POSITION STATEMENT FOR PILGRIM BANK CASE STUDY Objective: To generate a position statement, to justify my stand for customer

transactions using low cost channels and providing various avenues in order to enhance Customer profitability, by better management of Customer relationships, thus ensuring customer retention & revenue growth.

Background:

Pilgrim Bank, operates in the Retail Banking Industry. The bank had various divisions, with Online banking group being one of them. One of the major focus was in terms of online banking and Internet Strategies for enhancing Customer experience and reduction in Bank’s opex. costs.

Critical Problems Identified:

Based on the evaluation of the case study, the following critical problems were identified:

• Managing Customer expectations & profitability to the customer as well as the bank was a major challenge, since the relationship betewen balances and customer profitability was not a very straight-forward situation. Obtaining accurate and reliable data on customer profitability was a big challenge in retail banking.

• Profitability at the customer level was particularly important in retail banking because customer transactions generated incremental costs but typically did not generate incremental revenue.

as more number of avenues and facilities were supposed to be provided at a lesser cost. Carefully analyzing. since customer transactions grew with addition of various low cost channels. First Chicago’s decision to charge for teller visits. For example two customers having the same accounts and balances. • The main point ol discussion is whether online customers are better and would that actually produce better customers. • Variation in customer profitability was very high. followed by 24 hourrs call centers. also had failed based on historical data. However with the low cost channels. . starting with ATM’s. had contributed to a loss of one-fifth of its customer base. • Infact. the overall cost structure increased. which was a critical aspect. Also retainment of highly profitable customers was a very high challenge. as this enhanced the operational cost for the bank. Actually balance level captured only one piece of information of overall customer value to the bank. rather than one channel replacing another one. For example. customer behaviour in terms of transactions was a critical component. had a different patterns. wherein the customer who used to interact with the bank less frequently was more profitable. The focus on balances only will lead to missing important components of revenue such as fees and ignoring the cost of serving individual customers.• Also. the history of banking services started off with the low cost channels around 30 years back. especially in terms of using low cost channels. VRU’s and off-late the Internet banking. with increase in volume transactions and hence the profitability. • Levying more charges on transactions in order to ensure profitability for customer. each channel had proided an opportunity to reduce cost per transaction than the previous one. • Another challenge that was perceived was that the number of bank’s branches grew inspite of a larger presence of low cost channels such as ATM’s and Call Centers. for customer profitability.

Profitable customers were to be offered with various incentives such as feewaivers and rate-breaks. . The profitability analysis at the customer level in Pilgrim bank. it was found out that half of Pilgrim’s 5 million customers were unprofitable. This was actually aimed at increasing customer experience and retainment of profitable customers.• The contributions of individual customers to bank earnings varied widely with a small percentage of customers coss-subsidizing the profitability of the bulk of the customer base. Recommendation & My Position: It was visualized that encouraging transaction migration to lower cost channels actually was one of the ways for banks to improve customer profitability. Profitability tiers were to be developed to reallocate customer service resources away from customers in lower profit tiers to higher ones and retain them. felt that lot of things needed to be in place and hence an analysis was required in order to come up with an appropriate win-win solution for both the customer and the bank. who trancacted heavily using low cost channels. Based on the study. Re-pricing products and services was intended to motivate customers to use low cost channels. lifetime profitability measures. The retail banks also had to use pricing initiatives. fees and cross-sell programs to convert un-profitable customers in to profitable customers. discounts on mortgage rates or higher interest rates on certificates of deposit and route their telephone calls to specially trained personnel in the call center. showed that 10% of the customers generated 70% of the profits. Many banks actually offered customer incentives. Pilgrim Bank.

7 and USD $ 110. With thousands of customers already using the online site. Actually customer accounts generated 3 types of revenue: Investment income from deposit balances: Every customer investment generated income. It was also evident that the average customer profitability for 1999 was USD $ 111. This was a win-win situation to both the End Customer and the Bank The setting is a retail bank and the decision making relates to the bank's policy toward online banking. and a vast majority of the profits were derived from a small number of customers. The management team is evaluating whether the bank should charge for access to online banking.. overdrafts etc. Fee income: fees were variously assessed for checking accounts. for those who did not. provide incentives to use the service. This actually proved that online customers were more profitable compared to offline customers. a sample data of around 30. the bank is well positioned to assess the impact of the service on customer profitability and retention before making final policy decisions. late payments. Told from the perspective of a recent MBA graduate who was charged with performing the necessary data analysis and ultimately coming up with policy recommendations.50 and those who used online banking was around USD $ 116. or devise some other policy altogether.79.000 customers were analyzed and found that only half the customers as per the sample data were profitable. due to the recent declines in revenue on the net interest margins & Loan interest base lending rates which were a primary revenue source to the bank. This was represented by net interest margin. How does Pilgrim Bank make money from their customers? How much variation in profitability is observed across customers and how could Pilgrim best deal with this variability? ------------------- .Further as the process of investigation. the difference between the rate a bank paid on a deposit account to the rate at which it was able to invest that deposit.

Based on the information contained in the sample of customers for 1999. how confident can Green be that the information is similar to that in the population of Pilgrim Bank's customers? ------------------Does customer profitability differ as a function of being online or offline? Is the difference meaningful? What is the role of demographics? ------------------Can cause and effect be established between online usage and customer profitability? .

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