Pilgrim Bank Case Study
Requirements and Grading Rubric
COMPLETE THIS ASSIGNMENT IN TEAMS OF 2-3
Deadline: Monday November 6th at the beginning of class via the assignment link on Blackboard.
Instructions: Type your answers in the space below each question. Limit each answer to 50 words or less.
1a. How do retail banks make money from their customers?
Investment income from deposit balances, fee income, and loan interest and base lending rates.
1b. How much variation is there in profit across customers?
The contribution of individual customers to bank earnings varied widely with a small percentage of customers cross-subsidizing the profitability of the bulk of the customer base. At Pilgrim, 10% of the customers generated 70% of the profits.
1c. Based on this, what do you recommend the bank do in terms of matching service levels to customer product levels?
We recommend tiered service to reallocate customer service resources away from customers in lower profit tiers to customers in higher profit tiers. Using pricing initiatives, fees, cross-sell programs, branch consolidation, and anticipating customer behavior we can help convert unprofitable customers into profitable customers.
2. Based on the sample of customer data for 1999, what can Green conclude about average customer profitability for Pilgrim Bank’s entire customer population?
The sample size is large enough to represent the entire Pilgrim Bank’s customer population. It is large enough to be statistically significant assuming the data is normally distributed and randomly sampled.
3. Is the difference in average profitability between online and offline customers in the sample indicative of a meaningful difference in profitability across these groups for Pilgrim Bank’s entire customer population? Explain the analysis you used to answer this question.
The difference of profitability between online and offline customers in the sample is not a meaningful difference. We used an...