The purpose of this report is to analyze customer’s profitability to provide relevant information for Internet strategy in Pilgrim Bank. To get a conclusion from the disagreements between charging online banking fees and offering customers incentives to use online banking, I obtained relevant data and compared online and offline customers’ profitability. Since only comparing balance level will miss some important information, such as, the cost of serving individual customers, therefore, in my analysis, I primarily focus on profitability. To analyze customer profitability, we firstly summarize how Pilgrim Bank generates revenues, we found that there are three main ways: (1) Through investment income from deposit balances. The bank generates revenue by the difference between interest rate the bank paid for deposit account and interest rate the bank using these deposits making commercial and mortgage loans. (2) Through fee income. The bank generates revenue by fees from assessed for checking accounts, late payments, and overdrafts etc. (3) Loan interest and base lending rates. The bank generates revenue through interest making on loans. Secondly, I conclude the variation in profit across customers. As reflected by my findings, customer contribution to the bank earnings was varied substantially. A small group of customers generated the profit several times more than that of the majority of the customer base. In our case, 10% of the customers generated 70% of Pilgrim bank’s profits. Based on the variation we observed, on the one hand, I recommend the use of stratified customer services. For example, we can allocate more customer services resources to most profitable customers and less to low profit customers. On the other hand, we can use bundle sale, higher branch service quality and promotion program services together etc. By using these strategies, we improve customers’ incentives to use our services, thus switch unprofitable customer to...
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