RBC Financial Group Case
1. At the start of the 21st century, RBC was Canada’s leading bank and largest bank in terms of assets and market capitalization. It was a full-service bank with five main lines of business: personal and commercial banking, insurance, wealth management, corporate / investment banking, and transaction processing. The commercial bank of RBC (Royal Bank) accounted for nearly 50% of the company’s net income and had an extensive delivery network with branches, Automated Banking Machines (ABM’s), point of sale terminals, mobile sales staff, and 1.4 million online banking customers and 2 million phone customers. The bank also had an extremely strong international network.
The bank had an overall strategy of being “all things to all people.” It took them several years to get to this point where they were at the start of 21st century.
With the upstart of internet banking and other similar more specialized avenues for personal banking, “all things to all people” concept became significantly more difficult for RBC to employ. For example, RBC would have a tough time competing with these internet and virtual banks because these specialized banks were able to offer better rates on deposits because their costs were lower as they did not need physical infrastructure like how RBC did. Even though RBC was universal, these more specialized banks would have an advantage in their specific areas as they could offer customers unique advantages that RBC couldn’t. RBC simply did not have the resources to compete with these specialized banks.
2. Lifetime value computations were a way of assessing the future or potential profitability of a customer. This could be done in a couple of ways: 1. Assume that the current profitability percentile of the customer would remain constant throughout their projected lifetime and calculate the present value of those profits. 2. Factor in age, tenure with the banks, number of products held, probability of acquisition, and attrition.
There are many merits to assessing the lifetime value of a customer. Some of these include: informing necessary sales operational requirements, projecting out earnings estimates, specialized marketing campaigns, better level of service, and product design and pricing. These insights would come from the combination of lifetime value computations and customer profitability that wouldn’t come from just looking at profitability estimates alone. Additionally, risk factors that are associated to customer attrition would also be considered when assessing lifetime value of a customer. The new framework would also highlight how profitability could change over time based on a customer’s age segment and how that would impact the customer’s value.
3. RBC actually calculated lifetime value at the customer level and rolled them up to the segment level. I believe this approach is better because it gives a more accurate representation of the lifetime value than calculating it on the segment level as a whole. For strategy execution, I would advocate that the company should consider profitability on the segment level but they should use rolled up potential to do this. To implement customer strategies it is more feasible for the RBC to do it at the segment level instead of the customer level because it is difficult to tailor unique strategies for more groups of customers.
4. I do not agree with RBC’s decision to withhold this information from the front-line employees. The primary reason is because it limits the effectiveness of the sales force. If the sales force doesn’t have a good understanding of the customers in each segment and their profitability potential, it severely limits their ability to drive sales in new accounts and maintain current relationships with existing customers. Additionally, surveys had shown in the past that “customer intimacy” is one of the most important aspects for this business. Not sharing this crucial...
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