MARKS & SPENCER MONEY: A CASE STUDY OF BUSINESS CHANGE Julian Sawyer, Bluerock Consulting Over the last couple of weeks you might have read in the business press that Marks & Spencer has launched its &more credit card. I would expect that several of you would have received letters from them telling you personally more about the Credit Card and the &more loyalty scheme. If you feel you missed out - just pop into a store from 6 October! This will be hard to miss - it's the biggest credit card launch in Europe, making Marks & Spencer the 7th largest card issuer in the UK. Market context - card numbers by issuer Source: Datamonitor, UK Plastic Cards 2003 Barclaycard RBS NatWest Lloyds - TSB MBNA HSBC HBoS Capital One Egg The Co-operative Bank HFC National Australia Group Tesco Personal Financial Services Sainsbury's Bank Others TOTAL cards issue 9,700 8,500 6,700 6,450 6,369 4,500 2,600 1,913 1,550 1,500 1,116 1,000 649 6,247 58,794 Number 000's 16.5 14.5 11.4 11.0 10.8 7.7 4.4 3.3 2.6 2.6 1.9 1.7 1.1 10.6 100.0 % share in issuer BACKGROUND The driver for business change within Marks & Spencer Financial Services started when the retail side of the business, as part of its revival, started to accept credit cards. This had a huge impact on the Chargecard user base. All metrics - number of cards in circulation, active accounts, average basket size, percentage of customers using the card, were in decline - terminal decline. Since a significant proportion of Marks & Spencer's savings, investment and insurance products are sold to its Chargecard customer base, the business clearly needed to change something. The business needed to make a step change - the strategy that developed was a credit card and loyalty proposition. Launching just a credit card within a highly competitive market place would not have driven the step change or the return on investment required for the business; likewise, if the retail division had launched a loyalty scheme on its own it would have been difficult to justify the cost (i.e. the discount given to customer). The key was to be the first UK retailer to launch a credit card and loyalty scheme. The only way for customers to gain loyalty is to have a &more Credit Card or Chargecard. Roger Holmes, CEO Marks and Spencer plc & Laurel Powers-Freeling, CEO Marks and Spencer Money Loyalty will reward customers for 1p per £1 spent in Marks & Spencer stores and 1p per £2 spent elsewhere. Special bonus points will also be available both in stores and advertised in mailings. Additional benefits include double/triple point days and in-store events. Reward point balances are mailed to customers every three months for redemption in store. As part of the &more Credit Card launch Marks & Spencer Financial Services has rebranded itself as Marks & Spencer Money. Market research showed that Marks & Spencer customers had a low awareness of the financial services side of the business. This new name enables the closer integration with retail - Clothing, Food and Home - the new look marketing material will exploit Money's relationship with the retail part of the business. STRATEGY Once the basic concept was developed, an implementation approach was designed. This involved developing in detail the customer proposition, the customer experience, the systems architecture and the business operations model. The key element here was to automatically upgrade existing Chargecard customers to the &more Credit Card. This enables Marks & Spencer to get into the number 7 slot in the table of UK card issuers almost overnight. It has taken Egg over five years to get 1.9m card holders. From 1st September, 2.6 million customers were offered an automatic upgrade. Another 250,000 dormant customers will be offered to opt-in and the stores will be open to take new business from 6th October. Another two million plus accounts will be offered &more loyalty benefits attached to their Chargecard. Marks & Spencer's strategy has significant cost dymanics over and above all other credit card issuers - by having a loyal group of customers all ready to accept the card, and utilising the 340+ stores each championing the use of the card, the cost of upgrading existing customers and acquiring new customers is a fraction of its competitors. To service these customers, a new virtual contact centre has been implemented - this routes calls automatically to the appropriate agent in any of three contact centres - Chester (M&S Money); Preston (Experian) and Mumbai, India (ICICI Onesource). By dynamically changing routing rules we can ensure high availability 24x7. This solution will be extended to other parts of the business including the Marks & Spencer retail business. To handle the processing of new applications, a document management solution has been implemented to scan application forms in Chester and retrieve the stored images from two sites in India (Chennai & Belaphur) for data input. These two examples demonstrate the size and scale of the undertaking and the degree of complexity of the solutions. IMPLEMENTATION The strategy development and subsequent project implementation was so strategically important and complex that a pilot was launched last year (See Bluerock Review November 2002). This trial operated in South Wales with 40,000 customers upgraded to the Credit Card and 160,000 Chargecard customers offered Loyalty. The trial tested all the systems and operational procedures as well as the business case and the marketing materials. A huge amount of learning was gained from this exercise and this was applied throughout the current project. SUMMARY The strategy set out is not completely delivered yet - over the next few weeks and months the credit card industry will become more accustomed to its new entrant. By working with Marks & Spencer Money and other clients in the future Bluerock will keep close to the changing business situation. BLUEROCK'S INVOLVEMENT IN THE MARKS & SPENCER &MORE CREDIT CARD Our initial involvement started with delivering the pilot in South Wales which went live last Autumn as reported in the Bluerock Review November 2002. Our consultants continued to be involved in a number of key areas assisting the Marks & Spencer team in delivering this project. Our key roles included heading the Technology workstream, which included all application development and infrastructure, and running the Credit Risk workstream. Within Infrastructure we were the project managers for the Virtual Contact Centre (integrating three contact centres - Chester, Preston & Mumbai) and the data scanning solution for New Business. ON THE MERGER SYNERGIES TRAIL - WHERE ONE PLUS ONE EQUALS THREE Tim West, Bluerock Consulting In recent years, we have been privileged to work with global organisations to help them explore merger synergies. There have been several flavours of this - doing due diligence for potential merger partners, helping to plug the gaps prior to disposals, and intra-group synergies within larger banks. A number of common themes pop up again and again (and again!). In particular, we have found that the synergy savings that are up for grabs fall into two main categories: 'disruptive synergies', which require organisational change, and 'non-disruptive synergies' which involve sharing and collaboration without serious upheaval. In our experience, the significant savings in operations and technology fall into the following categories: PROCUREMENT: By combining volumes and establishing global contracts with the big-ticket vendors (viz. Microsoft, Cisco, HP, Dell, Oracle, Sybase, etc), the two organisations can realise significant benefits very quickly after immediate renegotiation. The key to success here is appointing one joint account owner per supplier, and asking the vendor to provide a single point of contact. Very few so-called 'global' suppliers act in a truly global fashion, but all will do so if pushed hard enough. MARKET DATA: A number of small consultancies have become famous through providing market data rationalisation services, which tells you a lot about how much fat there must be out there waiting to be trimmed. By rationalising the number of providers (do all users really need both Reuters AND Bloomberg?), and sourcing, managing and distributing data more efficiently, there can be huge savings between, say, the asset management parts of the bank and the investment banking arm. GLOBAL NETWORK INFRASTRUCTURE: As with market data, plenty of specialists exist purely to help global organisations reduce their telecomms costs. As a result of previous mergers and years of organic growth, many global network maps are hugely overengineered. By seconding network managers from each organisation into one central team aimed at rationalising spend, the result is inevitably a cheaper and more robust service. GLOBAL OFFICE INFRASTRUCTURE: The two organisations are very likely to have a number of different premises in each major city, all having their own data centres and separate BCP arrangements. Despite sensitivities around buy-side/sell-side Chinese Walls, etc. there are often significant savings to be made by rationalising locations in each time zone. APPLICATIONS AND SOFTWARE LICENSING: An open audit of applications and unused software licences can also be a route to huge savings. One firm may have laboured to build just the tool that the other is about to buy from a third party vendor... DESKTOP COSTS: It is very unlikely that a workshop comparing desktop builds/tools/support models will not yield synergy savings, even between organisations that have dramatically different standard desktop images. Naturally there are dozens of other stones to be turned over in operations and technology alone, and synergies to be found. With a solid track record of working successfully with organisations to realise merger synergies that run into tens of millions of pounds, Bluerock has developed a proprietary approach to solving 'merger mysteries'.