Banks Must Confront New Distribution Paradigm.

CHICAGO--(BUSINESS WIRE)--Sept. 15, 1999--

- Tillinghast - Towers Perrin Executive Warns Attendees to `Adapt or Die' -

A new paradigm is being created for distribution in financial services, and institutions that fail to adapt risk becoming dinosaurs in the new millenium.

That stark prognosis was one of the key messages delivered to more than 150 senior-level bankers gathered for the 1999 Best Practices in Distribution and Sales Management Symposium sponsored by the American Banker and Tillinghast - Towers Perrin. The conference, being held in Chicago, began Sunday, September 12, and runs through Tuesday, September 14.

Customer-Centric Model

"Customers are more knowledgeable and have more options, which squeezes value propositions and shortens product life cycles," stated Don McNees, managing director of the Global Banking, Investment Management and Securities practice, Tillinghast - Towers Perrin, and conference chairman. He added that a customer-centric model leveraged by technology and focused by behavioral and actuarial science is ascendant.

"The new paradigm is happening, and if you're not part of it you may be history," he warned. The customer-centric model characterized by segmented marketing and customer-driven access is replacing the conventional, product-driven, "one-size-fits-all," broadcast approach to distribution, he explained.

"Financial services firm have invested enormous sums in data warehousing capabilities to capture customer behavior, relationship profitability, and demographic characteristics. Yet, far fewer firms have been able to demonstrate measurable returns on these investments," observed Kathleen McClave, leader of Tillinghast Towers Perrin's Strategy Economics practice in the Americas region.

"If you don't understand how to use data mining, test marketing, web-based delivery and actuarial economics, you will have difficulty carving out an exciting value proposition and delivering it through a differentiated delivery system...You won't stand a chance as a mega player," Mr. McNees added.

Difficult to Change

Companies on the cutting edge tend to be engaged in single lines of business or new entrants rather than the "bank on the corner." "A few multi-lines are getting it," Mr. McNees continued. Older companies, with their legacy systems, are having a tougher time due to the complexities of their businesses and entrenched approaches.

"It's challenging enough for bank's legacy business systems, processes and employees to learn how to do business in this manner on a line-by-line basis," he noted. "To put together an integrated view of the customer and then craft and deliver differentiated product through multiple channels resulting in a consistent brand experience for the customer is a huge additional step for any institution."

Innovation Leaders

Examples of companies that have adapted to the new paradigm in include:

- MBNA and Capital One, two credit card issuers using their deep

knowledge of their customer bases to design tailored product

offerings for different market segments.

- American Express Financial Advisors, which uses a financial

planning front end to learn about customers' goals, technology to

institutionalize the customer knowledge and then track their

current position versus those goals in order to manage retention

and anticipate opportunities to sell additional products.

The top seven or eight banks are all on the path to get there. However, Mr. McNees noted that of late they have been plagued by execution difficulties due to merger integration issues, Y2K and silo product cultures.

Customer Perspective According to Mr. McNees, banks need to:

- Examine their businesses from their customers experience point of

view and make product and service changes that reflect what

customers want.

- Design distinctive value propositions for different customer

segments that integrate distribution systems and product

manufacturing units. "Customers should be able to access the

system via the channel of their choosing - branch, telephone,

Internet - and have a consistent experience from a brand

perspective, just like stopping by McDonalds."

- Identify which metrics drive economic value, understand how they

emerge from behavioral and actuarial scientific testing and align

their human resources capabilities and compensation systems to

achieve their objectives. "If you don't have your business

economics down pat, the marketplace will kill you."

Executives Present Case Studies

The symposium, which runs through tomorrow, exposes financial services executives to the most effective techniques for managing multiple distribution channels, building brand value, managing sales forces and determining performance metrics. Today's session featured case study presentations by senior executives from three leading industry companies:

- Robert C. Baldwin, President, Retail Delivery, Bank One Retail

Group, Bank One Corp.

- Mary Kearney, Executive Vice President, Channel Services,

Fidelity Investments Corp.

- David Mooney, Senior Vice President, Chase Manhattan Bank

The program also featured seminars on the linkage between sales and distribution strategy and economic value, brand building, database marketing, employee recruitment and retention and compensation.

The conference concludes Tuesday, September 14, with sessions focusing on sales management issues, including presentations by Henry L. Meyer, President and Chief Operating Officer, KeyCorp, Joan Gulley, Executive Vice President and Deputy Manager, Regional Community Banking, PNC Bank Corp., and Dan Klimas, Executive Vice President, KeyCorp.

Tillinghast - Towers Perrin provides management consulting to the financial services industry and helps companies of all types measure and manage risk. Our consultants apply in-depth industry knowledge, quantitative skills and a broad management perspective to complex business issues. We are part of Towers Perrin, one of the world's largest independent consulting firms, with a staff of over 8,300 in 24 countries.