First Up: Customer Value Management, or Fiasco? Egg on Citigroup's Face.

CITIGROUP’S ACQUISITION OF EGG

Customer Value Management and Intangible Value Management
This case study briefly describes the way the UK bank Egg established a creative customer experience model to build a strong brand but ran into financial difficulties that are being addressed by an acquiring company, Citigroup.

Background
Retail banking traditionally has been a low-margin business, albeit with a lot of money at stake. Since that money belongs to depositors (or investors), a bank creates significant market power by building a trusted brand.

A key part of a bank’s success, of course, flows from what it can do with depositors’ money to make a profit. Generally they invest these monies in various forms of debt- based or equity-based financial instruments. The propensity for a bank to take risks in order to simultaneously improve its chances for rewards depends to some extent on the culture of the bank. In the United States, focus is on managing assets using classic risk- based approaches.

The impact of brand risk (reputational risk), and customer brand equity is normally not heavily considered in their calculations.

In non-US cultures, such as Canada, evidence shows that banks focus as much on customer relationships as they do on traditional financial management. (Source, Ogilvy One, in a CMAT assessment of US and Canadian banks.) While banks from Europe and Asia also develop market share and trust through brand management, increasingly international banking is performed within guidelines and practices designed to limit downside risks in case the global economy, or a regional economy, runs into trouble.

Part of a bank’s arsenal of weapons to reduce risk is to determine the profitability of customers, based on how much return the bank gets from that customer. Customers with high deposit amounts, or high loan amounts (on which the bank can make interest income), are desirable customers, particularly if their credit is “good enough” to make them reasonably low risk, but “bad enough” that the bank can reasonably justify charging higher interest rates on short-term and long-term loans (credit cards and mortgages, for example).

This is the story of Egg and Citigroup.

Egg, a pure-play online bank out of the UK, had a strong brand, huge subscriber base. Citi, a US-based bank, was profitable and interested in buying into new business models and markets, especially the potentially lucrative credit card market in the UK, which Egg dominated. “It's worth noting that although Egg proactively gathers customer feedback, the 10-year-old firm never raked in money for ex-owners Prudential. As it becomes part of Citi what happens to Egg's principled approach remains an open question,” according to Bank Technology News (Customer Feedback: Will Egg's research Tactics Hatch at Citi? December 2007).

NEXT TIME: Citigroup wants a piece of Egg -- but feels like it must fire the least profitable customers after acquisition. How this blows up in Citigroup's face.