campaign to refresh its branch network in 2004 after the success of
specialist competitors started eating into its profits. Its ‘Branch
Revolution’ project has cut costs and reduced the break-even time
of new-builds, significant in Italy’s evolving market.
William Cain reports.
UniCredit’s success over the past year has been built on “taking
customer segmentation to the extreme”, according to Federico
Sforza. Sforza, promoted to head of multi-channel management at
UniCredit’s German subsidiary, HypoVereinsbank, in April this year,
played a senior role in the bank’s ‘Branch Revolution’ programme in
Italy. The scheme, started in 2004, has helped UniCredit produce
branches with cost-income ratios 30 percent lower than traditional
outlets; gross margin per customer in the newly configured branches
is around 23 percent higher.
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The bank had 2,750 Italian branches before its merger with
Capitalia last October; it now has around 5,000 – and the scheme is
likely to be applied to its Capitalia branches when the banks are
fully integrated. Speaking at RBI’s Retail Banking Forum
at the start of April, Sforza said the scheme’s success was down to
painstaking attention to detail in customer segmentation.
UniCredit’s vision, he said, was for a “multi-format,
multi-specialist bank” that matched banking demand with customer
needs through a highly localised approach. Because of the
programme, 415 branches have so far been closed, 190 opened and 282
revamped.
The strategy is based on “six golden rules”, three of which are
focused on micro-market analysis: location, market share and branch
format. According to Sforza, UniCredit has invested heavily in
generating databases about the micro-markets in which it operates.
And although he said this is nothing new in retail banking, it was
important to spend sufficient time on the information-gathering to
trust the results.
Market share was used to help work out where the bank should expand
and where it should close branches. UniCredit’s analysis
demonstrated the relationship between revenue market share per
micro-market and branch market share per micro-market was S-shaped
– investment in branches showed diminishing returns after they
reached a revenue market share of around 15 percent in a particular
micro-market.
Probably the most important of the three elements of UniCredit’s
micro-market analysis was the segment analysis, which led the bank
to decide on different formats for its branches. Sforza said the
bank used the results to tailor branches to different
segments, including different layouts, employing different
types of staff and establishing different communication channels
with clients.
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By GlobalDataUniCredit’s other three rules are concerned with creating multiple
distribution formats: deploying a mix of different formats;
adopting a modular approach to manage complexity; and using a
structured launch process.
A variety of branch formats
The approach has, necessarily, created a variety of branch formats
for UniCredit. Its top-of-the-range offering is its
multi-specialist branch: spacious, technology-based outlets, which
boast internet areas for customers and sometimes an art display
featuring exhibits from the local community. Because of their high
cost, these branches are employed in areas where profit potential
is high to ensure an acceptable break-even time.
“We would want to play a leading role in the community, especially
in the most appealing sub-segment in the area. We would have art
shows and events like that, geared to the affluent or small
business segment.”
Another of the formats is the small business or “golden” branch,
which are dedicated to SMEs and private banking clients. These have
been a great success for the bank, said Sforza, allowing it to
target small businesses and also focus on cross-selling personal
accounts and private banking products to affluent business owners.
It has helped reduce the bank branch break-even time in new-build
SME branches from five years to two.
Sforza said one of the bigger challenges was for its small
branches, which tended to be the most unprofitable. UniCredit
addressed this by reducing administrative activities and cutting
transactional services – in some cases “cancelling the teller, with
a very drastic migration process”.
This meant moving customers to different channels to do their
banking, such as the internet and the telephone. He said the bank
feared losing clients through this strategy, particularly older
customers, and invested in methods to keep hold of them. These
included offering free gifts for using self-service machines, and
educating customers on how to use them. The bank also introduced
loans and mortgage corners into the branches to promote more
profitable products.
UniCredit has also set up branches aimed at immigrant workers as
well. Like BBVA, which has very successfully catered to Spain’s
immigrant community with a range of specific branches (BBVA’s
immigrant customers now total 660,000 and the target by 2010 is a
further 500,000), UniCredit decided to create a new brand for the
branches, Agenzia Tu. The immigrant-focused service offers
different products to its other branches, as well as specialist,
multi-lingual staff.
The idea for UniCredit’s branch revolution project came from
supermarkets and department stores, which came under pressure from
competitors in the 1980s. Sforza said: “For example, you can take
Tesco or other department stores – they have over 10 formats,
completely different formats, depending on where they are,
depending on the micro-market in which they stand.
“We took this idea in order to develop our strategy and a lot of
what we have done has been based on this and brought into the
financial services industry.”
