Customer profitability: irrelevant for decisions?

Article Abstract:

Historical customer profitability reports have many serious limitations as a decision making tool in retail banking. Profitability figures are not predictive and therefore cannot guide a bank's cross-selling and service activities effectively. They are also a retrospective metric, thus they may not offer reliable forecasts of changes in customer holdings or usage patterns, and may reflect market conditions that no longer exist. Furthermore, historical profitability data are narrowly focused and therefore do not completely capture the true value of a particular relationship. A better alternative to historical customer profitability reports is to make structural decisions based on ad hoc analyses and to strengthen operational decisions using determinative tools that can respond to individual customers and situations.

Measurement, Bank earnings

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Rethinking classification-and-treatment frameworks

Article Abstract:

The classification-and-treatment approach to decision making can be counterproductive if the applicability of customer data is not refined and verified. This model involves the categorization of customer accounts based on a number of intuitively selected descriptive factors, and the prescription of appropriate tactical actions for each customer group. This approach can present problems when managers depend too much on their instincts in deciding which customer data to use as basis for customer categorization and for regulating interactions with the different customer segments. To ensure that customer data are used properly, managers must extend their focus beyond the use of customer profitability data and must reexamine the overall framework for customer segmentation and service.

Models

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The efficient path

Article Abstract:

Channel pricing can help banks reduce their branch delivery costs, free more staff for sales generation and increase customer satisfaction. This strategy is often used by companies to encourage consumers to modify their behavior for greater bank profitability and higher value for customers. In banking, channel pricing usually involves providing incentives to increase the use of alternative delivery channels, such as ATMS, PC online banking and telephone call centers, by individual and business clients. The 'carrot and stick' approach of an integrated channel pricing strategy is highly effective. This entails offering customers price breaks to encourage them to shift to non-branch delivery channels and increasing the fee for certain branch transactions.

Banking industry, Usage, Prices and rates, Distribution channels, Bank fees, Incentives (Business)

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