Speech by Mr Vincent H C Cheng
Vice-Chairman and Chief Executive

Good afternoon David, Alfred, T K and Robert. Ladies and Gentlemen. It is a great privilege for a banker to address marketing experts on how to build customer loyalty in the changing market.

Attracting and keeping loyal customers have become crucial to good corporate performance and shareholder value. By satisfying them as individuals, one-time customers are turned into life-time customers.

Never before have we had to work so hard to build and retain long-term customer loyalty. And in the fast-paced market, it's going to get harder.

I'd like to focus today on:

Our brand is all-important in our appeal to customers in this age of "instant access" and is our primary source of competitive advantage. But in the new marketing era we are in today, our brand has to keep evolving. Above all, it has to convey to customers that:

I am sure there is no need for me to tell you that today, the world and the market are changing with unprecedented speed due to technology.

Technology is entering our lives in more and more ways and there is growing acceptance of all things "e". People can read Sun Tzu's The Art of War on Palm Pilots, use mobile phones as alarm clocks and apply for IPO shares on the internet.

Competition is becoming hyper as new competitors from around the world target the same pool of customers. Just look at the continuing price wars among phone companies for IDD customers and among banks for mortgage customers. Mortgage rates have fallen from P+1.75% to below P-2%, and while it's been good news for you as customers, it's been tough for bankers like me.

Customers are now better informed and are taking good products, personal service and low prices for granted. Market competition is continually raising their expectations and unhappy customers are only a mouse click away from a competitor's website.

Our business models have had to change accordingly, to meet new customer demands in the rapidly developing market. Most importantly, instead of finding customers for our products, we now have to find products for our customers.

We are therefore confronted by many challenges. However, instead of boring you with a list of things that management should do, I will just concentrate on two issues which I think are of greater importance.

Innovation

First, technology and innovation.

Technology is here to stay. More and more, customers are becoming tech-savvy. Hong Kong, for example, already has about 2.5 million registered internet customer accounts and over 4.6 million mobile phone subscribers.

These tech-savvy customers are seeking one-stop solutions, cutting-edge products and the convenience of 'any time, any place' transactions that blend into their rapidly changing lifestyle.

Our business has to evolve around customer aspirations and constantly re-invent itself to promptly meet new customer demands. No one can meet today's challenges with yesterday's methods and still be in business tomorrow.

Our brand should represent a culture of everyday innovation that permeates through all levels of our organisation and inspires staff. Innovation is not just about product R&D, it is also about continuous improvement in all our business processes, including delivery, cost-efficiency and corporate effectiveness.

In Hang Seng Bank, we have a well-established system to encourage staff to achieve this target. We reward staff who make proposals for cost reduction and revenue generation. Each year, we give special awards to staff and departments that are able to change and innovate. The level of award depends on the amount of saving or revenue generated. Indeed, this is one of the reasons why Hang Seng's cost-to-income ratio is well below the industry average. Our ratio of 25.3% last year was most attractive against the local banking average of 37.8%, and one of the lowest in the banking world.

A Rewarding Brand Experience for Customers

We must ensure that our brand is well recognised and received. In view of the millions of websites on the internet, only those which are well-known and well-perceived would attract customers. We in Hang Seng believe that we have to do better than that. Not only do we need to have a recognisable and easily remembered brand name, we have to make sure that our brand creates memorable and rewarding experiences for customers.

This involves delivering a highly differentiated experience across all points of contact with customers. The brand becomes individual to each customer by providing superior value and personalised service, allowing us to form closer and deeper relationships.

In the words of Sir Colin Marshall, the former Chief Executive of British Airways: "The product is not simply a seat, but an experience being orchestrated across the airline. That orchestration is the brand."

To provide such an experience, we must be able to anticipate the individual evolving needs of customers and delight them by providing value that is specific to them. How?

I believe that technology is now providing greater opportunities to get closer to customers by making it easier to listen to them and understand their needs.

The information we gain about customer behaviour and habits is a gold-mine and allows us to tailor superior value and personalised service that meet their specific needs.

The internet is becoming a major channel for two-way dialogue with customers. The website not only gives customers information about our organisation, it allows us to better learn about them, their interests and usage patterns.

It enables us to move beyond segment marketing to 1-to-1 marketing, and to design personalised products and sell according to customers' lifestyle. As organisations become more focused on improving and adapting products for different customers, mass production is giving way to mass customisation.

The Barbie doll website, for example, allows customers to order their own personalised Barbie which they designed themselves.

All the information about our organisation's relationship with the customer should be integrated and shared with staff who need it, both back office and front office. This will allow them to respond with quick turnaround times at all points of contact, further deepening the customer relationship.

All this creates loyal customers who are often willing to pay a premium for the experience they enjoy.

Strengthening Hang Seng's Brand

From its earliest days in the 1930s, Hang Seng Bank has been a pioneer of personal service. Our brand has reflected premium service and customer care.

But we are not complacent. In the competitive banking sector, business models are changing rapidly.

The internet is currently the biggest strategic challenge in banking. Because it's what customers want, banks have to roll out internet banking or risk losing market share.

To reflect how Hang Seng is evolving with technology and innovating to meet new customer needs, not only did we have to invest in internet technology, we also had to build up our brand as a major e-player.

In July, we launched an image advertising campaign with a new corporate tagline - Hang Seng Bank. Exceed. Excel. This highlights Hang Seng e-Banking services and our continued caring for customers. The two words "Exceed. Excel." together have five "e"s. If you can think of two words with more "e"s, please let me know.

The campaign emphasises that we are not just providing enhanced financial services to customers. We are also committed to exceeding their expectations as a modern and progressive bank, and working to improve the quality of their life by continually launching new e-services.

The campaign was preceded by several major e-initiatives, including Hong Kong's first virtual card, the Hang Seng e-shopping MasterCard.

We took the campaign further by launching the first phase of our internet banking services on 1 August.

The feedback has exceeded our expectations. We have registered about 70,000 internet customers and over 2 million transactions so far. Our new e-IPO Services attracted about 24,000 applications for the MTRC's IPO last week. About 65% of our securities trading is now conducted through electronic means.

Because good customer service means different things to different people, we are adopting a clicks-and-mortar approach.

In a small place like Hong Kong, it's easy for people to just walk into branches. We believe customers will continue to use other banking channels and our branches will cater to customers who prefer face-to-face contact in their banking.

To ensure personalised service delivery, the Bank takes advantage of data-mining technologies, to learn customer needs more efficiently and tailor products accordingly.

To strengthen our innovation culture, we have appointed our head of retail banking as Innovation Champion, set up a task force, and launched a Bank-wide Innovation Quest. This includes a staff e-education plan, articles in the in-house magazine and morning broadcasts of interviews with well-known businessmen.

No matter how our business develops, we will ensure that the Hang Seng brand will always stand for extraordinary service that satisfies changing customer needs.

We believe our brand strategy has been successful. Highlighting our relationship of trust with loyal customers, we have gained market share in the tough mortgage market by matching, not undercutting, the pricing of major competitors.

Building that relationship of trust has involved being an all-weather bank. During the Asian financial crisis, we increased lending to Mainland-related entities. Last year, our lending to this sector grew by 3.8%, while the exposure of the Hong Kong banking sector fell by 21.1%. In the current tight lending market, we are being rewarded for our longstanding commitment by new business from the sector.

Conclusion

In today's dynamic world, markets will continue to change whether we like it or not. We have to innovate with the best use of technology to bring positive brand experiences to customers. Knowing our customers individually through tools such as data-mining, personalisation and 1-to-1 marketing are the key to the future.

Our brand is our clearly differentiated promise to customers. It has to be an ongoing demonstration of customer care and value. Creating a positive brand experience enhances our ability to compete. It is also a very important tool for building and retaining customer loyalty.

Thank you.