Strategic plan for applying customer relationship management in Vietnam joint stock commercial bank for private enterprises

Strategic plan for applying customer relationship management in Vietnam joint stock commercial bank for private enterprises Lê Thị Thanh Tâm Khoa Quản trị Kinh doanh Luận văn Thạc sĩ ngành: Quản trị kinh doanh; Mã số: 60.34.05 Người hướng dẫn: Nguyễn Ngọc Anh, Megh Shetty Năm bảo vệ: 2007

Strategic plan for applying customer

relationship management in Vietnam joint stock commercial bank for private enterprises

Lê Thị Thanh Tâm

Khoa Quản trị Kinh doanh Luận văn Thạc sĩ ngành: Quản trị kinh doanh; Mã số: 60.34.05

Người hướng dẫn: Nguyễn Ngọc Anh, Megh Shetty

Năm bảo vệ: 2007

Abstract: Nghiên cứu định nghĩa cũng như những lợi ích và nguyên tắc triển khai

hiệu quả quản trị quan hệ khách hàng Mô tả và phân tích thực trạng của VPBank trong ba năm gần đây và những so sánh đánh giá giữa VPBank và các ngân hàng đối thủ hiện tại Đưa ra một kế hoạch mang tính chiến lược gồm ba giai đoạn để xây dựng

và triển khai CRM tại VPBank

Keywords: Quan hệ khách hàng; Quản lý tiếp thị; Quản trị kinh doanh; VPBank Content

I NTRODUCTION

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 relationship between the new strategy and CRM?

3) How to apply CRM solution?

3 Methodology

To find a relevant strategy for VPBank, the thesis will analyze competitive advantages based

on analyzing SWOT and value chain

Data is definitely collected from secondary data source They are government’s reports, Central Bank’s annual reports, legal documents related to banking system, VPBank’s

Annual reports, VPBank’s surveys and banking articles Besides that, the research uses data collected from other Joint Stock Banks and State-owned Banks

The research also uses comparison and contrast methods in order to answer the research questions

4 Structure of the thesis

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

Chapter 1: Literature Review

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

C HAPTER 1: T HEORICAL FRAMEWORK

1.1 The definition of customer relationship management (CRM):

1.1.1 Definition of customer relationship management:

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”

1.1.2 Comparison between relationship and transactional marketing:

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

- 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

 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

Technology must be given a 20% weight, while people and business process should be 50% and 30% respectively

1.4 The characteristics and the challenges of CRM:

- 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:

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

C HAPTER 2: B ACKGROUND ON V IETNAM B ANKING MARKET AND VP BANK SITUATION

ANALYSIS

2.1 Overview of Vietnam Banking Market

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

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

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

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 VPBank difference

is created by effective customer relationship management

come from 30.7% to 46.7% during the two years 2003-2004, including that savings take the most percentage

Mobilizing fund growth rates in 2003-2004

- Thirdly, the NPLs rate over the total loan balance in VPBank is low at the current time After VPbank was in Hanoi state bank’s special control with the NPLs rate 37% (2001), this current rate is only 0.5% (2004) The number can say that VPbank are operating very safely

- Forthly, VPBank has the strong relationship in the inter-bank market It helps VPBank increase the profit that comes from the inter-bank market investments, securities trading…At the current time, these activities are mainly feeding all VPBank system

 Weakness:

- Firstly, sparse experienced managers and staffs, insufficient pool of good staff for expansion

- Secondly, management and control still a distance from good banking practices

- Thirdly, lower reputation compared to leading competitors

- Fourthly, small and high risks customer base

- Fifthly, varying service quality, small range of products and services

- Sixthly, VPBank weak point is the information technology system, the software that

VPBank is applying is not very useful anymore because the demand of customers is developing; they want to buy modern bank services While other competitors have finished the modernizing-bank project, VPBank still use B2K With new application software, the competitors can deploy some new services that attract customers like mobile-banking, home-banking…Although these services are not popular with the medium and low income customers now, they promote brand names for VPBank’s competitors

 Opportunity:

- Firstly, it is the high entry for the new comer In fact, to open a new one, the legal regulations are required so complexly Moreover, the state bank’s guideline is to build the really strong commercial banks to compete with the foreign ones, they do encourage opening more new small banks With VPBank, the domestic competitors do not arise but it is easy to appear the merge and acquisition trend in the future The competitors are the current domestic banks, foreign banks, and the financial companies that provide the same services such as insurance company, post office savings, and securities exchange…

- Secondly, Vietnam government are maintaining the market economy, so in the future the growth rate of Vietnam economy goes up stably and firmly This environment encourages the private economy sector to develop; this is also the target market of other retail banks and VPBank

- Thirdly, the habit of Vietnamese people is changing day by day, the new generation has newer thinking, newer habit The intellectual has the high and stable income; they want to be independent with their parents when they are still young It will increase the demand of instalment loans for purchasing car, house… Besides, Vietnamese people are turning into using non-cash payment, they will use plastic and chip payment cards like ATM, Credits card…This is the big opportunities for banks including VPbank

- Fourthly, the banking industry has the potential development trend and high profitability, at this time the stocks of commercial banks are so attractive in the investors’ eyes This opportunity still offer to other bank like VPBank, they still keep investors’ belief because Vietnam commercial banks’ strategies are to develop stably and firmly and to reduce the risk

as much as possible

 Threat:

- Firstly, SOCB reform resulting in SOCB’s targeting SME segment

- Secondly, leading competitors have accelerated

- Thirdly, foreign banks preparing for market penetration

- Fouthly, non-bank financial services: insurance, leasing, postal savings are potential threats

- Fifthly, Vietnam’s economy is still high-risk

- Sixthly, many sectors are facing difficulties with economic integration

2.2.3 Value chain analysis

After taking value chain analysis and comparing with some selected competitors We can understand where VPBank is standing in the market and what competitive advantages from VPbank are better than others VPBank does not expose anything that is the best, VPBank only has some points that are relatively strong and able to compete (not much worse than VPBank’s competitors), they are credit business and service after sale In order to strengthen VPBank’s competitive advantage, they should apply CRM

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

With the competitive strategy above in 2006-2010 period, the application plan of CRM program is divided into 3 phases:

+ The first phase (2006-2007): Build foundation for CRM, especially VPBank customer database

+ The second phase (2007-2009): Deploy CRM

+ The third phase (2010): Review, evaluate and develop CRM

3.2.1 The first phase: Build foundation for CRM

CRM is a long-term program with the success ratio that is only 50% However most of the successful companies are small and medium ones, VPBank must have the preparation period in order to build the foundation for CRM

As analyzed in the theory part, CRM consists of three elements: People, Procedure and Technology So, what does VPBank have to do for this phase?

3.2.1.1 VPBank has to prepare “people”

VPBank must build a core team for CRM application They are the key persons for the whole project; they come from all departments for example: the board of management, deposit, credit, and accounting…

 Some basic requirements to recruit human resource for CRM core team:

+ Have long experience in VPBank

+ Come from all departments

+ No need long experience in IT

+ Need one person who will be expert at the changes and procedure management