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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
The University of Hong Kong Master of Business Administration
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
A Case Study of Management Information Systems in Hongkong Bank
The University of Hong Kong Master of Business Administration
TABLE O F CONTENT (Cont'd)
Appendix 11 Live Examples of Database Marketing
Systems in North America 9 3
Appendix III References 105
A Case Study of Management Information Systems in Hongkong Bank
The University of Hong Kong Master of Business Administration
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.
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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.
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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
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The University of Hong Kong Master of Business Administration
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.
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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
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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
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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,
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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.
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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
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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
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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.
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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.
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Dimensions/Applications of Database Marketing
圓 f Decision support tools
Sources ; American Management Systems
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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.
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(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
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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)
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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.
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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.
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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
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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:
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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
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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
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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.
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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.
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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
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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.
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(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
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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:
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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.
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(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.
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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
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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.
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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).
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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.
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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.
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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.
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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
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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
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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
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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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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(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.
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The University of Hong Kong Master of Business Administration
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,
A Case Study of Management Information Systems in Hongkong Bank
P. 93
The University of Hong Kong Master of Business Administration
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.
A Case Study of Management Information Systems in Hongkong Bank
P.94
The University of Hong Kong Master of Business Administration
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
A Case Study of Management Information Systems in Hongkong Bank
P.95
The University of Hong Kong Master of Business Administration
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
A Case Study of Management Information Systems in Hongkong Bank
P.96
The University of Hong Kong Master of Business Administration
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
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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
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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
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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."
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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
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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).
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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.
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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.
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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
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Journal (Spring 1994), pp. 31 - 38
8. H. Glover, H. J. Watson and R. K. Rainer, "20 Ways to Waste an EIS
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16. T . H. Davenport, "Saving IT's Soul: Human-Centered Information
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21. J. Miglautsch, "Drowning in data?" American Demographics (March/April
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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
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International Bulletin (Jan 1995), pp. 9 -
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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.
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35. K. Fletcher, C. Wheeler and J. Wright, "Strategic Implementation of Database
Marketing: Problems and Pitfalls", Long Range Planning Vol. 27 (February
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36. G. Johnson & K. Scholes, "Exploring Corporate Strategy", Prentice Hall.
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