Necessity of the thesis 2 Objectives of the thesis 3 Methodology 4 Structure of the thesis
The definition of customer relationship management (CRM)
1.1.1 Definition of customer relationship management :
The shift in the business environment and the evolution of marketing have transformed company structures from product-based to customer-centric models A major factor in this transition is the rise of customer relationship management (CRM), supported by the convergence of information systems and the advancement of software tools, which enhances the application of relationship marketing principles.
CRM, or Customer Relationship Management, is a strategic approach focused on managing customer relations from a company’s perspective It emphasizes the development and enhancement of customer relationships with a focus on profitability By understanding individual customer needs and potential, companies can create tailored strategies for engaging different customers to foster long-term profitability The core philosophy of CRM is that all marketing and management efforts should aim to establish mutually beneficial partnerships with customers and stakeholders, ultimately leading to greater success and profitability.
To effectively manage customer relationships, CRM focuses on transforming information into intelligent business insights This information can originate from various sources, necessitating the successful integration of multiple databases and technologies, including the Internet, call centers, sales force automation, and data warehouses As CRM is a relatively new and evolving field, there is no universal definition; instead, companies often tailor the concept to fit their specific needs Here are three examples of how CRM is defined.
CRM represents a customer-focused business model that aligns company operations with the needs of customers rather than solely emphasizing products, resources, or processes This strategic shift aims to enhance customer satisfaction, foster loyalty, and improve retention rates.
“ 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 ”
Customer Relationship Management (CRM) encompasses the strategies and activities that businesses undertake to identify, qualify, acquire, develop, and retain loyal and profitable customers By delivering the right product or service to the appropriate customer through the ideal channel at the optimal time and cost, CRM enhances customer satisfaction It integrates various functions such as sales, marketing, service, and supply chain management through automation, technology solutions, and information resources, maximizing the value of each customer interaction Additionally, CRM fosters strong relationships among enterprises, their customers, business partners, suppliers, and employees, driving overall business success.
As can be seen above, the three definitions have the following in common:
- They all include activities in all parts of the company
CRM aims to establish a customer-centric organization by enabling management to implement relationship marketing across the entire company For CRM to achieve success, it is essential that all company activities are coordinated and managed effectively to reach desired outcomes.
1.1.2 Comparison between relationship and transactional marketing:
Relationship marketing Objectives Transactional marketing
Customer base analysis and Need perceptions
Market and competitive analysis segmentation
We can make it more clearly through this table:
- Promote the characteristics of product
- Don‟t care much for the customer retention
- Focus on the retention and the loyalty from customers
- Focus on some characteristics of product that are meaningful to customers
- Long-term goal, short-term cost but more effective and
- 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
- 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 comparison tables highlight that transactional marketing emphasizes acquiring new customers and attracting potential clients from competitors, whereas relationship marketing prioritizes maintaining market share by fostering strong connections with existing customers through strategies like cross-selling and up-selling.
The principle of CRM
The principle of CRM is that all customers are not the right customers, so in CRM each customer group will be treated in the different ways
While long-term customer relationships offer numerous advantages, it is essential to recognize that not every relationship is beneficial for a company This perspective highlights the importance of evaluating customer interactions to determine their overall value.
Successful customer relationship management hinges on differentiating between transaction buyers and relationship buyers Transaction buyers prioritize price and are quick to switch to competitors offering lower costs, even if the quality of service is lacking In contrast, relationship buyers seek trustworthy suppliers and are willing to overlook cheaper alternatives for the sake of reliability and peace of mind Typically, transaction buyers are less profitable, often relying on discounted items, while relationship buyers frequently support the sales of transaction buyers through their loyalty.
Database marketing software allows suppliers to distinguish between transaction buyers and relationship buyers For businesses unable to analyze customer files by profit per customer, a system to identify lower-profit transactions is essential Additionally, in certain industries, there are specific periods when all transactions are discounted, making it straightforward to identify customers who only buy during these times 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
Monetary decile analysis is a fundamental tool in database marketing that segments customers into tenths, highlighting the total profit each decile contributes over a specified time period and its percentage of the total market This method aligns with Pareto's law, which indicates that 80% of a business's revenue comes from just 20% of its customers In many cases, around 60% of the customer base generates at least 90% of sales and an even higher percentage of profits The subsequent step involves conducting a purchase deciles analysis, which separates total sales and profits into tenths to identify how many customers are responsible for each segment.
A small percentage of customers significantly impacts company profits, with analysis revealing that just over 1% of customers can account for 10% of sales In a company with 150,000 potential customers, fewer than 1,500 are responsible for this substantial profit contribution Understanding this dynamic is crucial for businesses aiming to optimize their sales strategies and enhance profitability.
This analysis can be used to identify the three distinct segments of profitable relationship buyers as follows:
The primary focus of CRM efforts should be on the top 10% of customers who contribute the most to the company's profits Targeting this group is essential for retention, as it is crucial to prevent these valuable clients from turning to competitors, even if enhancing their profitability proves challenging.
Targeting the middle group of buyers, who represent the balance of customers in the top 40% or 50% based on sales and profit, is crucial for maximizing business potential These customers contribute good profits but may also be engaging with competitors Implementing effective CRM activities aimed at increasing your company's share of their business can significantly enhance profitability A well-developed CRM marketing strategy for this segment can quickly recoup the substantial investment in database software, often within just one year.
The third group of customers, while still profitable, contributes only marginally to overall profits and constitutes nearly half of the customer base Although increased communication could potentially elevate some of these customers up the sales ladder, the effort may not yield significant returns This analysis simplifies the challenge of implementing Customer Relationship Management (CRM) by highlighting the need to focus on more profitable segments.
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
Understanding an organization's culture is crucial before implementing a CRM system, as resistance to change is a common reason for project failures Identifying potential challenges within the corporate culture allows for necessary adjustments prior to implementation It is essential to foster a lasting awareness of the need for a CRM solution and its benefits As noted by Starkey (2002), customer management behaviors may not be ingrained in the organizational culture, leading to a loss of knowledge when roles change Clearly communicating long-term goals and the desired future culture will help employees shift their perspectives, ensuring that the cultural change remains consistent despite turnover or promotions.
Organizations must recognize that culture and social norms vary globally, impacting the implementation of Customer Relationship Management (CRM) strategies For instance, the North American CRM model is primarily technology-driven, while the Nordic approach emphasizes the development and maintenance of personal relationships (Schultz, 2002) This disparity highlights the challenge of applying a uniform CRM program across diverse regions such as Japan, Europe, North America, and India Global businesses must be acutely aware of these cultural differences and adapt their CRM processes accordingly, ensuring flexibility to meet varying social expectations and relationship-building practices.
Employees often resist change due to feelings of being overwhelmed by increased workloads or shifting responsibilities, especially in the face of significant customer failures In a Customer Relationship Management (CRM) environment, it is crucial to foster a culture that prioritizes solutions over punishment for mistakes To effectively identify the root causes of issues, organizations must encourage open communication at all levels, allowing employees to express concerns without fear of repercussions.
To foster a more integrated operation, organizations must transition from siloed cultures, where sales teams often withhold customer information, to a collaborative environment This shift requires teams to work efficiently across various departments and global divisions, addressing and overcoming both organizational and cultural differences.
Effective transformation within an organization hinges on clear communication, adequate resources, heightened awareness, and comprehensive training As emphasized by Brendler (2001), having a compelling vision and communicating it passionately is crucial, as it helps mitigate employee resistance When employees understand their roles and how to support the business, the transition becomes smoother Additionally, creating a platform for employee feedback fosters a collaborative environment, ensuring that those with the best understanding of the business are fully engaged in the implementation process For successful change, it is essential to cultivate a culture that values a holistic view of the organization and secures genuine buy-in from all stakeholders.
To enhance the current process, it is essential to evaluate necessary changes, as emphasized by Ronald S Swift, vice president of strategic customer relationships at NCR Corp, who states, "This is not just about investing in software; it is investing in a new approach to relationships." Prioritizing process improvements before implementing technology infrastructure changes is crucial, as technology should serve as an enabler rather than the primary focus.
The implementation process consists of essential steps: development, implementation, and maintenance, guided by four key factors: teamwork, resource commitment, consensus, and clear communication (Menon et al., 1999) Teamwork is crucial during the initial phases, while resource commitment, though seemingly straightforward, often poses challenges for organizations managing large projects Consensus ensures strategic alignment among managers and employees, and clear communication is vital for fostering a cohesive project culture For a project to succeed, it must be methodical throughout all stages, integrating these critical success factors.
Defining the desired outcome is crucial during the developmental stage of a project, as a haphazard approach like "ready, fire, aim" is ineffective CRM is inherently complex, making a well-thought-out strategy essential for success, as noted by Thompson (2001) and Menon et al (1999) Establishing a clear goal helps minimize scope creep and maintains focus Additionally, identifying the right team members is vital at this stage to ensure effective execution.
A successful project team should consist of a cross-functional group that represents various departments within the organization, such as quality assurance, supply chain, operations, accounting, research, and sales This diverse composition enhances problem-solving capabilities and fosters a comprehensive understanding of complex issues and opportunities.
Successful implementation of a project requires strong commitment from participants, leadership, and the entire organization To achieve this, it is essential to break the project into manageable steps As Boise CEO Milliken states, implementing in small phases can enhance focus on objectives A documented plan provides the necessary structure for CRM implementation, ensuring proper resource allocation, including financial support, personnel, training, and ongoing assistance Clear commitment and effective resource allocation are crucial for success; without both, a company cannot achieve its goals.
Post-implementation involvement is crucial for sustaining project momentum and ensuring continuity, as the implementation of a Customer Relationship Management (CRM) system is an ongoing process that requires cultural adaptation The project extends beyond the initial rollout, necessitating continuous efforts to deliver long-term results Furthermore, inadequate follow-up can hinder customer relationships, emphasizing the need for ongoing attention and engagement.
Customer relationship management (CRM) is an ongoing journey, with satisfied customers serving as essential milestones Success in CRM is never final; as customer expectations evolve, what was once considered exceptional service quickly becomes the new standard To remain competitive, businesses must adapt and innovate continually, or risk falling behind in the marketplace.
The success of Customer Relationship Management (CRM) relies not solely on technology but on its ability to enable process integration It is crucial for the technology to be strategic, cost-effective, and accessible, allowing for flexibility and alignment with long-term corporate goals Information technology managers should partner with reputable companies that offer cutting-edge software solutions For instance, if the objective is to provide customers with online access to place and track orders, the software must support or integrate with such functionalities Additionally, the system must address business-defined security needs, as neglecting proper security measures can lead to significant risks, including the loss of intellectual property and the erosion of customer trust.
A cost-effective system should prioritize configuration over customization, enabling companies to avoid the pitfalls of writing custom code for unique business processes This strategic approach simplifies future upgrades, making them more manageable and efficient (Bednarz, 2001) Excessive customization complicates the upgrade process and leads to non-standardized programming, which can create challenges in maintaining productive systems.
Effective management of customer information is crucial for ensuring that each department within a company has access to the data necessary for implementing CRM functions Proper collection, analysis, and documentation of this information enable informed decision-making, preventing the accumulation of data that lacks practical application.
The characteristics and the challenges of CRM
Customer database centrally: Give to the company a overall view of relationship of each customer
Customer analysis through CRM enhances profitability by allowing companies to assess the individual financial contributions of each customer This enables businesses to allocate resources more effectively, ensuring that investments are tailored to maximize returns Typically, companies categorize their customers into three distinct classes based on profitability, facilitating better strategic decision-making.
- 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 customer segment accounts for 40%-50% of our total clientele, although they contribute relatively low profits This group primarily consists of existing customers who engage in minimal transactions or only visit the company during special events, such as sales or discounts.
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
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
Ideas support CRM
1.5.1 The statistics of Harvard-Business review in December, 1995:
A mere 4% of dissatisfied customers voice their complaints, while the majority remain silent, opting to take their business to competitors instead In the banking sector, this trend is even more pronounced, with 65% of customers willing to switch to other providers if their expectations are not met.
- 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
In 1906, Italian economist Vilfredo Pareto formulated a mathematical equation highlighting the unequal wealth distribution in Italy, noting that 20% of the population held 80% of the wealth In the late 1940s, Dr Joseph M Juran mistakenly referred to this concept as Pareto's Principle Despite the misattribution, Pareto's Law remains a valuable tool for effective company management.
The 80/20 Rule, also known as the Pareto Principle, highlights that a small percentage (20 percent) of causes often lead to the majority (80 percent) of effects This principle illustrates that, historically, 20 percent of individuals possess 80 percent of wealth, and in quality management, 20 percent of defects can result in 80 percent of issues Additionally, project managers recognize that the initial and final phases of a project (the first and last 10 percent) can consume a disproportionate amount of time and resources, underscoring the importance of focusing on the critical few elements that drive the most significant outcomes.
In inventory management, it's crucial to recognize that 20 percent of your stock occupies 80 percent of your warehouse space, while 80 percent of your inventory is sourced from just 20 percent of your suppliers Similarly, 80 percent of your sales revenue is generated by 20 percent of your sales team, and while 20 percent of your staff may contribute to 80 percent of your challenges, another 20 percent will drive 80 percent of your productivity.
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.
The benefits of CRM
Investing in a CRM project may be expensive initially, but fostering and maintaining strong customer relationships leads to increased loyalty and higher retention rates Over time, this strategy can result in greater profits for the company.
Attracting new customers often involves significant start-up costs, including expenses for advertising, sales commissions, and account setup operations In the short term, these costs can sometimes exceed the anticipated revenue generated from new customers.
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
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
20% 80% they become more affluent Both types of customers may decide to consolidate their purchase with a single supplier who provides high quality service
An increase in cross-selling enhances the organization's share of the customer's total spending within the market, often referred to as the "share of wallet." This metric reflects the proportion of a consumer's expenditures that are directed toward the organization compared to their overall spending in that market.
Satisfied customers are less likely to switch to competitors, and when they trust a supplier, they are often willing to pay premium prices for the assurance of quality service, leading to opportunities for up-selling.
Customer retention not only fosters loyalty among clients but also indirectly enhances employee retention High levels of customer dissatisfaction can create stress for employees, leading to increased turnover and diminished service quality In contrast, when customers are satisfied, it boosts employee morale, motivating them to stay with the company and contribute positively to its success.
Parental influence plays a significant role in shaping the purchasing decisions of young individuals, suggesting that fostering strong relationships with one family member can positively affect the choices of others within the family.
Satisfied customers are likely to offer referrals and may even pay a premium for services Their positive experiences can lead to word-of-mouth promotion, resulting in free and credible advertising for the institution.
In general, we can withdraw three main benefits from CRM, as following:
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 top customers into a premium group enables companies to manage them more efficiently, recognizing that a one-size-fits-all approach is not practical By leveraging detailed customer satisfaction data from a CRM system, businesses can effectively predict the products customers are likely to purchase and the optimal timing for these purchases, leading to more targeted and effective marketing strategies.
CRM allows for more targeted campaigns and tracking of campaign effectiveness
Customer data can be analyzed from multiple perspectives to discover which elements of a marketing 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
The reason why CRM fails
The primary reason CRM initiatives fail is insufficient planning, which encompasses a thorough project plan and a well-defined business case that establishes realistic expectations for return on investment A successful CRM strategy should be divided into phases of no longer than six months, incorporating measurable goals and success metrics for each stage to ensure effective implementation and tracking of progress.
Many organizations view CRM primarily as technology; however, to truly focus on customers and achieve a positive return on investment, they must look beyond just the tools While CRM technologies are essential, developing genuine relationships with customers requires significant changes to business processes and a renewed business focus.
The successful creation and maintenance of customer relationships necessitates a significant shift in business focus, which is challenging without strong commitment from senior management While new technology can be introduced, it is unlikely that frontline staff will alter their customer interactions unless the new approach is mandated organization-wide, starting from the top Additionally, senior management's involvement in establishing success metrics is crucial for effective implementation.
Many organizations overlook the importance of engaging with customers before implementing Customer Relationship Management (CRM) systems Establishing meaningful relationships hinges on delivering lasting value, which can only be understood through direct customer feedback To ensure success, it is crucial to conduct both qualitative and quantitative research to grasp what customers truly value.
To enhance customer focus, organizations often need to revise their structures In the initial phases of this initiative, it's crucial for all employees who interact with customers to be involved in the CRM task force This team will play a vital role in identifying the organizational changes necessary to meet the company's CRM objectives.
A lack of consistent voice across an organization can hinder the long-term improvement of customer relationships, despite potential efficiencies in sales processes and associated ROI If marketing and customer service processes and technologies remain unchanged, the benefits achieved in one area may be overshadowed by uncoordinated offerings and messaging Ultimately, customer relationships rely on cohesive interactions, and inconsistency can undermine positive advancements.
Not Focusing on Best Customers Many organizations have blown their business case
Many organizations struggle with CRM resource allocation, often attempting to treat all customers equally or, conversely, concentrating solely on their best clients This approach can hinder overall sales, marketing, and service improvements, as most businesses cannot enhance every aspect for all customers A strategic business case should identify which customers will yield the highest profitability through targeted improvements, ensuring that efforts are focused where they will have the most significant impact.
To enhance customer retention, businesses should identify their best customers by offering express service, dedicated sales and customer service representatives, and exclusive benefits This approach minimizes extensive marketing efforts, focusing instead on targeting customers who show increased engagement during peak seasons or specific events.
Enhancing marketing and service strategies towards "next best" and marginally profitable customers, identified through statistical models and lifetime value analysis, can significantly boost profitability Additionally, targeting unprofitable customers who resemble the most valuable ones presents an opportunity for growth The primary goal is to implement effective cross-selling and upselling techniques to maximize revenue potential.
To enhance profitability, businesses should reduce marketing and service efforts for unprofitable customers who are unlikely to yield higher lifetime values These customers typically include one-time buyers or those who only make purchases during significant discounts or promotions.
Many organizations overlook the importance of initiating their CRM initiatives with a pilot project, which is crucial for validating the concept A pilot can swiftly reveal gaps in senior commitment and identify potential flaws in the business case It also aids in clarifying the necessary organizational changes and helps define what success looks like, particularly when ongoing research is conducted throughout the pilot's duration.
Many organizations overlook the importance of incorporating customer-focused metrics into their performance tracking To effectively monitor changes in customer segments over time, implementing a customer scorecard is essential This scorecard should measure key variables such as customer profitability, lifetime value, up-sell and cross-sell rates, as well as acquisition and retention rates on both a monthly and yearly basis Furthermore, these metrics and their trends should inform the strategic planning process, guiding the establishment of organizational and departmental goals and objectives.
A plan is incomplete without consistent progress updates, as measuring advancement—whether positive or negative—is essential Regularly communicate progress in relation to established success metrics and the overall project timeline Additionally, address how adjustments are being made to overcome any setbacks encountered along the way.
C HAPTER 2: B ACKGROUND ON V IETNAM B ANKING MARKET AND
Overview of Vietnam Banking Market
The interbank market serves as a dynamic arena for financial professionals, governed by specific rules and regulations Significant events, such as the Vietnam-America Bilateral Trade Agreement (BTA) and Vietnam's accession to the World Trade Organization (WTO), play a crucial role in shaping these regulatory frameworks.
The inter-bank movement in Vietnam is experiencing significant constraints, characterized by an increased focus on risk assessment and transaction ranking This shift emphasizes a professional approach to business operations, aimed at fostering mutual benefits among financial institutions.
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
Currently, there are six state commercial banks operating, each with an extensive network of branches These banks have the flexibility to participate in the inter-bank market either independently or dependently, depending on their policies and management capabilities, or they may opt not to engage in the inter-bank market at all.
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
Vietnam currently hosts 4 joint-venture banks and 27 foreign bank branches, primarily serving foreign financial groups and joint-venture companies Notable institutions in this sector include City Bank, among others, which contribute to the dynamic banking landscape in the country.
1 State Bank of Vietnam, “2004 Report”
2 State Bank of Vietnam, “2004 Report” bank or Standard & Chartered Banks have been offering services in Inter-bank, though still humble 3
Several financial companies struggling with long-term capital shortages are looking to transition to the inter-bank market These firms often lack essential banking tools, which limits their capabilities The banks in this market primarily provide services such as money transfers, lending, bond transactions, and handling financial instruments.
Market dynamics are significantly shaped by the policies of the State Bank, with state commercial banks, particularly Vietcombank, playing pivotal roles due to their extensive transactions Foreign banks heavily rely on state banks for Vietnamese Dong (VND) as they often hold a surplus in US Dollars (USD) but face a shortage of VND However, this disparity is expected to diminish as the State Bank moves towards a more open-door policy.
The Vietnamese market is characterized by its limited size and a small number of financial partners, which leads to a shortage of banking tools and weak collaboration among state banks Consequently, inter-bank transactions often operate in a one-sided manner during market fluctuations For instance, when there is a simultaneous demand for Vietnamese Dong (VND) across the market, a similar situation occurs with the US Dollar (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%)
3 State Bank of Vietnam, “2003 Annual Report”, p.9
4 State Bank of Vietnam, “2003 Annual Report”, p.9
State banks are reinforcing their position against joint-stock banks by refusing to grant permission for the establishment of new banks and imposing restrictions on branch expansions Additionally, they are promoting mergers or acquisitions of these banks to consolidate the banking sector.
Recent statistics indicate that there are 6,000 state enterprises (SE) in the country, constituting 5% of the total 160,000 businesses These state enterprises control assets worth 119.5 trillion Notably, 75.5% of all enterprises have a capital of less than 10 billion The state sector includes 17 corporations, 91,760 companies, and 4,000 independent SE, with state corporations accounting for 1,605 members, or 28.3% of the total SE Furthermore, state companies hold 75% of national assets, 20% of total social investment, 50-70% of bank credit, 70% of foreign loans, and 98% of joint ventures with foreign partners They play a significant role in the economy, contributing 40% to the GDP and 50% of 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
Among the 17 corporations significantly impacting the state budget, 12 are operating at a loss, while only 5 are profitable The profitable entities are primarily state monopolies In 2004, the government initiated efforts to reduce the number of these corporations.
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
Out of 6,000 state enterprises (SE), only 1,300 have successfully undergone privatization and ownership diversification Among the successful privatized companies, Vinamilk stands out as a prime example Currently, Hanoi has 100 state enterprises in the privatization process, while the government plans to retain ownership of 60 of them.
Small and medium-sized enterprises (SMEs) in key industries represent 28.8% of all state enterprises, including sectors like electronics, information technology, mechanics, textiles, and leather and footwear To qualify as industrial enterprises in this category, they must have a capital and turnover exceeding 10 billion, employ over 200 staff members, and contribute more than 1 billion to the budget.
The market exhibits strong demand for credit and banking services, with diverse sectors and favorable conditions for loans and property security However, this area necessitates prioritization of interest and associated costs Additionally, the sector carries inherent risks, particularly during leadership transitions.
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
With more than 150,000 unlisted private enterprises, the landscape of private-owned companies is significant, showcasing the success of entrepreneurs who have established major groups such as Hoa Phat, Masan, Gammi, and TCT.
The outlook for this sector is positive, with non-state enterprises poised for rapid growth into robust conglomerates thanks to government initiatives supporting the private economy These corporations may emerge from small businesses or through the merger of smaller firms To capitalize on this potential, VPBank must develop a strong strategic approach to meet the increasing demands of these lucrative opportunities, making them attractive prospects for banks.
Small and medium-sized private enterprises
Situation of VPbank
By 2010, VPBank is set to establish itself as the leading commercial bank in northern Vietnam, particularly in the area of credit services such as installment consumer loans The bank's unique edge lies in its effective customer relationship management strategies.
2.2.2 VPbank’s mission, strategy and performance results in 2001-2005
VPBank, established on December 8, 1993, emerged during a significant period when 54 new commercial banks were founded in Vietnam While most of these banks concentrated their operations in major cities, 21 others focused on rural banking The headquarters of these banks are primarily located in Hanoi and Ho Chi Minh City, with branches extending to other large cities such as Hai Phong, Da Nang, and Vung Tau In Hanoi alone, there are six bank headquarters and 12 additional branches.
From 1993 to early 1996, VPBank experienced significant growth alongside other banks, achieving remarkable profits However, this rapid expansion led VPBank into a financial crisis that persisted for nearly a decade.
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, VPBank faced significant challenges, as the non-performing loans (NPLs) reached 335 billion VND at the end of 2000, with 90% classified as frozen NPLs and over 36 million USD stemming from deferred letters of credit On September 1, 2002, the Hanoi State Bank placed VPBank under its second level of special control, highlighting the urgent need for financial recovery and management.
Since then, the management board has focused on efforts to help VPBank emerge from special control, prioritizing the reduction of non-performing loans (NPLs) and minimizing deferred letters of credit (L/C).
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
Table 2.1: VPBank Financial statement analysis in 2001-2004:
Total assets Total loan balance
VPBank has shown significant improvement in its financial performance, as indicated by the rising total assets and loan balance, along with a non-performing loan (NPL) ratio dropping below 1%, signaling strong operational health On July 6, 2004, the Hanoi State Bank officially lifted special control over VPBank, reflecting this positive trend However, the growth rates of total assets and outstanding loans are unbalanced, revealing a substantial gap While the credit portfolio remains the majority on the asset side of the balance sheet, it has been declining annually, whereas investments in money markets and securities have been on the rise.
Chart 2.2: Profit structure in VPBank (mil VND)
Profit from loans Profit from services
Profit from inter-bank market investment Profit from securities investment
Profit from FX trading Others
The profit structure of VPBank has shown significant changes over the years, with profit from the credit portfolio declining from 34% in 2002 to just 14% in 2004, while income from banking services plummeted from 47% to 6% This decline in both key profit areas serves as a warning signal for the bank's operations Although VPBank may have navigated immediate risks, it is crucial for the bank to establish a clear long-term strategy to ensure sustainable growth and stability.
VPBank's profits primarily stem from inter-bank investments and securities trading, which have increased from 54% to 72% This growth, comprising 44% from inter-bank investments and 10% from securities trading, reflects a shift to safer and more profitable revenue sources, enabling VPBank to navigate financial challenges effectively.
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, non-professional, and easily replicable, making VPBank vulnerable to competitors who can quickly imitate them Additionally, there are several constraints that hinder long-term effectiveness.
- 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
In 2005, the management board focused on enhancing the effectiveness of various initiatives to ensure VPBank's stable growth, including expanding branch locations, promoting the VPBank brand, and implementing sales promotions during special occasions such as the bank's anniversary and 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
The figures in this table reflect the operational performance of VPBank; however, it's important to note that these numbers may not be entirely accurate due to the significant surge in banking service demand at the year's end Nonetheless, the core activities of the bank contribute only a small percentage to the overall profit.
About human resource : The total employees of VPBank increases very quickly from
249 people in 2001 to 658 person in the middle of 2005 The ratio of graduated and upper graduated employees takes 77%
To assess the current status of VPBank, we employ the SWOT analysis tool, which allows us to identify the bank's strengths and weaknesses, as well as the opportunities and threats present in the financial industry.
Firstly, Vpbank has the quick growth rate in mobilizing funds, especially in savings You can see the total mobilized funds in the period 2001-2004, as below:
Table 2.2: Total mobilized funds in the market I in the period 2001-2004
VPBank has experienced rapid growth in fund mobilization, primarily due to its competitive interest rates compared to other commercial banks in Vietnam, along with various promotional programs and advertisements Between 2003 and 2004, customer deposits increased significantly, ranging from 30.7% to 46.7%, with savings accounts making up the largest portion of this growth.
Chart 2.4: Mobilizing fund growth rates in 2003-2004
VPbank ACB Exim Techcombank Saigon Cong
Source : Vpbank, ACB, Eximbank, VPBank, Saigon Cong Thuong bank‟s anual reports 2003-2004
VPBank boasts a dynamic and skilled workforce, with 74% of its employees holding graduate or higher degrees, and two-thirds being newcomers While educational qualifications are important, the key factor is their ability to adapt to new environments and efficiently handle tasks The youthful demographic fosters a vibrant atmosphere, promoting increased activity and creativity within the organization.
Currently, VPBank boasts a low non-performing loans (NPLs) rate of just 0.5%, a significant improvement from the 37% recorded in 2001 when the bank was under special control by the Hanoi State Bank This remarkable reduction in NPLs indicates that VPBank is operating with a high level of safety and financial stability.
VPBank competitive advantages and general strategy from 2006-2010…53
VPBank has recently emerged from a challenging period, but without a clear strategy in place, it risks facing an even more severe crisis A well-defined strategy is essential, as it serves as a guiding thread for all bank activities, ensuring stability and direction in turbulent times.
From 2001 to 2005, VPBank focused on recovery strategies to navigate special control challenges, but now faces the need to adopt a clear competitive strategy They must choose one of Michael Porter's three competitive strategies—cost leadership, differentiation, or focus—or consider a combination of these approaches to enhance their market position.
Cost leadership is a strategy focused on maximizing efficiency through the production of high volumes of standardized, no-frills products at low costs By leveraging economies of scale and experience curve effects, companies aim to serve a vast customer base while continually seeking cost reductions across all business areas This approach also emphasizes extensive distribution networks and promotional strategies that highlight the benefits of low-cost product features.
To achieve success, a strategy typically necessitates significant market share advantages or preferential access to essential resources such as raw materials, components, or labor In the absence of these advantages, competitors can readily replicate the strategy Additionally, effective implementation is enhanced by leveraging these key resources.
+ Products design for ease of manufacture
+ Sustained access to inexpensive capital
+ Incentives based on quantitative targets
Differentiation is a strategy focused on developing a product that stands out as unique, offering distinct features or benefits that deliver exceptional value to customers When a product is perceived as unmatched, it often leads to reduced price elasticity of demand and increased brand loyalty among consumers, providing a buffer against competition However, implementing this strategy typically involves higher costs associated with the unique product features, which may necessitate a premium pricing approach.
To maintain this strategy the firm should have:
+ Strong research and development skills
+ Good cooperation with distribution channels
+ Incentives based largely on subjective measures
+ Be able to communicate the importance of the differentiating product characteristics
+ Stress continuous improvement and innovation
+ Attract highly skilled, creative people
A focus strategy, also known as a niche strategy, involves a firm concentrating its marketing efforts on a select few target markets By tailoring the marketing mix to these specialized segments, the firm aims to better meet the specific needs of its target audience This approach prioritizes effectiveness over efficiency, making it particularly suitable for smaller firms Additionally, it shares similarities with guerrilla marketing tactics, allowing businesses to gain a competitive advantage in their chosen niche.
In these three competitive advantages, some companies will choose a certain one but some others will mix two in one, maybe:
VPBank finds itself in a challenging position by attempting to implement both cost leadership and differentiation strategies simultaneously This approach is detrimental, as the conflicting goals of these strategies cannot be effectively pursued with limited resources.
At the current time, VPBank has not raised any unique impression in the customers‟ memory, so it is too difficult to market VPBank
VPBank can effectively leverage its strengths through a combination of differentiation and focus strategies to enhance its performance in a challenging banking environment Due to the rising input costs associated with market interest rates, VPBank cannot pursue a cost leadership strategy without risking its capital stability As competition intensifies in the banking sector, maintaining a balanced approach to interest rates is crucial for VPBank to safeguard its operational viability while pursuing growth in other areas.
VPBank currently lacks a competitive advantage compared to its rivals, which necessitates a focused strategy to enhance its strengths, particularly in the credit business Developing this sector is crucial for VPBank as it can leverage its potential to drive growth and improve market positioning.
- The demand of credit, especially consuming loan will increase in the near future:
+ Modern life of Vietnamese youth (more independent and active)
Many commercial banks are focusing on enhancing modern banking services such as ATM card issuance, credit cards, and money transfers They view these services as strategic products, aligning with trends set by international banks.
- All credit products from VPbank competitors are the same with VPBank and they also do not expose anything better
- All modern services based on the high technology, but at this time VPBank‟s IT still runs 3-5 years behind other top competitors
Despite a decrease in the profit percentage from loans, the overall loan numbers have increased, as shown in Table 2 VPBank has taken the lead in offering consumer loans, including home and car loans, which now constitute 27% of the total loan balance.
Besides, applying CRM will help VPBank increase the close relationship with customer, so VPbank will increase cross selling, up selling and save cost in finding customers
Concentrate on credit business => apply focus strategy
Apply CRM => apply differentiate strategy
Application plan of CRM in VPBank
CRM strategic plan is applied and deployed in VPBank:
Recognize new customers by marketing tools
Organize training programs for all staffs how to take care customers
Privatize in communicating and serving customer
Plan to take over customers
Discover each group of customers‟ demand and private demand
Train to improve communication and serving skill for employees
Design product and customize for each customer and each group of customer
Use all the policies of service after sale to differentiate VPBank‟s services
To meet all demands of customers
Ensure to satisfy each customer perfectly
Build all relationship with customers
Improve and Promote all interaction activities with customers
Record all history transactions of customers to analyze and forecast the demand
Save and reduce costs Affect to performance
Increase the capability of taking over and keeping customer
Improve service quality but not increase so much cost
Increase the loyalty with VPBank brand
Cross-selling Increase the effectiveness for marketing activities and marketing cost
Meet all the demand of customers => take the maximum share in customers‟ wallets
Reduce the cost to own a new customer (because of word of mouth tool)
Improve the effectiveness of VPBank performance
Increase the number of customers to make profit and the profitability of each customer
The primary goal of CRM is not solely to acquire new customers; however, given VPBank's current circumstances, it is essential to establish a robust and qualified customer database first Currently, VPBank has a limited customer base, so the initial step should focus on enhancing this database by attracting and onboarding more new customers.
The objectives of CRM program in VPBank:
- Increase turnover, and profit for VPBank
- Reduce cost to attract new customers and promote VPBank‟s brand 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
To successfully implement a CRM program, VPBank must demonstrate a unified commitment across all levels, from management to front-line employees The effectiveness of CRM relies on recognition and voluntary support from all staff, including bodyguards and tellers By fostering a customer-centric culture, CRM will enhance organizational culture at VPBank, ensuring that customer satisfaction is prioritized throughout the institution.
3.2.1 The first phase: Build foundation for CRM
CRM programs have a success rate of only 50%, yet many successful small and medium enterprises thrive using these systems For VPBank to effectively implement CRM, it is essential to invest time in preparation to establish a strong foundation.
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 needs to establish a core team dedicated to the CRM application, comprising key individuals from various departments, including management, deposits, credit, and accounting However, those who interact directly with customers, such as tellers, creditors, and customer care representatives, are crucial to the project's success The CRM project board must recognize that people are the most vital asset; therefore, VPBank must implement human resource policies that address their needs When employees are satisfied, they are more likely to provide excellent service to customers.
Some basic requirements to recruit human resource for CRM core team:
+ Have long experience in VPBank
+ No need long experience in IT
+ Need one person who will be expert at the changes and procedure management
VPBank must be active in arranging essential resources like time, capital and human to deploy CRM at the bank
The tasks of CRM core team:
+ Evaluate and analyze the current situation of customer relationship management at VPBank
+ Propose the strategy and objectives for CRM program
To effectively implement a customer-centric culture, it is essential to communicate both the ideas and the methods of CRM to all employees Ensuring that every staff member understands and embraces this approach will foster a unified commitment to prioritizing customer needs.
+ Choose the suitable information technology system like software and hardware for the selected strategies of CRM
+ Control the process of implementing CRM
3.2.1.2 VPBank must standardize the procurement
VPBank should enhance its procedures by adopting a customer-centric approach and establishing a professional call center, including a hotline and customer service center During this period, it is essential for VPBank to standardize its processes and make initial commitments to customers, which will help build trust and a positive impression of the bank Examples of commitments that VPBank can implement include timely responses and transparent communication with customers.
- For customers who find a loan:
VPBank is dedicated to ensuring that all customers fully understand the interest rate calculation methods for various loan types To facilitate this, the bank provides an estimated cost list tailored to each customer based on their chosen loan Additionally, VPBank offers comprehensive calculation tools, empowering customers to verify information independently and make informed decisions about their loan options.
- For customers who find private transactions:
VPBank is dedicated to maximizing customer benefits through its comprehensive service package By paying a fixed monthly fee, customers can enjoy complimentary services and receive discounts on additional services, enhancing their overall banking experience.
VPBank will refund and indemnify if VPBank does not meet the commitments in some certain cases as below:
Reply the loan application (fully completed) for consuming or business loans, in a certain working day
To enhance customer experience, the bank promptly addresses customer inquiries as they arrive Staff members are readily available to consult and provide essential information, ensuring that customers feel attended to while they wait for service.
3.2.1.3 VPBank must build the plan for selecting CRM vendor
VPBank should develop a comprehensive plan to select the right supplier for its CRM information technology needs While IT is not the sole determinant of a CRM project's success, it remains an essential component Therefore, it is crucial to thoroughly analyze VPBank's CRM strategies and requirements prior to making any purchasing decisions.
3.2.1.4 VPBank must improve customer database
To successfully implement CRM at VPBank, the first crucial step is to establish a qualified customer database, which serves as the foundation for effective CRM strategies Given the current fragmented and inadequate customer database, it is essential to enhance and complete it With a limited number of existing customers, VPBank must actively seek to attract and acquire new customers during this phase A robust CRM system relies on a well-defined customer database, necessitating a sufficient number of customers with clear profiles to ensure its effectiveness.
VPBank employs various strategies to attract new customers, particularly in its core credit business By fostering close relationships with intermediaries in housing and land trading, as well as construction companies, VPBank enhances its market presence Collaborating with headhunting firms enables VPBank to identify high-income employees—young, risk-takers with stable incomes—who are ideal candidates for its services The bank approaches these potential customers with tailored offers, including preferential cards and dedicated customer care, targeting them for consumer loans Additionally, VPBank organizes meetings within enterprises to promote its products and services, creating mutually beneficial relationships through exclusive policies for employees Lastly, the bank recognizes that final-year students and recent graduates represent a future customer base, as their banking needs are likely to evolve over time.
VPBank should strategically target top graduates while managing its limited resources To enhance customer loyalty, the bank will introduce a special card called "Vietnamese Talent" for this elite group, offering benefits such as birthday gifts, fee discounts, and exclusive policies By implementing these tailored customer care initiatives, VPBank can expect to see increased customer satisfaction and retention.
- The demand of banking services in the youth is very high, especially with the retail banks
The youth today are increasingly seeking loans, such as home and car loans, to gain independence from their families, influenced by global cultural trends.
The VPBank card is exclusively offered to the top students at each university, ensuring a lower risk for customers These outstanding students take pride in their achievements and are eager to showcase their card in public, as it serves as a testament to their success and status.
Besides the current marketing activities, VPBank should use more channels to provide information and approach customers in the first phase We can share some ideas: