Pilgrim Bank - A

Pilgrim Bank Case September 26, 2013 How much do profits vary across customers? Provide statistical support for your answer. Out of a sample of 31,634 Pilgrim Bank customers, from a population of 5 million total, an !ero

missing "alues, profits "ar# $iel#% &'e a"erage customer profitabilit# p rofitabilit# is (111%50% (111%50% &'e minimum "alue of t'is ata set is )(221 an an  t'e ma*imum is (20+1% &'is escribes t'at t'ere is a "er# $ie range% &'e meian customer profitabilit# is ( an t'e stanar e"iation is (2+2%-4% See e*'ibit e*' ibit one% How does Pilgrim Bank make money from its customers and how can this explain the variation in customer profitability? Pilgrim Bank makes its profit from customers $it' components incluing t'e balance in eposit

accounts, t'e net interest sprea, t'e fees collecte b# ser"ing customers, an t'e interest from loans istribute% &'is can e*plain t'e "ariation in customer profitabilit# because customer accounts generate ifferent t#pes of re"enue for Pilgrim Bank% .ac' customer generates in"estment income b# keeping a eposit balance% /ees are assesse for c'ecking accounts, late  pa#ments an o"errafts% &'is is an important re"enue source Pilgrim Pilgrim Bank% Since eac' customer  "aries in 'o$ man# fees t'e# rack up, eac' customer accounts for a ifferent amount of t'e  profitabilit# from t'is source% source% epening on t'e customer, a loan $ill be 'anle an t'e rate $ill be ecie upon% .ac' customer $oul create re"enue for t'e bank t'is $a# but not all $oul create t'e same amount% Are online customers more profitable than offline customers? Provide statistical support for your answer. answ er. &'e null '#pot'esis is t'at online an offline customers are no ifferent an t'e alternati"e

'#pot'esis is t'at t'ere is a ifference bet$een online an offline customers% ccoring to t'e ata, online an offline customers are no ifferent% e accept t'e null '#pot'esis an t'e

ifferences are not meaningful% Of t'e 31,634 customers in t'e sample, 3-54 are online customers an t'e remaining are offline customers% &'e ranges of t'ese t$o t#pes of c ustomers o"erlap% &'e customer profitabilit# minimum for offline an online customers is )(221 an t'e ma*imum is appro*imatel# (2000 for bot' as $ell% &'e a"erage profitabilit# is appro*imatel# (113 an stanar e"iation is appro*imatel# 2+5 for bot' t#pes% &'e meian for offline customers is nine an for online customers in t$el"e% n a 5 confience inter"al a t$o)sample t)test re"eale t'at t'e p)"alue is 0%210% Since t'is p)"alue is greater t'an t'e significance le"el alp'a of %05 $e cannot reect t'e null '#pot'esis% See e*'ibit t$o t'roug' fi"e% What is the role of customer demographics in comparing online and offline profitability? Provide statistical support for your answer.  o emograp'ic pla#s a role in online an offline profitabilit#% &'e 78, or preictabilit# factor, is

0%05+% &'is is a $eak correlation because it is no$'ere near 9:) one% Onl# age, income an tenure 'a"e a positi"e relations'ip $it' profit% See e*'ibit si* an se"en% What is your recommendation to the senior management team in terms of Pilgrim Banks online channel pricing strategy? !hould the bank charge fees" offer rebates or do nothing in regards to pricing for online channel use? ;# recommenation is for Pilgrim Bank to conuct more e*ploration an researc' into $'at

makes a more profitable customer% Since $e o not 'a"e an insig't because no relations'ip e*ists  bet$een online use an profitabilit#, $e cannot le"erage it using fees or rebates%