Retail Bank MarketSim In Bank Training – Invest in your best

2 Mike Allen - Biography 25 years experience in Banking in Product Management, Marketing & Finance 1996 Graduate of CBA’s Executive Banking School Instructor at the CBA’s Executive Banking School since 1997 On the development team for the Retail Bank MarketSim simulation University of Pittsburgh, MBA, Finance

3 Course Objectives Provide greater insight into the interplay between key retail strategies in product lines and pricing, delivery channels, customer segmentation, marketing and branding. Evaluate trade-offs in decision-making while solving to a business plan and Balanced Scorecard. Inspire elevated cross-departmental teamwork and integration with the greater goals of the retail bank. Link content from the CBA simulation to key business objectives.

4 Education Frame Work

5 Topics of Discussion Objectives of MarketSimProcesses we will useWorkflow proceduresExpected outcomes/winners

6 Your Scenario You and your management team have just been appointed to run retail for this bank. Prior management has not run it very well. You are not differentiated at all from your competition. Your CEO has said “We need to make more money in Retail and I Hope it works out for you!”

7 Processes We Will Use You are a team of retail bank professionals not computer gaming professionals. You will get a lecture on a subject and then your team must decide who, what, how much, and how. You are in a community with 4 other banks and “monoline” national players. A computer simulation will be used to simulate your results.

8 Starting Point HINTS Starting Point was reviewed previously Each bank starts at the same place NOT a very well run retail bank! Shows Customers, Delivery, Product, and Financial data

9 How will we keep score?

10 MarketSim Ranking - BSI A stock analyst will analyze each team in a community. Results are based on balanced scorecard fundamentals. They will then rank each team against the other 4 and compute a Balanced Scorecard Index (BSI) The analyst uses this to HYPE Stocks. The analyst then publishes this for all their sales force to see.

11 MarketSim Balanced Scorecard Index

12 MarketSim Balanced Scorecard Index Bank Management –Return on Equity –Provision to Assets –CRA –Return on Assets –Loan to Deposit Ratio Market Measures –Market Share Index –Customer Turnover Ratio Customer Satisfaction –Product Breadth –Access to Delivery –Customer Service Performance Management –Efficiency Ratio –Cost per Transaction –Net Interest Margin –Non-Interest Income to Assets

13 Conceptual View...Strategy The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy. That it: 1.Translates the vision into operational goals; 2.Communicates the vision and links it to individual performance; 3.Feeds business planning and index setting 4.Provides feedback for learning, and for adjusting the strategy accordingly.

14 Conceptual View...Strategy Balanced Scorecards were “invented” to overcome issues with financial data It allows focus on controllable stuff It allows incentive programs to drive behavior It focuses on the longer run

15 Advantages of Balanced Scorecards Focused on Retail Strategy Look at Customers, Products, Delivery, Financials and “Rules” Contains both leading and lagging indicators Factors in employees of your firm Focused on LONG TERM value creation

16 Disadvantages of Balanced Scorecards Doesn’t sync with traditional accounting measures A series of numbers, not a series of solutions Doesn’t link directly to bottom line results & key stakeholder concerns Will the “Street” give you time for your scorecard to show results?

17 From the base case you must… Make Decisions Segmentation Marketing / Advertising Delivery Configuration Product Pricing Product Features

18 But of course you read all this in the Getting Started section of the model!

19 Customer Design Product Price Product Revenue Variable Costs Income x = - = Team selects target markets and invests in marketing Fixed Costs - Team selects products and product features Team determines pricing Team defines distribution architecture Framework

20 In case you thought this is easy…

21 Change levers, such as investing in customer marketing, affect appeal along one or more dimensions Change Levers… Just Starting Working Poor First House Emerging Affluent Blue Collar Single Income Pre-retired High-income M&S Money Mogul Downtown IndustrialWorking ClassStart UpLight IndustrialNew SuburbanTrade-UpOld MoneyBedroom Community Checking Reg Checking Gold Savings Investments Loans Target marketing decisions (e.g. to Blue Collar Segment) affect appeal across this band

22 Change Levers… Just Starting Working Poor First House Emerging Affluent Blue Collar Single Income Pre-retired High-income M&S Money Mogul Downtown IndustrialWorking ClassStart UpLight IndustrialNew SuburbanTrade-UpOld MoneyBedroom Community Checking Reg Checking Gold Savings Investments Loans Product Change decisions (e.g. to Checking Gold) affect product appeal across this band

23 Change Levers… Just Starting Working Poor First House Emerging Affluent Blue Collar Single Income Pre-retired High-income M&S Money Mogul Downtown IndustrialWorking ClassStart UpLight IndustryNew SuburbanTrade-UpOld MoneyBedroom Community Checking Reg Checking Gold Savings Investments Loans Distribution Change decisions (e.g. to Light Industry area) affect appeal to customers in cells across this band

24 Change Levers… Just Starting Working Poor First House Emerging Affluent Blue Collar Single Income Pre-retired High-income M&S Money Mogul Downtown IndustrialWorking ClassStart UpLight IndustryNew SuburbanTrade-UpOld MoneyBedroom Community Checking Reg Checking Gold Savings Investments Loans

25 Changing Levers Impact

26 Changing Levers Impact

27 Now Let’s Discuss the Model

28 Now Let’s Discuss the Model

29 With all this, you need a process! Time Management Focus via Visual Aids Communication

30 Assignments Pick Officers and input into the simulation Reach a consensus on the condition of your bank and fill out a Retail Bank Condition Consensus Form Reach a consensus on what you need to do and fill out a Management Direction Consensus Form

31 Assignments

32 Assignment

33 Assignment

34 Assignment

35 Retail Bank Condition Consensus Focus on Retail Bank Start Point Agree on Overall Condition Hint: Banking is a team sport Discuss as a team what they do well…could be short discussion…and list these as strengths Discuss as a team what they do poorly and list these as weaknesses Fill out Bank Condition Consensus Form

Retail Bank Condition Consensus

What is the overall condition of retail at the bank? What are the retail bank’s strengths and weaknesses? STRENGTHSWEAKNESSES Customer Product Channel GAAP Retail Bank Condition Consensus

38 Management Direction Consensus Form As a TEAM agree where you want the company to go. High Level…i.e. Target Customers; re-price products; realign delivery; etc. Fill out Management Direction Consensus Form. We will review with you. You will use this form tomorrow to help you make your decisions.

What is the most important action required next year? Individually, consider the direction of the bank you will be managing in MarketSim. Then as a management team, come to a mutual agreement as to the changes that need to be made. List below your consensus of the 4 or 5 actions required over the next year to preserve the bank’s strengths and/or correct its weaknesses. This list forms the basis for your decision sets. CONDITION ACTION Management Direction Consensus

41 Officers Duties are listed in the manual Team decisions versus Point of View Details, details, details… Chief Retail OfficerChief Marketing OfficerChief Product OfficerChief Delivery OfficerChief Financial Officer

42 My Team

43 Next Steps Report back to this room Pick Bank Officers and input into the simulation. Discuss your starting point and where you want to go. Fill out Condition and Direction Consensus worksheets. Go to your team location