Strategic plan for applying customer relationship management (CRM) in VPBank

LIST OF TABLE AND CHART Table 2.1- VPBank Financial statement analysis in 2001-2004 Table 2.2- Total mobilized funds in the market I in the period 2001-2004 Table 2.3- List of VPBank’s c

ĐẠI HỌC QUỐC GIA HÀ NỘI

TRƯỜNG ĐẠI HỌC KINH TẾ

LÊ THỊ THANH TÂM

STRATEGIC PLAN FOR APPLYING CRM IN

VPBANK

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS Nguyễn Ngọc Anh Th.S Meghnad Shetty

ĐẠI HỌC QUỐC GIA HÀ NỘI

TRƯỜNG ĐẠI HỌC KINH TẾ

LÊ THỊ THANH TÂM

STRATEGIC PLAN FOR APPLYING CRM IN

VPBANK

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 05

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS Nguyễn Ngọc Anh Th.S Meghnad Shetty

Hà Nội – 2007

TABLE OF CONTENT

Abstract……… i

Tóm tắt……… ii

Acknowledgements……… iii

List of table and chart……… .vi

INTRODUCTION 1

1 Necessity of the thesis 2 Objectives of the thesis 3 Methodology 4 Structure of the thesis CHAPTER 1:THEORICAL FRAMEWORK 4

1.1 The definition of customer relationship management (CRM): 5

1.1.1 Definition of customer relationship management: 5

1.1.2 Comparison between relationship and transactional marketing: 7

1.2 The principle of CRM 8

1.3 The element of CRM: 11

1.4 The characteristics and the challenges of CRM: 15

1.4.1 The characteristics of CRM: 15

1.4.1 The challenges of CRM: 16

1.5 Ideas support CRM: 17

1.5.1 The statistics of Harvard-Business review in December, 1995: 17

1.5.2 Pareto's Principle - The 80-20 Rule: 17

1.6 The benefits of CRM: 18

1.6.1 Long-term profitability 18

1.6.2 Lower costs 18

1.6.3 Repeat customer often cost less to service 18

1.6.4 Opportunities for cross-selling 18

1.6.5 Defection less likely 19

1.6.6 Employee retention 19

1.6.7 Family influence 19

1.6.8 Word of mouth marketing 19

1.7 The reason why CRM fails: 21

CHAPTER 2:BACKGROUND ON VIETNAM BANKING MARKET AND VPBANK SITUATION ANALYSIS 25

2.1 Overview of Vietnam Banking Market 25

2.1.1 Background 25

2.1.2 Commercial Banks' Market 27

2.2.3 SWOT analysis 42

2.2.4 Value chain analyis 48

CHAPTER 3:RECOMMENDATIONS TO BUILD A STRATEGIC PLAN FOR APPLYING CRM IN VPBANK

3.1 VPBank competitive advantages and general strategy from 2006-2010…53 3.2 Application plan of CRM in VPBank: 57

3.2.1 The first phase: Build foundation for CRM 60

3.2.2 The second phase: Deploy CRM 65

3.2.3 The third phase: CRM development 77

3.2.4 Conclusion 79

LIST OF TABLE AND CHART

Table 2.1- VPBank Financial statement analysis in 2001-2004

Table 2.2- Total mobilized funds in the market I in the period 2001-2004

Table 2.3- List of VPBank’s competitors’ software names

Table 2.4- The equity growth rate of banking system and some commercial banks Table 2.5- KPI to evaluate the performance of bank

Chart 2.1– Financial statement analysis

Chart 2.2- Profit structure in VPBank

Chart 2.3- Profit in the first six months of 2005

Chart 2.4- Mobilizing fund grow rate in 2003-2004

Chart 2.5- ROE comparison

INTRODUCTION

Competition in Vietnam business environment increases rapidly, especially when opening the economy By approval of operation of economic partners, competition between industries and units of industry is significantly rising Besides that, expanding economic integration requires firms to improve quality of products and services in order to create competitive advantages

There is high competitiveness between commercial banks in inter-bank market Competitiveness is really carrying out between state banks and joint stock banks, two biggest bank system in Vietnam Moreover, joint venture banks and foreign banks are emerging as potential competitors in the banking market

Foreign banks will absolutely create high pressure on Vietnamese banks When foreign banks are free to operate in Vietnam, they will be big competitors of not only state banks but also joint stock banks This is reason why Vietnamese banks have to apply modern technology in payment and management and diversify services in order

to create competitive advantages

Vietnam joint stock commercial bank for private enterprises (VPBank) is entirely businesses under high competitiveness pressure It is difficult for VPBank to compete against state banks because the government protects the state-owned banks State banks have many advantages under government‟s protection and they definitely drive financial market Furthermore, some joint stock competitors have high capital and large market as well as wide distribution channel To become one of the top five biggest joint stock banks in Vietnam, VPBank must prepare its competitive strategy in next period in order to explore potential markets and enhance its competitive advantages

1 Necessity of the thesis

Joint Stock banks (JSBs) systems in Vietnam are significantly competing with State-owned banks (SOBs) system Because of being result of opening the economy as well as characteristics of economy system, JSBs are controlled by Central Bank much

more tight than SOBs Besides that, set up after SOBs they are really weak in infrastructure, competitive capacities and supported policies Furthermore, when Vietnam becomes member of the World Trade Organization, Joint Stock Banks will face increasingly competitive pressure by foreign banks that have much more high power of finance and technology

Vietnam joint stock commercial bank for private enterprises (VPBank) is one of JSBs operating in Vietnam banking market It is entirely difficult for VPBank to compete with SOBs However, VPBank is opposing increasing competition of Joint Stock competitors in order to exist and development

Moreover, I have been working in VPBank, one of the first Joint Stock banks in Vietnam, as an officer for nearly three years

2 Objectives of the thesis

Based on defining difficulties of VPBank in terms of competing with not only other non-state banks but also state-owned banks, the research will significantly find out a relevant competitive strategy for VPBank in the period from 2006 to 2010 and answer Why VPBank should apply CRM as a competitive tool

To get the general objective the research thesis will take detail objectives: i) examining main effects of external and internal environment on VPBank‟s operation; ii) finding a relevant competitive strategy for VPBank in next five-year period and the relationship between VPBank new competitive strategy and CRM; and iii) how to apply CRM at VPBank

Questions

To achieve these objectives above, the dissertation will answer three key questions follow:

1) What factors have significantly affected operations of VPBank?

2) What will be competitive strategy for VPBank in 2006 – 2010 and the

3) How to apply CRM solution?

4 Structure of the thesis

To regard to the research topic, the research is clearly divided into three chapters including:

Chapter 1: Theorical framework

Chapter 2: Background on Vietnam banking market and VPBank situation analysis Chapter 3: Recommendation on competitive Strategy of VPBank in 2006-2010, and how to apply CRM solution as a competitive tool

CHAPTER 1: THEORICAL FRAMEWORK

The evolution of marketing

The word marketing is derived originally from Latin “mercatus”, which means marketplace It comes from the word “mercari”, which means, “to trade” The word can also be somewhat confusing If you ask people what marketing is, many will respond with a variety of words such as selling, advertising, promotion, targeting, or marketing research The fact is that marketing encompasses all of these and yet many other activities and it is concerned with the identification of marketing opportunities

The traditional view on marketing with the concept of 4ps: Price, Product, Place, and

Promotion, was originally constructed by Niel Hopper in 1964 This approaches that

has then over the years been further developed by a number of authors These four elements are regarded as the traditional marketing mix and the marketing mix approach constitutes a production-oriented definition of marketing where transactions are put in the focus

From the early 1980s an alternative approach to marketing theory and practice was gaining power, namely relationship marketing The term itself can be traced back

to the service marketing literature, through arguably it can be said to have originated in industrial marketing In the scope of industrial marketing this shift from traditional marketing towards relationship marketing are occurring and several scholars are claiming that this is a paradigm shift in marketing defines relationship marketing in the following way: “Marketing is to establish, maintain, and enhance relationship with customers and other partners, at a profit, so that the objectives of the parties involved are met This is achieved by mutual exchange and fulfillment of promises.”

In its earliest forms, relationship marketing focused simply on the development and cultivation of long-term, profitable, and mutually beneficial relationships between an organization and a defined customer group However, the concept quickly broadened to

encompass internal marketing in acknowledgement that the successful management of external relationships was largely dependent on the alignment of supporting internal relationships

1.1 The definition of customer relationship management (CRM):

1.1.1 Definition of customer relationship management:

As already stated, the change of the business environment and the evolution of marketing to adapt to these changes have led to that the way companies organize themselves has switched from product-based to customer-based structures A key driver of the change is the advent of customer relationship management-CRM, which underpinned by information systems convergence and the development of support software, promises to significantly improve the implementation of relationship marketing principles

From another perspective, CRM is a strategic view of how to handle customer relations from a company perspective The strategy deals with how to establish develop and increase customer relations from a profitability perspective Based upon knowledge about the individual customer‟s need and potential, the company develops customized strategies describing how different customers should be treated to become long-term profitable customers The basic philosophy underlying CRM is that the basic

of all marketing and management activities should be the establishment of mutually beneficial partnership with customers and other partners in order to become successful and profitable

In order to more efficiently manage customer relationships, CRM focused on effectively turning information into intelligent business knowledge This information can come from anywhere inside or outside the firm and this requires successful integration of multiple databases and technologies such as the Internet, call center, sale forces automation, and data warehouse There is no universal explanation of what CRM is, since the area is fairly new and still is developing It is therefore important to

remember that several attempts of defining CRM exist and that many companies adapt the definition to their own business and their unique needs The following quotations are three examples of how CRM is defined:

“CRM is a new customer-centric business model that reorients firm operations

around customer needs (as opposed to products, resources, or processes) in order to improve customer satisfaction, loyalty and retention”

“CRM is the integration of customer focus in marketing, sale, production, logistics

and accounting, i.e in all parts of the company’s operations and structure”

“The activities a business performs to identify, qualify, acquire, develop and retain

increasingly loyal and profitable customer by delivering the right product or service,

to the right customer, through the right channel, at the right time and the right cost CRM integrates sales, marketing, service, and enterprise resource planning and supply-chain management functions through business process automation, technology solutions, and information resources to maximize each customer contract CRM facilitates relationships among enterprises, their customers, business partners, suppliers, and employees”

As can be seen above, the three definitions have the following in common:

- They all include activities in all parts of the company

- The reason for CRM is to create a customer relationship focused company In essence, CRM provides management with the opportunity to implement relationship marketing on a company-wide basis However, for CRM to be successful, all activities in a company need to be managed in a combination to reach success

1.1.2 Comparison between relationship and transactional marketing:

Relationship marketing Objectives Transactional

marketing

Relationship marketing

Customer base analysis

and Need perceptions

Mix offer development

We can make it more clearly through this table:

- Only focus on sale

- Promote the characteristics of

product

- Short-term goal

- Don‟t care much for the customer

retention

- Less interaction with customer

- Focus on the retention and the loyalty from customers

- Focus on some characteristics

meaningful to customers

- Long-term goal, short-term cost but more effective and

Implementation Results Review

- Only the manufacturers take care

for quality

- Less commitment

cost savings later

- Emphasis upon higher levels

of service that are possibly tailored to individual customer

- Care for the interaction with customers to gain information

to build the relationship

- Always keep and develop customer relationship

- High commitment

- The entire organization shares

a commitment to quality

Source: Transaction v relationship marketing (adapted from Christopher et al 1994)

Christopher M, Payne A & Ballantyne D 1993, relationship marketing, ButterworthHeinemann

The two comparison tables show that the transactional marketing focuses on the capability of taking over new customers, attracting the potential customers from competitors while relationship marketing focuses on the capability of protecting the market share in the market, keeping close relationship with the current customers, cross-selling and up-selling

A key step towards successful customer relationship management is to distinguish the transaction buyer from the relationship buyer The transaction buyer tends to be interested in price and will easily shift to a competitor who offers a reduced price, even when the service may be inferior The relationship buyer is looking for a supplier they can trust Even when they are aware of cheaper products, they will prefer

to stay with the original supplier for the peace of mind Transaction buyers are rarely profitable as they only discounted items Very often, relationship buyers subsidize the sales of transaction buyers

Database marketing software enables suppliers to separate transaction buyers from relationship buyers For those whose customer files cannot be queried by profit per customer, some system for flagging lower profit transactions is required In some businesses there are time periods when all transactions are discounted Customers who purchase only in these times are easy to identify as transaction buyers

The remaining customers represent potential relationship buyers They can be divided into three district segments:

- Those who are significantly the most profitable;

- Those who are delivering good profit and suggest the capability of becoming top profit customers;

- Those who are only marginally profitable

This leads to one of the most basic database marketing tools: the monetary decide analysis These segment customers into tenths, showing the total profit each decile contributed in the time period specified and the % in the total market that segment represents This analysis is consistent with Pareto‟s law which shows that 80% of a business‟s revenue derives from 20% of customers In most businesses, in fact, 60% of the customer base accounts for at least 90% of sales and an even greater %of profit The next step is to conduct the purchase deciles analysis This involves separating the total sales and profits into tenths to show how many customers account for each

10% of company profit The results of this analysis frequently show that a little more than 1% of customer account for 10% of company sales with an even smaller segment contributing to 10% of total profit Therefore, for a company with 150,000 potential relationship customers, fewer than 1,500 represent 10% of company profit

This analysis can be used to identify the three distinct segments of profitable relationship buyers as follows:

- The first group of buyers: Those customers who represent 10% of the company‟s business and are the most profitable should be the first to be targeted for CRM The purpose of the CRM efforts will be retention Even although it may be difficult to make these customers more profitable, CRM should help assure that none of them are lost to the competition

- The middle group of buyers: The balance of the customers in top 40% or 50% as ranked by sales and profit It will be just as important to target this middle group

of buyers who are delivering good profit but may be capable of moving up to the top of profit level Customers in this group are probably giving some of their business to your competitors CRM activities for these customers should be aimed directly at increasing your company‟s share of their business CRM marketing strategy developed for this middle group of buyer more than paid for the company‟s significant investment in database software within a year

- The final, less profitable, group of customers: The third group of customers represents those who, while profitable, are only marginally so While it is possible that some in this group would move up the sales ladder as a result of increased communications, it will probably not be worth the effort Typically, this group will represent almost half of the customer file Hence this simple analysis has greatly reduced the size of the challenge of implementing CRM

1.3 The element of CRM:

CRM consist of three elements: People, Process and Technology, that help companies to understand their customers To gain the success in CRM project, the company must coordinate all aspects

People and Culture

The culture of an organization must be thoroughly understood before moving forward with an implementation Organizations must concentrate on overcoming resistance It is a strong reason why CRM projects often experience failure Know your corporate culture and where the challenges will be prior to the start of the

implementation so the appropriate changes can be made Create long lasting awareness

that a CRM solution is needed in the organization and exactly why “Customer management behaviors … are often not embedded in the culture of an organization Hence, people change roles and their thinking is either lost or moves with them” (Starkey, 2002) Explain the long-term goals and what the future culture will be so employees can change their perspectives Help them understand that it is a cultural shift that must remain constant even through turnover or promotions

In addition, an organization must consider culture and social norms are not globally consistent For example, the CRM approach in North America is very different from the Nordic School, which focuses “much more on aligning the organizations resources in such a way that ongoing (personal) relationships are formed and maintained” (Schultz, 2002) The description further details that the North American version of CRM is technology driven, and the Scandanavian version is built on personal relationships This means one program may not be able to be rolled out uniformly in Japan, Europe, North America, and India This is an interesting topic for global businesses trying to integrate processes throughout their organizations Organizations must be keenly aware of the differences and how that affects a CRM program There must be flexibility to change the process according to the cultural differences

Employees may be resistant, because they feel overwhelmed with more work or drastically changing responsibilities In addition, there may be blame in areas having significant customer failures In a CRM environment the culture must shift to solutions rather than punishment for errors In order to determine the root cause of problems, the culture must exhibit the freedom to communicate at all levels without fear of recourse for mistakes

In addition, the culture must shift from silos to one integrated operation For example, sales people have traditionally guarded their turf, refusing to share information on customers they have cultivated Teams must begin to work efficiently with other departments and other divisions around the world (Arthur, 2002) This means overcoming organizational and global cultural differences

Clear communication, resources, awareness, and training must be integrated into the culture or the transformation cannot occur “Have a vision and passionately

communicate it” (Brendler, 2001) This means communication is key; it will reduce

resistance of employees Employees want to know how they are expected to support the business The more educated employees are on their new role, the smoother the transformation In addition, providing a forum for employees to give input and give feedback can ease the implementation Implementation should have complete involvement of those that know the business best In order to have success, a complete view of the organization and „buy in‟ should be ingrained into the culture

Process

The current process requires evaluation to determine what changes in the process must occur "This is not just about investing in software; it is investing in a new approach to relationships," says Ronald S Swift, vice president of strategic

customer relationships with NCR Corp (Groves, 2002) Change the process before

making technology infrastructure changes Technology is the enabler not the focus

The process of implementation has fundamental steps of development, implementation, and maintenance There are also four key factors as the project advances from development to maintenance These project factors include teamwork, resource commitment, consensus, and clear communications (Menon et al., 1999) Teamwork is pinnacle at the early stages in the implementation Resource commitment may seem obvious, but it still is an issue for organizations to resource adequately when undertaking a large project Consensus represents the strategic alignment of managers and employees in the organization Clear communication is important for the same reasons mentioned in the discussion on culture A project cannot be successful if it fails

to be methodical from development through maintenance while at the same time incorporating the success factors

During the developmental stage it is important to first define the outcome that is

to be achieved from the project “Ready, fire, aim” doesn‟t work Resist the temptation

to make it up as you go along CRM is complex (Thompson, 2001) A well thought out

strategy is a requirement for success (Menon et al, 1999) This will minimize scope

creep and ensure the ultimate goal is clear At this vital stage it is key to determine the members of the team

The team members of the project should be a cross functional group

representing the different areas of the organization For example, a manufacturing company should include quality assurance, supply chain, operations, accounting, research, and sales departments This is most effective in problem solving and understanding a range of complex issues or opportunities

During the implementation phase of the process it is critical to have strong

commitment from participants, leadership, and the entire organization This

commitment can be best achieved by laying out the project steps of implementation The project must be broken down into achievable steps that are manageable “We tend

to implement in small phases,” says Boise CEO Milliken Focusing on objectives with

a documented plan creates structure to the CRM implementation that ensures resource

allocation and commitment to tasks Resources include financial, people, training, and

support Clear commitment and resource allocation go hand in hand to achieving success A company cannot have success without both factors

There also must be a focus on post implementation involvement to keep the project alive, create continuity and momentum as part of the process The project doesn‟t end after the initial implementation The implementation of CRM is a process and cultural change that must continue to offer results over time In addition, poor follow-up could stifle customer relationships if attention doesn‟t continue

Think of customer relationship management as a never-ending journey with

satisfied customers as guideposts along the way No matter how successful you‟ve been, you‟re never really done with CRM As customer expectations continue to rise, what was exceptional service yesterday becomes the status quo today—and will be going out of business strategy tomorrow (Thompson, 2001, p.64)

Technology

The success of CRM is not based on technology, but is described as the enabler of

the process integration The technology must be strategic, cost effective, and

accessible Strategic technology means there is flexibility and growth for the long-term

corporate strategy The information technology manager must select a healthy company that has a firm foundation in cutting edge software offerings If the goal is to have Internet access for customers to place and track orders, the software must be able

to provide or integrate with such systems The system must also meet the needs defined

by the business for security Failure to take the proper security precautions can be a deadly experience for a business if intellectual property is lost or customer trust is publicly destroyed

The system should be cost effective The technology should aim for configuration,

accommodate unique business processes; it will be well worth the effort when it is time

to upgrade” (Bednarz, 2001) The more customization the harder it is to upgrade to the next version of the software In addition, from personal experience the more code manipulations the less standardized the programming, and harder to proof out in productive systems

Managing the content of this information means ensuring customer information is properly collected, analyzed, and documented so that each department within the company has the customer data it needs to implement CRM functions (Groves, 2002) Otherwise information can create a wealth of data without a positive means of applying

it properly in decision-making

The financial community, the board, and senior management are mostly focused on outcome indicators, especially those pertaining to the value created for investors In addition to conventional financial and share measures the CRM system affords a more finegrained look at marketing effectiveness with respect to customer acquisition and defection rates, customer tenure, customer value and work, percent inactive customers and cross-selling (Crosby and Johnson, 2001, p.2)

1.4 The characteristics and the challenges of CRM:

 Profitability of customer analysis: CRM helps to create the balance sheet of individual customer, and helps the company to invest more effectively on each customer, the profitability is the most important thing to evaluate and classify customers Normally, each company has three classes of customers:

- The first class: Take about 10% of total customers, this class makes the highest profit and has long-term transactions with the company

- The middle class: Take about 40%-50% of total customers, this class makes profit and is very potential

- The last class: Also take about 40%-50% of total customers, the profit of this class is not high and mainly is the current customers who have few transactions

or only come to the company in some special occasions like sale-off, discount

 Customer segmentation: CRM classifies customers into different segmentations and measures the effectiveness of each segmentation

 Marketing campaigns base on customer database: Use the database and information of each segmentation to plan and implement marketing campaigns

 Analysis of customer‟s needs: Help to give personalized product or service to each customer and find more new and potential needs from customers to compete with competitors

1.4.2 The challenges of CRM:

 Have to change the policies and process in the whole

 Need full support from the board of management and all staffs, for example: the way they import the customer information to CRM system and dig this database

 Need large initial cost to invest on software, machine, equipment and human resource

1.5 Ideas support CRM:

1.5.1 The statistics of Harvard-Business review in December, 1995:

- Only 4% of dissatisfying customers complain, the other say nothing but they will come to your competitors In the banking industry, 65% of customer will chose other suppliers if they are not satisfied

- The average person with a problem eventually tells nine other people

- Satisfied customers tell 5 other people about their good treatment

- The cost of acquiring a new customer is 5 to 7 times greater than retaining current ones

- The cost of recruitment a new employee is 10 times greater than retaining current ones

1.5.2 Pareto's Principle - The 80-20 Rule:

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth In the late 1940s, Dr Joseph M Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called can be a very effective tool to help the company manage effectively

The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consumes 80 percent of your time and resources

You know 20 percent of you stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers Also 80

percent of your sales will come from 20 percent of your sales staff 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production

It means that in your company only 20% of your total customer brings 80% of total benefit to you So, CRM help to keep these 20% customers

1.6 The benefits of CRM:

1.6.1 Long-term profitability

At the beginning of CRM project, it takes costly but if the company keeps, maintains and develops the close relationship with customer they will gain the loyalty, and the high retention It means that in a long timescale the company can receive more profit from them

1.6.3 Repeat customer often cost less to service

Repeat customers are more likely to be familiar with the company and its products and may make fewer demands on the time of employees

1.6.4 Opportunities for cross-selling

Over time, business customer often grows larger and may need to purchase in larger quantities Individuals may purchase more products as their families grow or as

they become more affluent Both types of customers may decide to consolidate their purchase with a single supplier who provides high quality service

Another advantage of an increase in cross-sale is the corresponding effect on the organization‟s share of the customer‟s total consumption in the particular market This has been referred to as an increase in the share of wallet and is simply a measure of the consumer‟s expenditure with the organization as a percentage of his

or her total expenditure in that market

1.6.5 Defection less likely

Satisfied customers will be less susceptible to the pull of competition Moreover when customers trust a supplier, they may be more willing to pay higher prices in return for the assurance of quality service (up-selling)

1.6.6 Employee retention

An indirect benefit of customer retention is employee retention The stress associated with dealing with customers who are unhappy with products and services can lead to high employee turnover and poor quality Conversely, customer satisfaction can improve employee morale and encourage them to remain with the firm

1.6.7 Family influence

One of the key factors influencing the choice of many purchases for young people

is parental influence Hence it is assumed that building a relationship with one family member will have an impact on other members of the same family

1.6.8 Word of mouth marketing

The satisfied customers provide referrals and may be willing to pay a price premium And they may generate positive word of mouth and provide free and credible advertising for the institution

In general, we can withdraw three main benefits from CRM, as following:

Main benefits Explanation

Increase customer loyalty Information captured by CRM system

helps a company to identify the actual costs of winning and retaining individual customers

Having this data allows the organization to focus its time and resources on its most profitable customers

Classifying one‟s best customers in this way allows the company to manage them more efficiently as

understanding that it is neither necessary nor advisable to treat every customer in the exact same way More effective marketing Having detailed customer satisfaction

from CRM system allows a company

to predict the kind of products that a customer is likely to buy as well as the timing of purchases

CRM allows for more targeted campaigns and tracking of campaign effectiveness

Customer data can be analyzed from multiple perspectives to discover

campaign had the greatest impact on sales and therefore profitability

Greater efficiency and costs

reduction

Integrating customer data into a single database allows marketing teams, sales force, and other departments within a company share information and work toward common corporate objectives using the same underlying statistics

Source: Adapted from Scullin, S., Allotra, J., Lioyd, G.O and Fjemestad.,J (2002),

Electronic customer relationship management: benefit, consideration, pitfalls and trend

1.7 The reason why CRM fails:

Lack of planning The number- one reason CRM initiatives fail is lack of adequate

planning Planning in this case includes not only a comprehensive project plan, but also

a detailed business case that properly sets expectations for the likely return on investment The CRM plan should be broken down into phases of not more than six months, with measurable goals and success metrics for each phase

Narrow Focus on Technology For many organizations, CRM is technology, but

achieving a true focus on customers and demonstrating a positive return on investment requires that the organization look beyond technology CRM technologies are tools; however, without new or significantly revised business processes and business focus, it's extremely difficult to develop true relationships with customers

Lack of Senior Management Commitment Creating, maintaining and sustaining

customer relationships is not easy; it requires a significant shift in business focus That type of shift is next to impossible without broad senior management commitment Yes, new technology can be implemented, but chances are that the staff who interact with

customers every day will not change the way they do business with customers unless that "new way" is prescribed throughout the organization - and that means from the top down Senior management participation in defining success metrics is also essential

Not Listening to Customers It's truly surprising just how many organizations try to

implement CRM without first talking to customers You can't create and maintain relationships with customers without providing lasting value Additionally, you can't truly know what customers believe is valuable unless you ask them Qualitative and quantitative research with customers is essential to success

Try to Maintain the Organization Status Quo Achieving a customer focus almost

always requires some revisions in the organization structure Throughout the early stages of the initiative, all staff that touch customers need to participate on the CRM task force This group will be instrumental in defining the organization changes required to achieve the organization's CRM goals

Lack of consistent voice: The organization may be able to demonstrate efficiencies in

sales processes with associated ROI; however, long term, it may be difficult to demonstrate just how relationships with customers have been improved This is especially true if related processes and technologies in marketing and customer service remain unchanged Relationships with customers are based on all the interactions they have with the organization Positive strides in one area can be totally undermined by lack of consistent voice and uncoordinated offerings throughout the organization

Not Focusing on Best Customers Many organizations have blown their business case

(if they had one), by not appropriately allocating their CRM resources In fact, the major problem is either trying to focus on all customers equally or, in some cases, focusing too narrowly on only the best customers Most organizations cannot afford to universally improve sales, marketing and service for all customers In fact, the business case should easily demonstrate those customers where improvements are likely to have

 Recognizing best customers with express service, assigned sales and customer service representatives and special benefits Decreasing heavy marketing efforts, except for those that demonstrate increased activity only when incensed or during specific seasons The focus is retention

 Increasing marketing and service efforts with "next best" and marginally profitable customers that show greatest promise (based on statistical models and lifetime value analysis) for increased profitability Also target those unprofitable customers that look most like best customers The focus is additional cross-sell

or up-sell

 Decreasing marketing and service levels for unprofitable customers that have limited probability of higher lifetime values Chances are these are one- time buyers or those that only buy with deep discounts or heavy promotions

Not Beginning with a Pilot It's surprising to us just how many organizations don't

start their CRM initiatives with a pilot project to prove the concept A pilot will quickly demonstrate where you don't have adequate senior commitment and where the business case may be flawed The pilot can also help to further define organizational change requirements Most importantly, a pilot can help you to further qualify what success can mean, especially if you continue your primary research efforts throughout the term

of the pilot

No Customer-Focused Metrics Many organizations fail to revise the metrics they

track to include customer-focused variables The most important variables relate to how customer segments are changing over time The most effective way to do this is through a customer scorecard Your scorecard should track changes in customer profitability and lifetime value, up-sell and cross-sell, and acquisition rate and retention month to month as well as year to year In addition, these metrics and the related trends

should be used during the strategic planning process to set organization and departmental goals and objectives

No Updates on Progress This one is simple - a plan without regular progress updates

is not truly a plan Good or bad, progress must be measured Communicate progress against each of the pre-identified success metrics and against the project plan on a regular basis Discuss how you're adjusting to deal with setbacks

CHAPTER 2: BACKGROUND ON VIETNAM BANKING MARKET AND

VPBANK SITUATION ANALYSIS

2.1 Overview of Vietnam Banking Market

2.1.1 Background

Interbank market is „the playground‟ among the professionals Therefore, its activities receive rules and regulations especially from big events such as the Vietnam-America Bilateral Trade Agreement (BTA), or Vietnam's penetration into World Trade Organization (WTO)

Inter-bank's movement in Vietnam is growing constricted which is conspicuously marked by more attention on risk check and level ranking in transactions Business is run professionally for mutual benefits

Different types of banks are joining Inter-bank including State Commercial Bank, Joint-Stock Commercial Bank, Joint-Venture Bank, foreign bank branches and other financial companies

State Commercial Bank: There are 6 banks of this type now running their business These banks own a large system of branches that can join Inter-bank independently or dependently owing to its policy and management capacity or they can choose not to join Inter-bank market.1

Joint-Stock Commercial Bank system consists of 37 members It is now seeing a decline in number but an increase in scale for each member.2

Joint-Venture Bank, foreign bank branches: 4 Joint-Venture Banks and 27 foreign bank branches are in operation in Vietnam Their customers are mainly foreign financial groups or joint-venture companies Several banks of this kind such as City-

bank or Standard & Chartered Banks have been offering services in Inter-bank, though still humble.3

Financial companies: 5 financial companies that seem unable to afford big business due to shortage of long-term capital want to switch to Inter-bank market Most

of these companies lack of banking tools These banks offer services mainly in sending and lending money, bond transactions, and moneyed papers.4

Market changes take place under the influence of State bank policy Under State bank, state commercial banks play key roles in the market thanks to their large-scale transactions Vietcombank appear a great example as it takes the lead in influencing the market Foreign banks also depend largely on state banks in relation to VND as they have USD surplus and VND in shortage However, this difference will be belittled because the State bank is getting under way to open door policy

Vietnam market is small and has small number of partners, running in the shortage of banking tools and weak cooperation among state banks, so Inter-bank usually run in one direction when there's change For example, the whole market need

or have abundant VND in the same time, so happened to USD

In such occasions, price jumps significantly However, transaction interruption seems even worse

Small and rural joint-stock banks are merged or acquired by bigger banks (decreasing in number from 52 in 2000 to 36 now) and the scales of big banks are extended

Some foreign banks cut down their activities in Vietnam by reducing staff (ABM AMRO), or close (ING, Indosue, Bank of America)

Joint-stock banks increase market share in mobilization (28,2%) and credit (from 12% in 2000 to 22,5% in 2004) as well as profits ( 38,5%)

State banks strengthen the barrier against joint-stock banks, issuing no permission to new banks and setting limit in broadening branches However, they encourage the banks to merged or sold to them

2.1.2 Commercial Banks' Market

2.1.2.1 Enterprises' market:

 State enterprises (SE)

The most recent statistics shows that there are 6000 SE, 5% of the whole enterprises running in the country (160,000 units) The 5% possesses 119,500 billion The number

of below-10 billion-in-capital enterprises occupies 75.5 % of all There are 17 corporations, 91,76 companies and 4000 independent SE in the State group The State corporations hold a number of 1,605 members, 28.3 % of the total number of SE State companies hold 75% of property, 20% of total social investment, 50-70% of total bank credit, 70% of foreign loans and 98% of joint-venture projects with foreign countries They contribute 40% GDP and 50% export turnover

Those enterprises that make profits claim 76.9%, loss 15.8% and even 7.3% Average profit rate in State enterprise' s capital reaches only 10% Profitable businesses belong

to small and medium-sized enterprises

Of the 17 corporations 91 holding large amount of state budget, 12 of them make loss or even and only 5 make profit Those corporations making profit are mainly state monopolies In 2004, the government makes attempt to minimize the number of

SE borrowing money with favored interest rate

In 2004, the government also continues inequality between different economic sectors Bank laws will be amended to clarify the roles of each type of bank

 Privatizing State Enterprises

Of the 6000 SE, only 1300 finish privatizing and diversifying ownership Of those privatized that did well Vinamilk takes the best example Hanoi has 100 State enterprises under privatizing process and the government intends to keep other 60

SMEs related to spearhead industries, 28.8 % of total State enterprises such as electronics, information technology, mechanics, garment and textile, leather and footwear unchanged Industrial enterprises of this area must own a capital and turn-over more than 10 billion with a staff of over 200 and contribute to the budget over 1 billion

The market is characterized by high demands for credit and banking services; diversified areas; favorable conditions for loan and property security However, this subject requires interest priority and other cost The group contains latent risk when there's change in leadership

Moreover, these companies can take their advantages in relation to governmental offices And in addition, the ownership gives the staff and leaders impetus to well perform their tasks

Banks need to maintain relationship with the area to strengthen their services in the future when this area becomes advanced

 Big private enterprises

There are over 150,000 private enterprises, though unlisted but the number of BPE

is quite large In fact, only successful businessmen can build such great private-owned companies, groups like Hoa Phat, Masan, Gammi, TCT etc

The development trend of this session is optimistic Enterprises outside state sector will grow quickly into strong conglomerates due to government guidelines of developing private economy Corporations can grow from small companies or be established by merging smaller enterprises VPbank need to build strong shortcut strategy to meet these potential demands, as they are delicious sausages to any banks

 Small and medium-sized private enterprises

According to latest statistics, private sector has 80,000 newly built units, the total number of enterprises nationwide increases to 150,000 four years after the introduction

of business laws This economic area is proving to be the most dynamic area in our economy

Besides SMEs, 14,207 cooperatives with 8349 in Agriculture, 570 in Trading and services, 927 people's credit fund, 2069 in industry and small craft industry, 1027 in transportation, 481 in construction and 538 in fishery provides jobs for about 7.2 million people Hanoi owns 768 cooperatives of which 354 in agriculture and 246 in others While HCM city has 6 cooperatives leagues, 380 cooperatives and 1653 complexes

After 4 years run under business law, the rate of private enterprises out of the registered declines from 64%( 1991-1999) to 34% while the rate of joint-stock enterprises increases from 36% to 66% That the number of 7000 joint-stock companies registered shows a tenfold compared to period '91-99 80-85% of the registered are now in operation This area has new investment and capital increase to 144,000 billion VND (9.5 billion USD) The investment rate has made a gradual rise from 20% in 2001 to 27% in 2003 This rate in HCM city amounts to 38%

Before 2002, SMEs are main customers of joint-stock banks However, State Banks switch to pay more attention to this market share Up to third quarter of 2003, VCB has lent 5.378 billion VND to 1044 SMEs, emphasis was put on successful enterprises with

premise, technology and good potential for further development

 Foreign investment sector

By September, 2003, there have been 4178 foreign investment projects licensed with the total registered capital of US$ 40,02 billion, 2163 business and manufacturing projects of that the total registered capital is US$ 25,4 billion and the other 75 projects with the total registered capital of US$ 9,5 billion nationwide

By September, 2002, there have been 2,014 foreign invested enterprises doing business in Vietnam in which 1337 enterprises are wholly foreign invested ones, an increase of 786% in comparison with the same period of 1995, in which 1539

enterprises in industrial sector, 141 enterprises in trading, tourist- restaurant, service sector, 88 enterprises in construction, transportation and post and telecom, 54 enterprises in agro-forestry, fishery sector and 192 enterprises in other sectors

By the end of February, 2003, the proportion of Foreign invested enterprises in the total industrial production value is 26.3%, increasing 54.8% in garment, 32.5% in beer, 20% in silk, 70.9% in pesticide, 90% in tablet, 49.6% in hygiene porcelain, 42.9% in cement, 21.8% in tile, 20% in transformer, 27.3% in electric fan, 46.4% in TV, 64.1%

in car, 99.6% in motorbike production, etc (compared with the same period of 2002)

2.1.2.2 Household and retail market

Consumption and retailed market is a potential market of Banks (in 2002 Standard Charter Bank had a proportion and benefit from banking services of 51% and 44% in total surplus debt and profit of credit) Some retailed products of VPBank such

as “new houses” and “brand new car” have also gain a marked growth since implemented in 2002 than planned figures (over 1000 clients for each)

The division of market is as followed:

- The division of market according to geography, urban and rural population

- According to provincial geography

- According to job (monthly paid workers who can be classified according to average income per month and private business)

- Retailed market can be classified into market of clients who use services and products

of Bank such as saving, buying cards, real estate loaning, loaning for car buying, loaning for studying abroad

2.2 Situation of VPbank

2.2.1 Vision

Up to 2010, VPbank will become the first-ranked commercial bank in the northern of Vietnam in the credit service; especially installment consuming loans and

2.2.2 VPbank’s mission, strategy and performance results in 2001-2005

VPbank was established on 12/8/1993; at the same time that many commercial banks were born (there are 54 new commercial banks) Most of the commercial banks mainly operate in the biggest cities of Vietnam; the 21 remaining banks operate as the rural banks All the headquarters are placed in Hanoi, Ho Chi Minh City and they expand their branches to other big cities like Hai Phong, Da Nang, Vung Tau In Hanoi there are six headquarters and 12 branches of other banks

The period from 1993 to the beginning of 1996 is the strong development of VPbank as well as other banks At that time, VPbank‟s profit was remarkable but the hot development period pushed VPbank into the financial crisis quickly that lasted nearly 10 years

At this time, VPBank has not had any clear strategy because all the efforts are concentrated on recovering themselves from Hanoi state bank‟s special control

From 2001 to 2004, this is the period that VPBank had to try their best At the end of the year 2000, the NPLs number was 335 billion VND, but 90% was frozen NPLs and NPLs from the deferred L/C was over 36 million USD VPBank was put in the second special control from Hanoi state bank on September 1st, 2002

From that time, the board of management took all their efforts to recover VPBank from the special control and the immediate tasks are the reducing of NPLs and deferred L/C in the minimum amount

The objectives of VPBank in 2001-2004:

- Complete the loan approval procedure, lessen the risk in making loans

- Associate with the legal organization to collect the NPLs by liquidating their collateral

- Negotiate with foreign partners to write-off for VPBank

- Associate closely with Hanoi state bank, provide full of required reports

- Restructure and Union the whole of employees to try their best to help VPbank

overcome the difficult period

- Improve VPBank financial statements

- Keep all shareholders calm

- Improve the information technology

Table 2.1: VPBank Financial statement analysis in 2001-2004:

Unit: Mil VND

Criteria 2001 2002 %(+/-) 2003 %(+/-) 2004 %(+/-) Total assets 1,297,124 1,476,732 13.85% 2,491,853 68.74% 4,149,288 66.51%

Chart 2.1: Financial statement analysis

0 500,000

% NPLs

See on the chart, the situation of total assets, VPBank‟s total loan balance and the ratio

of NPLs has been improved considerably The columns that show the total assets, total loan balance are higher year by year and the line that shows the ratio of NPLs goes down below 1%, this is the sign of bright operation And on July 6th, 2004, Hanoi state bank gave the decision No 835/QD-NHNN to stop the special control to VPBank However, the growth rates of the total assets and outstanding loan are not balance; there is still a big gap In the asset side of the statement balance, credit portfolio takes the majority but it reduces year by year, and others like money market investment, securities investment increase

Chart 2.2: Profit structure in VPBank (mil VND)

Source: Vpbank annual reports 2002; 2003; 2004

These charts represent clearly the profit structure of VPBank In 2002, the percentage

of profit from the credit portfolio is 34% but in 2004 it is only 14% And the profit from banking services reduces considerably from 47% to 6% These two profit portfolios of the bank, so their decrease is the warning bell for VPBank operation (more detail in SWOT) At this time, perhaps VPBank escapes from the dangerous area but in the long term VPBank needs a clear strategy

So, Where VPBank‟s profit mainly comes from? They come from the profits of bank investment and securities trading from 54% (44%+10%) to 72% (14%+58%) In the fact, these profits are safer and more profitable; they are the tools to help VPB overcome

inter-However, I can make more detail about the profit from those two portfolios above, it mainly comes from:

- The difference between the interest rate of USD and VND

- The cheap capital in the inter-bank market from the big state-owned banks like VCB or BIDV

These activities are short-term, not professional and easy to copy If other competitors recognize, they can copy whenever they want, so it will put VPBank in the difficult situation And there are other limited reasons for the long-term:

- The USD interest rate in the increasing trend

- The interest rate for mobilizing fund is going up, so the cheap capital in the interbank market will be rare

Besides these activities to be continued, in 2005 the board of management has cared for improving the effectiveness of other activities to help VPBank grow stably and firm such as opening more branches, VPBank brand promotion, sale promotions on the special occasions like VPBank‟s birthday, Tet holiday

Chart 2.3: Profit in the first six months of 2005

Profit from loans Profit from services

Profit from inter-bank market investment Profit from securities investment

Profit from FX trading Others