Pilgrim Bank (A): Customer Profitability How much do profits vary across customers? Are online customers more...

Pilgrim Bank (A): Customer Profitability

How much do profits vary across customers?

Are online customers more profitable than offline customers?

What is the role of customer demographics in comparing online and offline profitability?

What is your recommendation to the senior management team in terms of Pilgrim Bank’s online channel pricing strategy?

Should the bank charge fees, offer rebates, or do nothing in regards to pricing for online channel use? Why?

Expert Solution

How much do profits vary across customers?

Are online customers more profitable than offline customers?

In the sample of 31,634 customers, 27780 are offline and 3854 are online. Ranges of these two types of customers overlap. Null hypothesis is that online and offline customers are no different. Alternative hypothesis is that there is a difference between online and office customers. In a 95% confidence interval two-sample t-test, p value is 0.210, which is greater than the significance level of 0.05. Also, the t-value is -1.254, which is less than 1.96, meaning the value is not statistically significant. So we fail to reject the null hypothesis and there is no meaningful difference between online and offline.

What is the role of customer demographics in comparing online and offline profitability?

No customer demographics plays a role in online and offline profitability. First I run a regression analysis and look at the value of R^2. If R^2 is at or above 0.5, then the data predicts at or > 50% of the market and therefore can be used to make marketing decisions. As shown, the R^2 value is 0.057. Therefore, the Pilgrim Bank data predicts only 5.7% of the market. This does not cover a broad enough range of the market, and therefore, the data cannot be used to compare online and offline profitability by demographic. Even though the t-values for tenure, inc, and age are above 1.96 and their Pr > |t| is less than 0.05, showing that these variables are statistically significant, they cannot hold any weight unless the R^2 is above 0.5.

What is your recommendation to the senior management team in terms of Pilgrim Bank’s online channel pricing strategy? Should the bank charge fees, offer rebates, or do nothing in regards to pricing for online channel use? Why?

My recommendation would be to conduct more research into what makes a more profitable customer. The data we have cannot be used to make any predictive decisions. The data regression of online/offline usage and customer profitability indicated that online and offline usage is not associated with customer profitability. Therefore, Pilgrim Bank should do nothing in regards to pricing for online channel use to raise customer profitability

keosha answered 1 month ago

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