Customer Profitability and Customer Relationship/Management at RBC Financial Group (Abridged)

Customer Profitability and Customer Relationship/Management at RBC Financial Group (Abridged)

(1) Who are our most important customers? (2) How do we put them in charge of our Company?
Screen saver1 on the computer of Kevin Purkiss, senior manager,
Customer Value Analytics at RBC Financial Group

Richard McLaughlin looked again at the latest customer profitability reports. The new datamining capability that RBC Financial Group had pioneered was astonishing. The good news was that
customer, customer segment, and product profitability numbers were more comprehensive and
accurate than with the Bank’s old profitability model. The bad news was that those precise numbers
clearly showed major losses in the Bank’s personal checking accounts. McLaughlin knew the Bank
was also struggling with its seventh-out-of-eight ranking among financial institutions in the Bank’s
internal value for money study. The Canadian public increasingly wanted value and personal service
from its Banks. Competition among Canada’s leading financial institutions was fierce as the industry
responded to deregulation and new niche-market entrants. McLaughlin’s thoughts turned to how he
would present this information to the Bank’s segment and product managers, and questioned how
the Bank should respond:
Now we have real customer profitability numbers and, through our customer relationship
management (CRM) tools, we know an awful lot about customer preferences and needs. The
question is, what do we do with this information? How can the Bank derive value from CRM
and customer profitability? How can we turn unprofitable customers and products into
profitable ones? Is there a way to enhance the Bank’s value in the eyes of the banking public?
How can we put the whole picture together and make decisions that work for both the Bank
and our customers?

1 Downloaded from

This case derives from an earlier case, “Customer Profitability and Customer Relationship Management at RBC Financial Group,” HBS No.
102-043, by Professor V.G. Narayanan and Research Associate Lisa Brem. This version was prepared by the same authors. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.
Copyright © 2002, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685 FREE, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be
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Customer Profitability and Customer Relationship Management at RBC Financial Group (Abridged)

RBC Financial Group
RBC Financial Group entered the tumultuous twenty-first century as Canada’s leading bank. With
Canada’s finance industry in flux from changes in banking regulations, many smaller banks changed
their focus away from retail banking or were acquired by larger banks. In the early part of the new
century, RBC emerged as one of Canada’s few full-service, national, and international financial
RBC Financial Group, headquartered in Toronto, had five main lines of business: personal and
commercial (retail) banking (RBC Royal Bank), insurance (RBC Insurance), wealth management (RBC
Investments), corporate and investment banking (RBC Capital Markets), and transaction processing
(RBC Global Services). RBC was Canada’s largest bank when measured by assets and market
capitalization: it owned $270 billion2 in assets, had 23 million retail accounts,3 700 products, 58,000
employees, and served 10 million personal, commercial, corporate, and public sector customers in
North America and around the world.
RBC Royal Bank, which accounted for 50% of RBC’s cash net income, had an extensive delivery
network that included 1,300 branches, 4,800 automated banking machines (ABMs), 87,250 proprietary
point-of-sale terminals, over 900 mobile sales staff, 1.4 million online banking customers, and two
million telephone banking customers. The Bank also boasted an international network that included
300 offices in over 30 countries. The personal banking division encompassed consumer and small
business banking and loans, while the commercial side served larger companies earning $5 million to
$25 million. The multinational corporations were covered under the corporate and investmentbanking business line and were not a part of Royal Bank. Royal Bank also included Card Services,
which provided Visa credit cards and debit cards; RBC Centura, a U.S. retail bank acquired in June
2001; and RBC Prism, a U.S. mortgage originator.

History of RBC Financial Group
In the post-war era beginning in 1946, the Royal Bank devised the philosophy of being “all things
to all people.” It began an expansion nationally and internationally that broadened its delivery
network, while simultaneously developing new products and services. In the 1960s and 1970s, the
Bank increased its commitment to technology and decentralization in response to changing market
conditions. In 1968, 25 automatic banking machines were added to domestic operations.4 At that
time, the Royal Bank was already employing technology and a customer-orientation philosophy to
gain a competitive edge. As one history of the Bank explained: “The 1971 Annual Report provided
an interesting account of how automated back-room transactions improved both the cost and quality
of operations . . . this also helped to free up front-line people to deliver the services that required a
personal touch. New possibilities for specialization were directed toward improving service to the

2 All financial data in this case is reported in Canadian dollars.
3 The Canadian population was estimated at 30.75 million in 2000, with the largest concentration of people in Ontario, Quebec,
and British Columbia. The average income, after taxes, for two people or more in the same household averaged $49,626 in
1998. (Statistics provided by, accessed August 27, 2001.)
4 James L. Darroch, Canadian Banks and Global Competitiveness (McGill-Queen’s University Press, 1994), p. 136.
5 Ibid.

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Customer Profitability and Customer Relationship Management at RBC Financial Group (Abridged)


The 1980s were turbulent times for Canadian banks, as changes to the Bank Act of 18716 allowed
foreign competitors limited access in the Canadian market (1980). In addition, deregulation of the
financial industry (1986 and 1987) allowed crossover between the “four pillars”—banking, trust,7
securities, and insurance—which had been kept separate since the original Bank Act.
Royal Bank responded by purchasing companies that allowed it to become a fully integrated
financial service institution. By 1989 Royal had entered the securities market with a bang, capturing
50% of the mutual fund (offered through banks) market. In addition, as James Darroch describes in
Canadian Banks and Global Competitiveness:
The 1990 acquisition of 70% of Marcil Trust Company, specialists in real estate,
strengthened [Royal Bank’s] base in the trust industry. [. . .] Market-share received increased
attention during the period because it was viewed both as a condition and a measure of
success: size was important. The Royal did not intend to participate in domestic markets that it
could not dominate. [. . .]
[I]n . . . 1992, the Royal was the first to offer group retirement products. The thrust was to
develop relationships with different target markets by offering products and delivery
mechanisms that made customer feel comfortable as they discussed their personal financial
affairs. Transactions at a teller’s wicket were no longer the model. Now bankers had to listen.8

Current Environment
Throughout most of Canadian banking history, the six largest Canadian banks enjoyed a
relatively undifferentiated and “friendly competition” industry structure. By the late 1990s, however,
changes were on the horizon. The advent of Internet banking and the continued lowering of
protections for domestic banks spelled an end to the banking oligopoly. While the Internet
represented both opportunities and threats, the insurgence of foreign banks coupled with the
minister of finance’s halting of two important mergers was a warning call to Canada’s banks that
they would soon face competition from large out-of-country banks that could rival or exceed their
own resources.9
While the big banks cast one wary eye offshore, the other was trained on the small Internet
upstarts that threatened to eat away at their bread-and-butter personal and small business accounts.
Being “all things to all people” suddenly became a lot harder.
Kevin Purkiss, senior manager at Customer Value Analytics, summed up Royal Bank’s perception
of the competitive landscape:
We perceive TD Canada Trust as our nearest and most aggressive competitor, at least as far
as a full-service bank is concerned. The rest of the large banks have slightly differentiated
6 The Bank Act of 1871 created chartered banks that could engage only in banking. The Bank Act and charters were to be
reviewed every 10 years. (Darroch, Appendix Two.)
7 Canadian Trusts were similar to U.S. Savings and Loans. They were typically smaller, regional companies that issued
mortgages, set up and administered deposit accounts, wills, trust accounts, and engaged in estate planning. Some Trusts
offered specialized investment services. Prior to deregulation, Trusts were the only financial entities allowed to issue
8 Darroch, pp. 146–147.
9 Jordan Kendall, with Bruce D. Temkin, Emily Gaszynski, and Charles Finlay, The Forrester Report, Canada’s Big Banks
Unravel, May 2001, pp. 6–12.

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Customer Profitability and Customer Relationship Management at RBC Financial Group (Abridged)

strategies in line with their expertise. The Bank of Nova Scotia, for example, has been
redefining itself as a retail multinational bank. CIBC (Canadian Imperial Bank of Commerce),
the second-largest bank in Canada, is the largest bank credit card issuer and is also a close
competitor in the Canadian mortgage market.
Other types of competitors pose different threats. What we think of as non-traditional
competitors entered the market with specialized products and low costs. ING Bank of Canada,
for example, is a virtual bank that offers a very attractive rate on deposit accounts. In order to
access the deposit account, the customer must transfer money from their existing checking
account (in a rival brick and mortar bank) to ING’s electronic repository. ING can offer high
rates because it does not have the physical infrastructure that a bank like RBC Royal Bank has
to maintain. ING has since expanded into a more complete product offering including
mortgages and loans.
Another emerging market is in “white labeling” or the use of bank services by non-bank
companies. For example, one of Canada’s largest supermarkets, Loblaw’s, recently partnered
with a division of CIBC to offer President’s Choice Financial Services, which includes no-fee
banking and a discount on groceries to Loblaw’s customers. CIBC is providing the service, but
it is marketed as a Loblaw service and physically located in the supermarket.
The common denominator in all these new products and markets is the customer. How a
financial entity focuses on customer needs is the differentiation point in our industry right

Developing a CRM Philosophy
The ultimate goal of CRM was to bring together in one place a view of all contacts, transactions,
accounts and interactions with each customer. A financial institution’s fully integrated CRM system
could allow its personal bankers (PBs) to access a customer’s transaction history. For example, the
ideal CRM system could provide the following information to PBs10 when triggered by a customer
call or visit:

address, age, and account balances

all contacts the customer had at any company location, phone center, or Internet site

what level of service the customer qualified for, based on current and future profitability

what products the customer held at the time of the call

what products the customer was targeted/approved for by sales and marketing

how the customer responded to targeted direct marketing campaigns

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