" and the users can take it as they like it,

whenever they need it. Users no longer print off massive reports just to pick three

numbers off the summary page. Teradata has eliminated much of the "hidden

backlog" -- the requests users never even make because they are prioritized below

outstanding requests. With Teradata the full General Ledger from the prior day's

close of business is available early each morning - well before the mainframe reports

start showing up. A nightly process summarizes the GL accounts into balance sheets

and income statements for all the bank's divisions. A few mouse clicks and these are

downloaded into Excel spreadsheets on the analysts' PC's. Many reports formerly

produced by handkeying data from mainframe reports into spreadsheets are now

automated simply by linking them to the spreadsheets containing downloads. The

bank's budget is developed on the Teradata, where the budget group can fine tune it

and immediately see how the changes affect the overall numbers. Once the budget


P.101


is finalized it is uploaded to the GL. As the GL is loaded into Teradata every night,

current expense and budget information is available to all etces of the bank to track

their performance. Customer account level information from the banking and the

loan areas are refreshed monthly. With this data financial analysts can dig even

deeper, looking at the actual checking accounts that make up the "NOW Accounts'1

line on the balance sheet.

The planning group in the banking division formerly spent over 40 hours each month

keying detailed account type information by branch into spreadsheets to produce

reports for branch managers. With Teradata this same information is downloaded via

modem in 20 minutes (and errors virtually eliminated). The mortgage service

manager is very interested in the bank's potential liability every time a natural

disaster hits. With Teradata, reports showing all Dime loans in, say, the 1994

Georgia flood area, are on the manager's desk in minutes. Consumer lending was

never sure how well their Credit Scoring system performed until Teradata made it

easy to combine delinquency reports with credit scores, which had previously been

stored in memo fields on the mainframe. By late 1994 Dime had about 90 staffers

and analysts accessing Teradata using GQL, the ad-hoc query tool from Andyne of

Ontario. Most of the users are on departmental LAN's at the bank's main office in

Uniondale, NY; others dial in to a Netbalzer which acts as a node on the LAN.

Other tools used include Bridge for downloading into spreadsheets, and, of course

BTEQ SQL for uploading and reporting, (paraphrased from InformationWeek,

1/17/94，p.28). In January of 1995，Dime will be merging with Anchor Savings

resulting in a $20 billion institution with over 150 branches in 3 states. (Fortune,

8/8/94, p.21).


P. 102


B a w a g B a n k , Austria, a Bull site, uses Microsoft ODBC and Access to re-

engineer the way their Teradata system is accessed. At the 1994 Fall Partners

Conference the following example was given. Bawag had been using an old IBM

access tool that treated Teradata like a large flat file handler. Bawag replaced this

mainframe tool with Access and Teradata's ODBC drivers. They were able to cut

report turnaround time from 24 hours to just 9-12 minutes. Bawag Access

programmers developed a working prototype in about 2 days with minimal assistance.

Kemper Financial, one of the top 10 mutual fund managers in the US, uses

Teradata for target marketing and "to provide users with tailored access to their

specific information needs and technical abilities". This is accomplished using both

mainframe and direct PC/network access. At the 1991 Fall conference Joe Gabriel,

vice president of marketing and sales systems presented, "Target Marketing and Sales

Infonnation Applications'1.

INYESCO Funds Group in Denver installed an AT&T System 3600 running

Unix/Oracle software in August, 1993. They will move to Oracle release 7.1 "in

order to exploit its shared SQL and multithreaded server capabilities also know as the

parallel query engine" (Computer World, 11/08/93, p . l , 12).

The Capital Group, a California mutual fund concern that manages over $120

billion in investments, uses Teradata MPP for tracking the sales and redemptions of

its mutual funds, shareholder sales, and the performance of its sales force.


P. 103


Furthermore it purchases data regarding the industry and loads it into Teradata in

order to perform market trend analyses. They access the data through Metaphor

workstations.


P. 104


APPENDIX m REFERENCES

References were made to the following literature :

1. R. M. Dallaire, "Data-Based Marketing for Competitive Advantage,"

Information Strategy: The Executive's Journal (Spring 1992), pp. 5 - 9

2. R. P. Derks, "Business Trends: The Competitive Advantages of Data Base

Marketing," Information Strategy: The Executive's Journal (Spring 1994), pp.

5 - 11

3. M. G. Martinsons, "A Strategic Vision for Managing Business Intelligence,"

Information Strategy: The Executive's Journal (Spring 1994), pp. 17 - 30

4. Y. Pollalis and J. H. Grant, "Information Resources and Corporate Strategy

Development", Information Strategy: The Executive's Journal (Fall 1994), pp.

12-28

5. M. Clark, "Creating Customer Value: Information-Chain-Based

Management," Information Strategy: The Executive's Journal (Fall 1993), pp.

1 3 - 1 8

6. H. J. Watson, "How to Fit an EIS into a Competitive Context," Information

Strategy: The Executive's Journal (Winter 1992), pp. 5 - 10

7. m . Frolick, "Management Support Systems and Their Evolution from

Executive Infonnation Systems," Information Strategy: The Executive's

A Case Study of Management Infonnation Systems in Hongkong Bank

P. 105


Journal (Spring 1994), pp. 31 - 38

8. H. Glover, H. J. Watson and R. K. Rainer, "20 Ways to Waste an EIS

Investment," Information Strategy: The Executive's Journal (Winter 1992), pp. 11 - 17

9. K. Richmond, "Information Engineering, the James Martin Way, ” Information


10. M. Levy, "The Global Reach of Sun's Financial Consolidation," Information


11. L. D. Runge, "The Manager and the Information Worker of the 1990s,"

Information Strategy: The Executive's Journal (Summer 1994), pp. 7 - 1 4

12. S. H. Haeckel and R. L. Nolan, "Managing by Wire," Harvard Business

Review (Sep - Oct 1993)，pp. 122 - 132

13. L. M. Applegate, J. I. Cash and D. Q. Mills, "Information Technology and

Tomorrow's Manager," Harvard Business Review (Nov - Dec 1988)，pp. 128

-136

14. T. H. Davenport, M. Hammer and T. J. Metsisto, ”How Executives Can

Shape Their Company's Information Systems", Harvard Business Review

(Mar - Apr 1989), PP. 130 - 134

15. J. Bssen, "Riding the Marketing Information Wave," Harvard Business

Review (Sep - Oct 1993), pp.150 - 160


P. 106


16. T . H. Davenport, "Saving IT's Soul: Human-Centered Information

Management," Harvard Business Review (Mar - Apr 1994)，pp. 119 - 131

17. G. Hall, J . Rosenthal and J. Wade, "How to Make Reengineering Really

W o r k , Harvard Business Review (Nov - Dec 1993), pp. 119 - 131

18. W. J. Bruns and F. W. McFarlan, "Information Technology Puts Power in

Control Systems," Harvard Business Review (Sep - Oct 1987), pp. 89 - 94

19. M. D. Hopper, "Rattling SABRE - New Ways to Compete on Information,"

Harvard Business Review (May - Jun 1990), pp. 118 - 125

20. B. R. Konsynski and F. W. McFarlan, "Infonnation Partnerships - Shared

Data, Shared Scale," Harvard Business Review (Sep - Oct 1990)，pp. 114 -

120

21. J. Miglautsch, "Drowning in data?" American Demographics (March/April

1995)，pp. 12 - 17

22. K. Morrall, "MCIFs Help Piece Together Profitable Profiles," Bank

Marketing (March 1995)，pp. 22 - 28

23. D. R. Ryan, "Database Marketing: From Promise to Practice," Credit World

(Jan/Feb 1995), pp. 1 7 - 2 1

24. Anonymous, "Thinking Machines Transform Banks, Financial Technology

International Bulletin (Jan 1995), pp. 9 -


P. 107


25. K. Morrall, "Database Marketing: Leaves marketing to the Branches," Bank

Marketing (Nov 1994)，pp. 22 - 30

26. R. P. Labe Jr, "Database Marketing Increases Prospecting Effectiveness at

Merrill Lynch," Interfaces (Sep/Oct 1994)，pp. 1 - 12

27. K. Morrall, "Technology Updates Market Research Methods," Bank

Marketing (Apr 1994), pp. 15 - 20

28. Anonymous, "Database Marketing Resource," Bank Marketing (Mar 1994)，

pp. 43 - 47

29. M. Borowsky, "A New Base For Bank Marketing," United States Banker

(mar 1994), pp. 60 - 64

30. R. Jutkins, "Seven Mistakes to Avoid When Building a Database, Direct

Marketing (Feb 1994)，pp. 40 - 43

31. S. Cooke, "Database Marketing: Strategy or Tactical Tool?" Marketing

Intelligence & Planning (1994)，pp. 4 - 7

32. Anonymous, "How to Build a BIS," Forbes (Feb 28, 1994), p: 59

33. Anonymous, "BIS Tips," Forbes (Feb 28，1994), p: 60

34. R. Shaw and M. Stone, "Database Marketing", Gower Publishing Company

Limited.


P. 108


35. K. Fletcher, C. Wheeler and J. Wright, "Strategic Implementation of Database

Marketing: Problems and Pitfalls", Long Range Planning Vol. 27 (February

1994), pp. 133 - 141.

36. G. Johnson & K. Scholes, "Exploring Corporate Strategy", Prentice Hall.


P.109

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