Abstract: Better read this before you cut off any unprofitable you could end up as the loser Bankers often will say, I'd be happy to send certain customers to my competitor, they just cost me money, or words to that effect. Sounds reasonable. Particularly when applied to the customer who keeps $165 in a savings account and comes into the branch every day to check his interest, and won't use the ATM. Or the convenience credit card user who does no other business with the bank. Every bank has such people who for one reason or another cost more than they produce in revenue. Nobody would disagree that absent some other compelling reason a bank should try to do something about these situations. This is a key part of what marketing and profitability systems are meant to address. But in practice, the success of such systems depends on how well a bank understands customer behavior and its own costs. Customers use products and services in the way that the bank allows them to be used, observes Jerry Weiner, chairman and CEO of IPS/Sendero, Norcross, Ga., a unit of Fiserv that provides relationship software and advice. So if a customer isn't profitable, it's the bank's fault, not the customer's, says Weiner. In addition, the method of determining who's profitable and who's not may be flawed. I'm not sure that the numbers being used by many banks to determine which customers are profitable and which aren't fully contemplate the true step-fixed-cost nature of providing financial services, says Weiner. It is critical that banks better understand both the pricing and cost issues if they are going to improve the overall share of wallet that they garner from their most desirable customers. Weiner explains that most financial institution costs are neither purely fixed nor purely variable. A given resource investment can handle a finite number of transactions. More than that requires another investment to handle the next incremental transaction--a series of steps, in other words. Don't just remove them banks simply opt to dump unprofitable they may be throwing out the baby with the bathwater. It costs ten times as much to acquire a customer as it does to keep one and it is much more efficient to increase a current customer's profitability than to go out and buy a list of profitable customers, says Jeffrey Brown, executive vice-president of marketing for Webster Bank, Waterbury, Conn. find that there is not a direct correlation between demographics and customer profitability, and the same is true with unprofitability. You have to come at it from a different angle and think about it differently. Getting rid of unprofitable customers will cost banks more in the long run and affect the institution's reputation, others agree. a bank executive decides to stop doing business with unprofitable they will expend more cost, according to Robert Hall, the Dallas-based chief strategy officer for Xchange, a CRM software and consulting firm. (Xchange acquired Hall's previous company, Customer Analytics, this past spring.) If you remove unprofitable a lot of the fixed costs for supporting those such as back office systems and facilities, don't go away, says Hall. So, simply because a customer is unprofitable does not mean that getting rid of that customer somehow restores profitability. Some of those least profitable customers' mom or dad or brother or sister or husband are very profitable and so you begin to hurt your brand if you 'de-market' them in a mass way, says Hall. He suggests banks spend their resources on trying to make these customers more profitable by either selling them more, pricing them differently, or delivering less to them rather than just getting rid of them. The Bank of Hawaii has to be extremely careful about discarding customers because population growth is flat in the 515t state, says Lori McCarney, executive vice-president and director of marketing for the Honolulu-based bank. …
Publication Year: 2000
Publication Date: 2000-10-01
Language: en
Type: article
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Cited By Count: 2
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