RESIMAC

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Introduction:

RESIMAC is an Australian company, headquartered in Sydney. With 25 years of experience, RESIMAC has provided home loans to over 100,000 customers (RESIMAC Annual Report, 2009). RESIMAC states that its vision is: providing mortgages to prospective homeowners, a securitiser of RMBS (Residential Mortgage Backed Securities) commitment to research and development, and rigorous attention to quality. These 3 factors have enabled them to maintain strong year-on-year growth (billings for fiscal year 2009 totalling AUD$14.5 million, a 446% increase from AUD$3.25 million in fiscal 2008, (RESIMAC Annual Report, 2009). RESIMAC has 100 staff and 80 of those are based in Sydney.

Currently, RESIMAC does not present a tagline to end customers, but its value proposition and message to its customers (Mortgage Originator's: MO's from here on): an intermediatory between RESIMAC and the actual mortgagee) is its ease of use, customer service and quick turnaround of loan applications. As a small player in the banking sector, RESIMAC is able to move much quicker and be more responsive than their larger competitors. From its banking base, RESIMAC is still predominantly product oriented and this is strongly reflected in its corporate approach to Marketing. RESIMAC's customer needs and perception of value are still not clearly defined, hence the challenge of positioning RESIMAC with a value proposition superior to its competitors. In the last 18 months, RESIMAC has looked to address shifting towards a more marketing oriented approach for its overall growth strategy (eg. dealing with customers direct business challenges and customer pains versus solely promoting on product features and benefits), but the deeply seeded product-centric culture has been slow to facilitate this. Despite this, RESIMAC enjoys strong brand recognition in the Wholesale sector due to its long tenure and position in this environment

Marketing Analysis, Market Research and the 5C's

Company:

RESIMAC is a privately owned company. The Senior Management Team is based in Sydney. Its three Company objectives for FY09/10 are: acquisition of niche finance entities, growth of customer base and return to shareholders. The SWOT analysis (see Appendix 1) of RESIMAC works to support the corporate objectives by leveraging on its strengths and the identified opportunities in the market including superior service delivery via system integration and automation and the re-emergence of demand for non bank products. There are weaknesses that RESIMAC needs to address including the delivery of consistent messaging and positioning in the market to build stronger market presence.

Market Information Gathering:

RESIMAC gathers its intelligence from a number of internal and external sources. With the re- emergence of demand for non bank products, it is essential that RESIMAC can clearly forecast its market potential, growth rates, competitor offerings and how it can improve its existing products or develop new ones in order to appear as “attractive” to its customers as possible. RESIMAC's Microsoft CRM system captures all customer details, including price tiering and loans written. RESIMAC utilises other systems (customer and partner secured intranet sites; financial and reporting packages; electronic marketing and communications applications; third party hosted applications etc.), that are not integrated into RESIMAC's CRM which means that at present, in order to get a clear 360 degree view of a customer's RESIMAC experience is not easily accessible.

RESIMAC also relies on secondary research in particular from industry sources such as the Australian Bureau of Statistics (ABS) in order to ascertain market size and growth potential. For example in the latest ABS Housing Finance Report1, (February 2010); total dwelling commitments were valued at $20.9 billion; RESIMAC originated 70.5% million; a mere 0.32% of total dwelling commitments in February 2010.

1 http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5609.0Feb%202010?OpenDocument

Customers:

RESIMAC has around 100 active customers (as of April 2010), which equates to 13,000 loans (RESIMAC, CRM). In the Wholesale sector, MO's are dependent upon Non Bank entities like RESIMAC to write Lo-Doc, Small Commercial and Sub-Prime lines of business. RESIMAC structures its customers into Gold, Silver and Bronze, which is determined on how much business is delivered to RESIMAC month on month in terms of dollars and units. On the basis of this, MO's are tiered and given respective pricing, which equates to a unique suite of interest rates by product with up-front and trail commissions. As part of this approach, the MO's can White-label RESIMAC products.

RESIMAC customers and prospects typically follow the full “B2B purchase decision process” (Robinson, Faris and Wind, 1967; Unit 3, Buyer Behavior, AGSM Marketing - full reference details not found) with the main bulk of their time being allocated toward agreeing upon product rate specifications and the white labelling of promotional material. Internally, RESIMAC's technology platforms accommodate and embed these unique product specifications into their systems in order to capture data when applications are submitted. Enabling, designing and capturing this data is computationally intensive and requires a lot of synergy in terms of resources between the Mortgage Originator, the Marketing Department and the Technology Department. In addition, The Securitisation Department is pivotal in determining the pricing allocated to a Mortgage Originator and whether sufficient revenue can be generated from such pricing structures.

A RESIMAC loan is typically 2-3 years in length which means that the RESIMAC sales retention team and support team need to ensure that the end customer (the mortgagee) post-purchase experience has met or exceeded satisfaction levels, and avoids ‘cognitive dissonance' (Festinger 1957). By also keeping abreast of where individual loans are in the loan application cycle allows RESIMAC to assist their customers (MO's) and let them know what additional sources of information are required in order to process the loan application in a quicker turnaround time. By carrying out these information searches and evaluating what conditions have been or need to be provided informs the customer and ensures that the purchase decision stage can be achieved quicker (AGSM Marketing, 2009, 3-47).

Market Information Gathering:

RESIMAC gathers the majority of its customer information from its CRM and corporate databases. This includes quantitative analysis for customer segmentation in a variety of ways including breakdown by region (by revenue, number of customers, size of customers, number of products used etc). For example in the last financial year, VIC contributed 25%, NSW 31%, QLD 23%, WA 14%, SA 6%, ACT 1% of total revenue (RESIMAC Annual Report, 2009). This could assist in deciding which regions to invest more heavily in for marketing campaign activity, partner recruitment or to establish an office in a high growth location.

RESIMAC also conducts internal customer surveys to collect for quantitative and qualitative feedback. A survey to RESIMAC customers (see table 2: page 9) was run in 2009 to find out what their customers used the product primarily for and whether they used (or even were aware) of any of the additional features provided. Results showed that only 36% had tiered interest rates; 54% used the rate discount option, 34% used the credit card and 27% used line of credit flexibility. These results were useful to recommend whether a communications push was required to better educate MO's of the benefit the additional features could bring to their customers and increase their perceived value of their RESIMAC relationship (RESIMAC Customer Survey Report, September 2009).

The RESIMAC Marketing Department also captures data relating to its customers to compare performance against portfolio averages on four key metrics: Customer acquisition, Customer retention, Customer satisfaction and Customer attrition. The results showed that Gold and Silver customers performed above average for all areas measured (RESIMAC Customer Survey Report, September 2009).

Collaborators:

RESIMAC has a selective direct-engagement model made up of around 100 MO's. This allows for good market coverage and access to new markets (AGSM Marketing, 2009, 8-12). A distributor is always required given that RESIMAC operates in a Wholesale capacity.

RESIMAC has a tiering pricing structure in regard to its partners: Bronze, Silver and Gold. All resellers wanting to sell RESIMAC products must be signed up to the RESIMAC Partner Program. The majority of partners are in the silver category, typically medium sized MO's that service particular geographic regions. With the recent restructure of RESIMAC's Sales strategy, resellers have been incentivised to bring in their own leads versus relying on RESIMAC to generate the majority of new business deals and then passing them on to the reseller to fulfil. Partners have access to a web portal that allows them access to deal registration, online quoting and a variety of sales and marketing tools. This is an essential system to have in place to enable ease of collaboration, control and measurement of partner activity.

Market Information Gathering: Reseller reporting runs parallel with all sales reporting. Partners (MO's) are escalated to higher program tiers depending on their revenue contribution that in turn allows them to receive better margins, better core delivery rates and access to marketing development funds (MDF) to facilitate White Labelling. Other data collected (though not typically analysed) from internal systems include the log-in frequency into on-line loan application systems, calculators and tools and the download of RESIMAC white papers, market intelligence and data sheets. This can help marketing managers measure and improve the value of the assets provided – such as rating the most popular versus the untouched.

Competition:

RESIMAC has two types of competitors as described in the “Threats” section of the SWOT, Retail Banks and the Non Banks. The Banks provide a broad range of finance/banking solutions beyond a Mortgage service including Debt Management, Insurance, Funds Management and Superannuation. RESIMAC and FirstMac are the only independent Non Banks still originating mortgages post GFC. The others have either been absorbed by the Retail Banks or gone into hibernation because of the costs associated with Wholesale funds. FirstMac offer similar solutions to that of RESIMAC, whereas the non Banks absorbed by the Retail Banks have escaped the stigma associated with non banks and can leverage on the infrastructure and financial support offered by the Retail banks. Many of these absorbed Non Banks such as Wizard (CBA), Aussie (CBA), RAMS (Westpac) and Challenger (NAB) embed features of the Retail banks they are now part of into their own products and pad them out with additional “bells and whistles” in order to differentiate themselves. RESIMAC's profitable space has been squeezed and without the support from a large Retail bank, RESIMAC is highly dependent on maintaining good relations with its Wholesale Funders and Institutional Investors in Australia and overseas; tactically, this has required improving the quality of customer it originates business from and getting rid of non profitable ones.

Market Information Gathering:

RESIMAC has an internal team dedicated to gathering competitive intelligence. This is primarily on a product level – comparing features and functionality. They produce competitor scorecards and assess how competitive offerings should be handled. This team also monitors independent product testing results and watches for new entrants to the market. The Sales Department are also encouraged to relay local competitor information back to the team – including marketing campaign activity, advertising content and placements, product reviews, partner program comparisons, event sponsorships and press coverage. Again, secondary reports also provide competitive market information on product releases and market volumes.

Context:

Other areas affecting RESIMAC as described in the SWOT include legislative, political and technological factors requiring RESIMAC to “keep up” with evolving threats, competing financial institutions and the continued volatility in international debt and equity markets, and the forever rising incidence of fraud. The GFC is an economic factor that has resulted in RESIMAC applying more rigorous due diligence when accepting and underwriting loan applications. Whilst operational intensive, strategically, RESIMAC's loans are of a higher quality; from a political, economic and compliance perspective, this ensures that RESIMAC's bonds can be sold at more competitive prices than would be otherwise.

STP Strategy:

RESIMAC applies a differentiated strategy (Simpson, 2003) by which it recognises the presence of multiple segments and creates unique marketing campaigns to target these multiple segments. At present this has been primarily by size of customer (loan units and dollars). RESIMAC also classifies the market into “standard” versus “high end” targeting the “standard” audience which adheres to the simplicity strategy (see table 1) applied as a means of differentiation. Analysing whether RESIMAC's segmentation strategy meets the criteria for successful segmentation, each of the two segments are heterogeneous between; homogeneous within; measurable; substantial and actionable (AGSM Marketing, 2009, 5-12).

Table 1: Segmentation of Standard Targeted Customers

Table 2: RESIMAC Internal Customer Survey, 2009

From assessing the segment attractiveness available to RESIMAC, and keeping in mind the limited resources available to market to these segments, the “Driving Choices” model can be used to map its prime targets and where to build competency for future growth.

Segment Attractiveness

High

Build Competency

Regional areas

New business

Medium volume (units & $)

White labelling

Prime Targets

Metro areas

Existing and new business

High volume (units & $)

White labelling

Low

De-Select

Low volume (units and $)

Competitor loyal

Highly price sensitive

Opportunistic Pursuit

Relations with big banks

High compliance requirements

Technological innovation

Low

High

Ability to compete

Building integrated marketing campaigns would be suitable to target both segments, covering email and web via the ease of centrally controlled database management. The success of such campaigns will depend on whether targeted customers use existing competitor products and to what extent they would consider a Wholesale Finance relationship with RESIMAC; the success of such a strategy wholly depends on whether can RESIMAC can offer the Mortgage Originator a suite of rates, with respective up-front and trail commissions that makes selling the RESIMAC product suite attractive. The long term view of every relationship, new and existing, is the Mortgage Originator swapping from a competitors products to RESIMAC's. RESIMAC has a problem in achieving this though – it has a confused positioning strategy: typically promoting themselves through a combination of identified benefits and by specific product attributes and features; and not clearly establishing its competitive advantage by again combining product, service and image differentiation. It has multiple positioning statements and needs to look at producing one clear and succinct statement/mission statement to ensure greater clarity.

Recommendations for RESIMAC: RESIMAC's current marketing strategy is largely dependent on what is set by the Chief Operating Officer in terms of targets (number of lead generated, number of additional database contacts added, contribution to overall sales pipeline, customer satisfaction ratings, partner program adoption and level of branding and awareness including media reach and coverage). Marketing assets such as the corporate website and information downloads (whitepapers, datasheets, product brochures etc) are produced and disseminated to all MO's. The larger MO's have some autonomy in terms of developing small scale local marketing campaigns, but must keep consistency in product descriptions corporate branding and messaging to ensure that there is limited brand and content dilution. It is also imperative that partners/resellers are kept up to date with the same information and follow corporate guidelines for any promotion of RESIMAC to their customers and prospects. This however is not easy to monitor, especially with over 100 partners to keep in check. There are plans for RESIMAC to bring on a third party agency to audit the RESIMAC brand and to recommend whether it should undergo a complete brand refresh or to pinpoint certain areas that could strengthen the brand as it exists. The later strategy would be preferable as a dramatic shift in what a majority of the prime targets are familiar with will potentially damage what traction currently exists.

RESIMAC has also recently relocated its Marketing team from Securitisation to Operations. The integration of Marketing into Operations has translated well, with a refocus of Marketing initiatives on Operational (MO's) customers, not Institutional (Investors) customers' buyer behaviour (AGSM Marketing, 2009, chapter 3). This has involved running several campaigns from gathered knowledge of the market and testing concepts with a small selection of customers, partners and internal staff to gauge either a positive, negative or neutral reaction.

There are a number of opportunities that RESIMAC are capable of winning and at least over the next 12 months the market efforts should be SMART and not convoluted. Despite of all the changes occurring in marketing, where possible an 80% focus should be directed at the prime targets and 20% on building competency for high potential segments. Marketing should develop tactics to play to the strengths of the local resources including the selection of more proactive partners to run joint activities. The level of customer marketing campaign activity should also be increased, keeping in mind that there is a large untapped market for multiple RESIMAC products. By improving the ability, through integrated systems, to analyse customer data and better understand their needs will make up-selling and cross-selling techniques easier as well as approaching new business opportunities.

Appendix 1 – SWOT Analysis

STRENGTHS

25 years of industry experience and history with enviable pedigree

Three core competencies:

Securitisation capability for diversified asset classes (credit cards, mortgages)

‘Receivable' cash Flow management Loan servicing, collections and arrears management

Technological business development

Availability of short term funding lines

Industrial strength and comprehensive loan management platform

Ability to manufacture competitive and diversified mortgage product Prime, non conforming and small commercial

Strong non conforming credit and product management skills

Strong (grade) servicer rating from Standard and Poors for Prime

Corporate organisation structure with an independent, business supportive and experienced

Board of Directors

A majority long term committed shareholder

Top quality execs in key positions and as a corollary, strong teams across senior management, executives and employees

High and Solid reputation amongst all stakeholders

Adequate financial management processes and procedures resulting in a lack of timely data.

A willingness of the major shareholder to ‘act' outside the box, experiment and innovate without fear of retribution for management

WEAKNESSES

Relative small size of the loan book

No scale effect

Competitive disadvantage of pricing vs. banks

The short term absence of any competitive medium term funding from domestic or overseas bond markets

Impacting on securitisation of all manufactured product and refinancing NIM facilities

In the absence of AOFM there is no real bond market, let alone a market which is regarded as realistically pricing for risk

Present day cost of equity capital is penally high

An historical and present day dominance to exclusivity in wholesale markets (i.e. no retail penetration)

Limited to no service offering for the retail markets

Wholesale product design is one dimensional (one structure fits all)

A limited capital base reflecting shareholder structure. I.e. only one shareholder willing to consider meaningful (size) incremental investment.

Absence of a 2010 net based driven and geared systems capability, plus supporting content management

Low level of enterprise risk management discipline and culture (can correct promptly)

Across function teamwork and respect, not always living the values

Absence of entrepreneurial flair in sales and marketing, more a resistance to change resulting in snail's pace activity levels and implementation of change, and consequently poor execution of deliverables

Absence of direct borrower ‘ownership' produces weak loan retention strategies

OPPORTUNITIES

Short term mortgage stressed asset based arbitrage activities in the secondary markets

Treasury ‘trading' activities

Business hedge via application of financial derivatives

Little present and future competition in non bank funding of mortgages

Two left RESIMAC, First Mac: this may drop to two by 2011 if markets don't improve (First Mac would most likely be the casualty)

Being part of a highly concentrated oligopoly in non bank wholesale funding for mortgages

Retail mortgage lending: implementing a strategy where we can successfully compete against the banks (they are Web based, ‘franchise' structure)

Creating a superior service delivery culture across the organization to ‘beat the banks'

Developing a competitive non LMI based mortgage product and maybe full capital structure product on securitisation

Expand core competencies overseas, from New Zealand to Asia

Conversion to an ADI even a bank around payments mechanisms

Third part loan/receivable servicing

Develop customised financial and business strategies to ‘lock in' key wholesale relationships

Expand wholesale network by adding new ‘major' relationships; historically we have focused on introducers with only limited origination power.

Integrate RESIMAC offerings to provide ‘one stop financial shop'

Create a superior enterprise communication environment to achieve employee ‘buy in' of organsational goals and values. Extend this objective to all stakeholders.

Integrate MIS and decision support tools with job design and work flow processes and procedures to dramatically lift productivity and ensure a scaleable operating platform.

THREATS

Disappearance of the wholesale channel as a result of effectively no LMI

LMI is increasingly unavailable to all non banks

Basle II introduction giving an incessant long term competitive advantage in loan pricing to the banks

Bank, professional adviser and media ‘belt ups' for non banks creating a perception of risk and insecurity for borrowers

Severe price competitive disadvantage as a consequence of a chasm between banks and non banks

given banks' funding activities are guaranteed by the Australian Government and Basle II provides significant capital benefits.

Withdrawal of support from warehouse providers

Lending policy and disciplines not sufficiently adaptive to changing socio economic conditions

A continuing decline in the loan book combined with lower excess spread severely impacts an ability to survive

The Australian Government (AOFM withdraws its funding support) prior to the reopening of the domestic and overseas bond markets.

Domestic and world bond markets remain ‘closed' to non banks to 2012

Increasing arrears performance

Risk of falling house prices in the order of 15% to 20%, over the next 18 months.

References

Australian Bureau of Statistics, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5609.0Feb%202010?OpenDocument

AGSM, Marketing Intensive Course Work, 2009.

Festinger, L. 1957, Theory of Cognitive Dissonance. Stanford University. Press: Palo Alto, USA.

RESIMAC Annual Report 2009

RESIMAC CRM, 2010

RESIMAC Customer Survey Report, September 2009

Simpson, P.M. 2003, ‘Marketing segmentation and target markets', Marketing best practices, 2nd edn, Thompson Southwestern, Australia.

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