BUSINESS INTELLIGENCE

BY

M.S.RANJEETHA

15MBA0044

TO

PROF. GANESH KUMAR C

TOPIC : PILGRIM BANK (A) CUSTOMER PROFITABILITY

EXECUTIVE SUMMARY

The objective of this case study are 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 relationship thus ensuring customer
retention and revenue growth. The 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 term of online banking and internet strategies for enhancing customer experience and
reduction in Bank's opex costs. The problem discussed in the case is related to pilgrim Bank's
online group. The analyst there namely Alan Green and his Boss Ravi Raman had to meet with a
senior management team and discuss their internet strategy. The main problem that they are
facing is whether they should start charging fees for the use of customer incentive or they should
begin offering customer incentives such as rebates and lower service charges to encourage
greater use of the channel. Online banking has emerged as a revolution in the banking sector.
Profitability at the customer level was particularly important in retail banking because customer
transactions generated incremental cost but typically did not generate incremental revenue. Also
customer behavior in terms of transactions was critical component, for customer profitability,
especially in terms of using low cost channels, as this enhanced the operational cost for the bank.
The main point of discussion is whether online customers are better and would that actually
produce better customers. Actually balance level captured only one piece of information of
overall customers value to the bank. The focus on balances only will lead to missing important
components of revenue such as fees and ignoring the cost of serving individual customers.
Variation in customer profitability was very high. Another challenge that was perceived was that
the number of bank's branches grew in spite of a larger presence of low cost channels and call
centers. The 2 important relationship to analyze this case are

1. The relationship between the yearly income and average monthly credit card expenditure.

2. The relationship between the age of the customer and the number of active credit accounts.
1. Based on the sample of customer data for 1999, what can Green conclude about average

customer profitability for Pilgrim Bank's entire customer population?

Green found that average customer profitability for 1999 was $111.50. He also concluded that
average profitability of the entire population of customers based on this relatively small sample.
Out of sample of 31,634 pilgrim bank customers, from a population of 5 million total, and zero
missing values, profits vary widely. The minimum value of this data set is $221 and the
maximum is $2071. This describes that there is a very wide range. The median customer
profitability is $9 and the standard deviation is $272.84.

2. Is the difference in average profitability between online and offline customers in the
sample indicative of a meaningful difference in profitability across these groups for Pilgrim
Bank's entire customer population?

According to the data given in the case study, null hypothesis is generated and accordingly
analysis is made. The null hypothesis explores that online and offline customers are of no
difference and the alternative hypothesis is that there is a difference between online and offline
customers. And according to the data, online and offline customers are no different. We accept
the null hypothesis and the differences are not meaningful. Out of the 31,634 customers in the
sample, 3854 are online customers and the remaining are offline customers. The ranges of these
two types of customers overlap. The customer profitability minimum for offline and online
customers is $221 and the maximum is approximately $2000 for both as well. The average
profitability is approximately $113 and standard deviation is approximately 275 for both types.
The median for offline customers is nine and for online customers in twelve. In a 95% confident
interval a two sample t-test revealed that the p-value is 0.210. Since this p-value is greater than
the significance level alpha of 0.05 we cannot reject the null hypothesis.
3. What role do customer demographics play in analyzing customer profitability for online
and offline customers?

Of the 31,364 customers in the sample 3854 are online customers and the remaining are ofline
customers. The range of these two types of customers overlap. The null hypothesis is that online
and offline customers are no different and the alternative hypothesis is that there is a difference
between online and offline customers are no different. We accept the hypothesis and the
differences are not meaning full The customer profitability minimum for offline & online
customers is $221 and the maximum is approximately $2000 for both as well. The average
profitability is approximately $113 and standard deviation is approximately 275 for both types.
The median for offline customer is nine and for online customer is twelve. In a 95% confident
interval a two sample t-test revealed that the p-value is 0.210. Since the p-value is greater than
the significance level alpha of 0.05 we can reject the null hypothesis.

4. How do retail banks make money from their customers? How much variation is there in

profit across customers? Based on this, what do you recommend the bank do in terms of

matching service levels to customer profit levels?

Pilgrim bank makes its profit from customers with components including the balance in deposit
accounts, the net interest spread, the fees collected by serving customers and the interest from
loans distributed. This can explain the variation in customer profitability because customer
accounts generate different types of revenue for Pilgrim Bank. Each customer generates
investment income by keeping a deposit balance. Fees are assessed for checking accounts, late
payments and overdrafts. This is an important revenue source Pilgrim Bank. Since each customer
varies in how many fees they rack up, each customer accounts for a different amount of the
profitability from this source. Depending on the customer a loan will be handled and the rate will
be decided upon. Each customer would create revenue for the bank this way but not all would
create the same amount. My recommendation is for Pilgrim Bank to conduct more exploration
and research into what makes a more profitable customer. Since we do not have an insight
because no relationship exists between online use and profitability, we cannot leverage it using
fees or rebates. Until Pilgrim Bank finds a relationship between a profitable customer and
another factor, factor, there should be no decision made by the group.
5. In your experience, how well have financial services leveraged technology to create

exceptional customer experiences (as described in “Best Face Forward”)?

Customer in different situations want different things from an interface. Fit your service
interactions to suit customers preference. Example One customer filling a prescription at a
pharmacy might want hand holding by the pharmacist, another privacy through anonymity. An
astute pharmacist treats the first customer with warmth ad concern the second with efficiency
and reserve.

In exceptional customer interface systems, the interfaces succeed along four dimensions :

Physical presence and appearance: The four seasons hotel boasts a uniformed, clean business like
and courteous frontline staff.

Knowledge: Amazons website has encyclopedic knowledge of the company's enormous stock,
seemingly perfect recall of what customers purchased in the past, and the ability make well -
informed recommendations.

Connectivity: Amazon's user community enables customers to tap into each of experiences to
select products.

Emotion: Southwest's flight crews use humor to add emotional value to travel experience.