McKinsey & Company Financial Services Investment Banking - 3

Marketing and Distribution

Articles published

Imperatives for Success in Private Banking
Jacques-Olivier Quilghini, Frédéric Vandenberghe, and Felix Wenger
06.05.2005


There is broad consensus in the private banking industry that challenges lie ahead, notably - intensifying competition, the need for constant product innovation, and a new drive for professionalism.

Qualifications and Experience


Virtually every major financial organization is facing the same dilemma: how to create sustainable long-term growth. Over the last several years, financial institutions have captured the "easy" earnings enhancements from operational improvements and cost reductions, yet they remain under considerable pressure to increase earnings. One traditionally under-emphasized area they have turned to is Marketing. They are increasingly focused on obtaining a better understanding of their customers, and developing customer experiences and marketing capabilities that capitalize on those insights. At the same time, they are facing challenges related to their Distribution function. Captive forces are finding it increasingly difficult to achieve and sustain growth in numbers and productivity. Many companies look to third party distribution as a potential source of growth, but struggle with the challenge of effectively working with powerful, distributed intermediaries.
Our Financial Services Marketing & Distribution practice integrates our knowledge of business strategy, organizational performance leadership and operations excellence to serve clients in these areas. Our capabilities include helping our clients:

More productively market to consumers. We help our clients take a holistic view to all of the activities that they use to market their products and services. We utilize a series of proven levers to achieve significantly higher performance across the consumer funnel, from awareness to usage and consumer loyalty. Using both effectiveness and efficiency techniques, clients realize improved performance in their marketing investments, often reducing the total amount of resources consumed by marketing activities.

Develop and deliver a superior customer experience. Financial services companies impact their customers’ overall experience with them across a large number of touchpoints. We help our clients evaluate current and potential service delivery models across channels and identify opportunities to better create the experiences that they promote and promise to their customers. McKinsey uses a proprietary approach and data on business and segment-specific consumer behavior to prioritize investments and optimize marketing spend – ensuring our clients maximize the financial impact of their customer interactions across key drivers of customer value.

Generate sustained revenue lift of 5-10% in their captive sales forces. Leveraging a proprietary understanding of producers’ mindsets and barriers to sales at various stages of their careers, we have developed distinctive capabilities in several specific areas including: Recruiting, Teaming, Training, Compensation and the roles played by two critical entities: the Home Office and the “Front Line Managers.” These capabilities help our clients achieve sustained productivity improvements.

Effectively market to and capture the opportunity presented by the large and growing Hispanic consumer population. Many financial institutions are attempting to capitalize on the large and growing base of Hispanic consumers in the U.S., but they are still in early stages of developing specific strategies and tailored value propositions. We work with our clients to: target specific segments of the Hispanic customer base where they can be most effective, build distribution "in-community" to target and reach them, develop "in-culture" customer experience that goes beyond just serving Hispanics customers in Spanish to appeal to their cultural values and beliefs, tailor their product offering and develop winning value propositions, and build the necessary organizational capabilities to effectively understand, focus, and reach this attractive population

‘Crack the code’ on third-party distribution. Our experience includes an in-depth understanding of traditional and emerging third-party channels including IFAs, IBDs, RIAs, Banks, and Independent Agents.”

Case Studies
Learn more about our practice.

Refining Agency Strategy for a Personal Lines Insurer to Drive Profitable Growth and Cross Sell
Improving Institutional Sales-Force Effectiveness at a Universal Bank Developing a New Sales and Service Model for Private Banking Customers
Developing a Wealth Management Strategy at a Large Life Insurance Company
Improving Marketing-Spend Effectiveness to Improve Customer Acquisition
Reorganizing Sales and Marketing Functions in Institutional Asset Management
Developing a New Sales and Channel Strategy for the Retirement Market
Designing New Pricing and Product Value Propositions
Developing a New Brokerage Compensation Plan
Optimizing the Retail Network
Customer Relationship Management
Improving Performance of the Small-Business Segment
Using a New Branch Strategy to Drive Growth
Improving Retail Sales-Force Effectiveness


Refining Agency Strategy for a Personal Lines Insurer to Drive Profitable Growth and Cross Sell
A U.S. insurer turned to McKinsey to help improve its distribution strategy, including a push to sell a broader range of financial services products.

Background
Over the past few years, a number of industry- and company-specific factors had led a US personal lines insurer to conclude that it should review the direction of its distribution and agency strategy. Two key factors: poor profitability in certain lines, and a wish to increase the emphasis on a broader financial services product set.

The insurer asked McKinsey to develop a long-term strategy for the agency force to address these issues. The client also wanted McKinsey to lay the foundation for profitable growth and diversification into a broader array of financial services, such as investment products.

Analysis and Teamwork
The McKinsey team reviewed corporate aspirations and major industry trends to identify the implications for the client's agency force, including the need to broaden the product set.

To assess the current state of the agency force, McKinsey built a database of statistics, including the degree of cross selling and agency size. Agent interviews helped identify high-level opportunities. McKinsey also benchmarked other diversified players to help shape the client's vision.

The McKinsey team took an in-depth look at agent compensation, sales support and field management. This included identifying ways to adjust compensation for incoming agents to promote growth and the cross selling of products more effectively. To better balance sales and administration, the team benchmarked field management models and explored scorecards and metric-based incentives.

Results
McKinsey convinced its client of the need to change its agency strategy and achieved buy-in for major concepts. After additional work to refine McKinsey's recommendations, the client planned to implement changes nationwide.

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Improving Institutional Sales-Force Effectiveness at a Universal Bank
McKinsey's customized institutional-coverage model increased an investment bank's institutional fixed-income sales-force production and deepened investor relationships.

Background
An investment bank turned to McKinsey to help its institutional fixed-income sales force become more effective. The client had no structured account planning for fixed income and various product groups acted like silos with little interaction between them.

Analysis and Teamwork
McKinsey started by detailing the institutional sales models, processes and strategies of top competitors. The team conducted more than 100 coverage-model interviews with other banks on such topics as: how to sell and to whom (account prioritization); silo vs. cross-sell alignment; sales organization including reporting lines and regional considerations; and leveraging of credit synergies. The team then benchmarked against these results.

McKinsey created a new organizational and coverage model for the client's fixed-income sales force with an implementation and transition plan. The model aligned the sales-force organization to a more customer-centric structure that more accurately reflected the portfolio-manager set up. The program resulted in the shifting of staff and some new hires.

The McKinsey team created an implementation strategy in syndication. About 90% of this plan was implemented in three months.

Results
McKinsey's customized institutional-coverage model increased the client's production and deepened investor relationships.

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Developing a New Sales and Service Model for Private Banking Customers
Developing a New Sales and Service Model for Private Banking Customers
McKinsey helped a private bank migrate its clients to a more profitable and lower cost service platform.

Background
A private bank realized that about 30% of its client base was unprofitable because of minimal sales efforts and high costs of service. To address these twin issues of low service quality and high expenses, the client asked McKinsey's help in defining a new model that would migrate all its customers to a lower-cost, remote service platform.

Analysis and Teamwork
The McKinsey team began with interviews within the bank to evaluate customer interests and needs and to define the value proposition. It assessed existing capabilities and competitor service models and offers. Definitions of client segments were reviewed.

Brainstorming was conducted about the client's aspirations for customer service, including call centers and IT systems. The team estimated the reduction in costs from moving to remote service, and used cross-sell data from higher-value customers to gauge the potential increase in revenues from improved cross selling.

After a thorough analysis, the team designed a new sales and service model around existing capabilities, and developed an implementation plan that both defined the process for transferring clients to a call center and designed a pilot program to test the new approach.

Results
The client piloted the new sales model using the detailed implementation plan. Opportunities to cut costs by about 20% and more than double revenues were identified along with additional benefits from improved coverage of higher-tier clients.

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Developing a Wealth Management Strategy at a Large Life Insurance Company
To extend its product offerings, a life insurer bought a wealth manager identified by McKinsey and cut 40% of the target's cost base.

Background
A large life insurance company wanted to understand and choose between different models for successfully competing in the life and wealth management arena.

The client realized that while wealth management was attractive, it was challenging for life insurers, as product offerings were increasingly in competition with those from asset managers and banks. There were a number of possible responses for life insurers, including manufacturing more wealth management products, forming distribution alliances and/or acquiring distribution, or developing the capabilities of existing sales forces.

Analysis and Teamwork
The McKinsey team first assessed the viability of the client's retail businesses and found its operations to be vulnerable and in need of gaining significant scale. The team assessed various acquisition candidates from a strategic and financial perspective on price and synergies. It conducted a due-diligence process and helped manage the merger.

A sales force and retail distribution strategy was articulated along with the value of a multi-channel distribution strategy that targeted different customer segments.

Results
McKinsey analyzed a major acquisition, which was made by the client. The merger was successful, as it was ahead of schedule in reducing 40% of the target's cost base. Conflicting views on what comprised the best distribution strategy remained to be resolved.

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Improving Marketing-Spend Effectiveness to Improve Customer Acquisition
By refining customer segmentation and improving the marketing planning process, McKinsey helped a leading securities player to cut its marketing budget while improving spending effectiveness.

Background
A leading securities player had seen little improvement in customer acquisition despite more than doubling its marketing budget. The CEO asked McKinsey to improve its spending effectiveness and help it to market more strategically.

The client wanted to identify bottlenecks to brand growth, marketing-dollar reallocation and marketing alignment with customers. The client asked McKinsey to develop recommendations on vehicles, messaging and spending through a finer customer segmentation. The client also wanted to develop a better planning process and assess correct spending levels for each customer type.

Analysis and Teamwork
In the first phase, the McKinsey team conducted 500 interviews to analyze customer segmentation and acquisition, assess conversion rates and develop a needs-based segmentation. It then allocated marketing dollars to improve customer awareness, consideration and trial of the client's products. The team reorganized marketing around the customer funnel.

In phase two, McKinsey conducted further research around an additional 50 attributes and repositioned the brand from mass market to one focused on the targeted "rugged-individualist/self-reliant investor" segment. To facilitate better planning, McKinsey developed a cookbook with selection criteria to narrow the number of sustaining and high-opportunity markets for investment. McKinsey worked with a media-planning agency to decide markets, vehicles and the requisite spending levels to close gaps.

Results
The client made all recommended changes, including rolling out a new brand positioning, installing a new marketing organization, implementing performance metrics and differentiating the planning process. The client reduced the marketing budget to $70-80 million from $100 million by improving the efficiency and effectiveness of its advertising investment.

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Reorganizing Sales and Marketing Functions in Institutional Asset Management
A large institutional asset manager took steps to improve client service, reduce asset attrition, improve cross-sale rates, and increase assets from new clients.

Background
A large institutional asset manager was performing poorly on client service for its mostly managed accounts, compared to competitors.

It asked McKinsey to help address a number of issues, including inconsistent client segmentation, a lack of institutionalized client knowledge, the need for a global approach, and a misalignment of goals. Service was not team-based, there were no systematic client-feedback processes, and there was no reliable and replicable service model. Roles were unclear with no internal coordination around client acquisition, cross selling and retention.

Analysis and Teamwork
Instead of multiple CST combinations and interactions, McKinsey developed multi-functional and client-focused regional teams, which reduced the number of client interactions dramatically.

The McKinsey team set appropriate incentives and metrics, aligning goals by tying them to compensation on the basis of 60% individual targets and 40% team performance. It improved customer segmentation by allocating teams by regions instead of by client types, with at least one top performer for each.

Sharing best practices was institutionalized with templates profiling competitor and client information to stimulate cross selling. McKinsey differentiated the service model for high potential and multi-product clients.

Results
McKinsey put in clear performance measures to reduce asset attrition from 20% to the 10% industry standard, to increase client satisfaction measured by surveys, to increase cross-sale rates, and to lift the acquisition rate of total assets from new clients. While there was an immediate morale boost, the financial impact was set to begin within six-to-nine months on the yearlong implementation program.

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Developing a New Sales and Channel Strategy for the Retirement Market
McKinsey's client adopted a McKinsey program to improve 401K and IRA profitability through such measures as reducing the degree of customization in its large-plan segment.

Background
The client wanted McKinsey's help in assessing the growth options for the retirement business, including developing a new strategy and tactical moves to improve profitability. The primary focus of work was on the 401k segment, but IRAs were also considered.

Analysis and Teamwork
The McKinsey team began by analyzing the forces at work in the 401K industry by segment size. This included looking at sponsors, participants and competitors. It also examined the client's current book of business for 401Ks and measured such key revenue drivers as revenues and costs per participant, the share of proprietary funds and the degree of customization. McKinsey benchmarked the client to its competitors and built up a 401K industry cost curve based on extensive interviews and modeling.

The team reviewed the client's IRA operations, focusing on branding spend and brand building with strong retirement attributes, along with the client's ability to mine its database for cross sales. The team studied how to attract more IRA rollovers.

Results
As a result of McKinsey's work, the client outsourced small 401K plans and expanded its platform to leverage its strong distribution. The client made several tactical changes, such as restructuring and repricing 401Ks. This involved changes in share classes and introducing fees. A process was put in place to reduce the degree of 401K customization in the large-plan segment, and a performance-measurement system was developed.

A new process for acquiring and servicing IRA customers was adopted, as were measures to galvanize financial analysts to increase business.

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Designing New Pricing and Product Value Propositions
A leading retail bank increased its value per customer and reduced front-line confusion by adopting McKinsey-driven changes in pricing and products.

Background
A leading retail bank with a full-product suite across deposits, credit and investments asked McKinsey to help adjust its product design and pricing to better reflect customer needs and bank economics.

Analysis and Teamwork
McKinsey began by conducting a time-series analysis on pools of customers with different product holdings to determine the impact of products on behavior and economics. The team tested such important parameters as full and silent attrition, balance growth, growth in numbers of products, changes in transaction behavior and economic evolution.

Based on the team's analyses, the client reset its product-minimum balance and fee levels and identified areas for new product introduction. McKinsey supported the changes with field education to clarify the product suite.

Results
An immediate change in pricing and conditions for core products resulted in a higher value per customer and a reduction in front-line confusion. Additional adjustments to the product offering economically closed spaces caused by core product repricing.

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Developing a New Brokerage Compensation Plan
A large national retail broker increased cross selling to current customers, significantly lifted its profitable-customer base and reduced broker attrition through McKinsey's segmented distribution plan.

Background
A large national retail broker wanted to redesign its compensation system for brokers. Existing methods were designed to attract a large number of clients rather than expand relationships with high-value clients.

Analysis and Teamwork
Using McKinsey's competitive analysis of compensation programs for leading brokerage firms, the team defined strategic and economic goals and structural components of a new compensation plan for the client. This involved aligning compensation with brokers, products and customer profitability. It also included growth and retention incentives.

After the team analyzed the brokers' likely behavioral changes due to the new compensation structure and evaluated the overall P&L impact, it set final compensation rates. McKinsey also evaluated the impact of the new compensation upon each broker.

Results
McKinsey created a segmented-distribution program for the client by developing a tailored compensation structure for brokers serving distinct customer segments. This increased the cross-sell rate to current customers, significantly grew the profitable customer base and reduced broker attrition.

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Optimizing the Retail Network
A large U.S. regional bank turned to McKinsey to develop a comprehensive retail network plan that would improve profitability.

Background
A large U.S. regional bank sought McKinsey's help in developing a comprehensive plan to optimize the bank's retail network and enhance near-term profitability.

Analysis and Teamwork
McKinsey's effort focused on four key areas. The team developed a branch strategy that outlined key micro-markets for expansion and rationalization, and designed actionable tactics to reduce breakeven time for de novo branches.

To improve in-store performance, McKinsey determined tactical actions that would enhance in-store profitability, such as lifecycle-based re-staffing, and identified unprofitable stores to shut down.

To enhance ATM profitability, McKinsey identified over 5% of the ATM network that was unprofitable and sites that could therefore either be eliminated or made profitable by renegotiating rents.

McKinsey determined the typical role of each channel for the client and its key competitors, taking into account sales or service issues for different types of products. The team then highlighted opportunities to enhance sales, deliver superior service or reduce servicing costs.

Results
The McKinsey program enhanced servicing through remote channels and gave the client a toolkit to reduce de novo branch breakeven time and improve the economics of a branch's early years. The new distribution strategy included branch expansion in key, growing markets to drive sales, and branch rationalization in less-attractive, sub-scale areas that would fund expansion.




Customer Relationship Management
McKinsey boosted the effectiveness of a leading retail bank's cross-selling programs, with pilots lifting brokerage accounts by 10% and home equity loan applications by 20%.

Background
A leading retail bank wanted to boost the effectiveness of its cross-selling programs. Brokers were particularly interested in identifying and reaching out to banking customers who could benefit from higher-value products like brokerage accounts, credit cards, or home equity loans. Client executives asked for a "tactical CRM" program that would get results in three-to-six months.


Analysis and Teamwork
McKinsey worked with the client to understand customer segment groups and historic preferences by segment. The McKinsey team developed customer profiles based on propensity-to-buy assessments and profitability analysis, resulting in a prioritized list of cross-sell opportunities.
The team then developed support tools for frontline staff, tailored to the cross-sell efforts for each product type. Materials included a script to use when making calls, strategies for successful customer conversations, and a tracking system to record contact rates, rates of follow-up appointments, and other measures of impact.
Over 7 weeks, McKinsey helped the client pilot the program in 30 branches across three regions. The team held meetings every week with area and branch managers to share results and best practices.

Results
Pilot branches opened 10 percent more brokerage accounts than did nonpilot branches. And home equity loan applications jumped by 20 percent.
The bank achieved bottom-line impact during the fiscal year in which the pilot program was launched, with no significant systems or organizational changes. A full rollout of the program followed.


Improving Performance of the Small-Business Segment
A top U.S. bank increased its small-business segment's sales production by 30% within two years of rolling out McKinsey's improvement plan.

Background
A top U.S. bank sought McKinsey's help because it was not getting its fair share of the small-business segment and not achieving targets in the segment. Customers were complaining about the branch experience and the credit process. Branch employees weren't comfortable selling small-business products and services. Bankers were deployed equally across the bank's footprint instead of being assigned based on market opportunity.

Analysis and Teamwork
McKinsey started by developing a list of high-priority, small-business segments with big deposits, such as wholesale and professional services. The team also developed a new small-business-banking role in the branches.

Initiatives included the redeployment of bankers based on opportunity and a reduction in the branch workforce. The credit experience was improved and costs were cut by streamlining processes, increasing the consistency of performance across credit sites, and increasing the size of automatically underwritten applications. The team upgraded the experience of small-business customers in the client's branches through such means as an improved end-to-end account-opening process.

Results
Following McKinsey's program, the client increased sales production for the small-business segment by 30% within two years after the rollout and reached a high deposit-to-credit ratio of about four with low credit-only relationships. The client reduced the number of bankers by a third while maintaining the same sales performance, and lowered credit-process costs by about a third. Customer acquisition rates increased by 20%, with a large portion of that coming from targeted segments.



Using a New Branch Strategy to Drive Growth
A quickly expanding, innovative mass-market retail bank adopted a customer-centric branch model to spur growth and differentiate it from its peers.

Background
A quickly expanding, innovative mass-market retail bank turned to McKinsey to help transform its branch system to boost account openings. It planned to use the new format for new branches and for branch redesigns and retrofits.

The client planned to boost the total number of stores by 170 branches to 400 in 2002. It planned to open more branches in 2003, including 40 in the New York market.

Analysis and Teamwork
The client adopted a customer-centric model that differentiated it from its peers. It offered free checking accounts. It did not levy surcharges to use ATMs, which was important to two-thirds of its customers. Teller towers automated the teller function, leaving employees free to work the retail floor and sell. To this end, employees were trained in all areas of service and took turns as concierges directing customers to the best service channel. The stores looked and felt like retail outlets with a children's play area and a retail center stocked with books, games and company merchandise, such as teller dolls and piggy banks.

Results
The McKinsey client's retrofit branches experienced a 27% increase in same-store checking account sales in one year, as compared to 12% growth in traditional stores. Shortly after opening branches with the new format in Las Vegas, checking account openings doubled that of traditional branches, while deposit accounts ran three times the typical rate for new branches.





Improving Retail Sales-Force Effectiveness
McKinsey's sales tool kit helped a North American retail bank to improve cross selling when opening new accounts by 25%-40% and to generate extra revenue.

Background
A North American retail bank engaged McKinsey to help increase its revenues from new customers by designing tools to assist the sales force in acquiring new customers and in selling more products when new accounts were opened.

The bank sold a number of products to new customers, including overdrafts, credit cards, investment products, personal credit products, and services such as debit cards and direct-deposit accounts.

Analysis and Teamwork
The McKinsey team developed an all-in-one account-opening kit designed to streamline product sale. This included integrated product brochures, simplified disclosure forms, a welcome letter and product-sale forms.

The team also created a cross-sell and bundled-product checklist that the sales force could use as a quick reference. The client implemented an incentive plan that reinforced new-client cross sell by giving a $5 bonus for selling five products and services.

Results
By adopting McKinsey's simple tools, the client improved cross selling when opening new accounts by 25%-40%. The program generated an incremental $10 million-$15 million in revenue in the year in which it was launched. The tools were rolled out across the client's more than 1,000 branches within four-to-six weeks.


Consultants


Kurt

Kurt Strovink is a Director in McKinsey's New York Office, a core member of the Financial Institutions Group, co-leader of the Financial Services Marketing and Distribution Practice in North America and a member of the global committee that elects partners.

Kurt has helped life insurance companies, retail brokerage firms, and retail banks with their core strategy, sales, and marketing including such challenges as pricing, CRM, and branding.

Kurt recently developed a global high-net-worth strategy for a leading life, annuities and retirement company; a retail expansion strategy for a major retail and investment bank that leveraged its brokerage business in the U.S.; and a brand strategy for a major U.S. insurer.

Before McKinsey, Kurt was a legislative aide on economic policy for former Senator Bill Bradley, as well as a summer fellow at the Federal Reserve Board and at the General Accounting Office.
Kurt has a BA Magna Cum Laude in Economics/Philosophy (Social Studies) from Harvard College, where he received a Truman Scholarship. He holds a Masters and PhD in Political Economy (Politics) from Oxford University, where he studied at Balliol and Nuffield Colleges on a Marshall Scholarship.

He has led a number of pro bono efforts in education over the past 6 years, including working with three chancellors in the New York City Department of Education.


Zubin

Zubin is a Director and the leader of McKinsey's northeast Financial Services Practice. In addition, he co-leads the North American Financial Services Marketing and Distribution Practice.

Zubin mainly works with consumer financial services organizations - retail banks, credit-card players, mortgage companies, consumer-finance firms, wealth-managers and select insurers. He has counseled global leaders in the U.S., Canada, U.K., Germany, Eastern Europe, Japan, Taiwan and Brazil on strategy, marketing, organization, M&A, and operational improvement and is known for his thinking on value-proposition innovation, customer-experience transformation and marketing-spend optimization.

Zubin received an MBA from Cornell University's Johnson School of Management and a BA in Economics with Honors from Bombay University's St. Xavier College. He has lived in New York since 1988.



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