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Customer Profitability And Customer Relationship Management At RBC Financial Group Case Solution

Solution Id Length Case Author Case Publisher
1919 708 Words (3 Pages) V.G. Narayanan, Lisa Brem Harvard Business School : 102043
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Reich should argue the case with his superiors, and try to get the actual potential information on the client. It shall be best for the bank if Reich makes the car loan to the niece at the rate matched by the dealership. It would keep the aunt a happy customer, and from the looks of it, the niece also has the potential to be a profitable customer.

Following questions are answered in this case study solution

  1. Discuss how RBC computes the lifetime value of its customers. What additional insights are likely to come from lifetime value computations for customers, as opposed to annual customer profitability numbers?

  2. Explain why you agree or disagree with RBC’s decision to withhold profitability, potential, and segment information from its front-line employees?

  3. Should Reich make the car loan to the “niece” and if so at what interest rate?

Case Analysis for Customer Profitability And Customer Relationship Management At RBC Financial Group Case Solution

1. Discuss how RBC computes the lifetime value of its customers. What additional insights are likely to come from lifetime value computations for customers, as opposed to annual customer profitability numbers?

Under the new customer relationship management (CRM) approach, new software was bought which enabled RBC to estimate the profitability of its customers in a more realistic manner. It was thought that there are customers who are profitable, and there are those who have the potential to be profitable. This new approach allowed the bank to incur short term losses on potentially profitable customers. Lifetime value of customers was estimated in two ways; estimating the present value of the profitability percentile assuming that it would remain constant throughout the forecasted life of the customer, and factor in other variables such as age, number of products of RBC held by the client, time spent as a client of RBC and probability that the customer would buy a new product. These factors allowed RBC to estimate the lifetime value on an individual level.

Lifetime value estimates the future profitability of a customer, as opposed to annual profitability, which can suggest that currently the customer is not profitable for the bank and may fall in a lower category in terms of profitability segmentation of customers. Life time value allows the front line staff to provide special and attentive services to clients who have the potential to be profitable even if they are incurring losses for the bank at present.

2. Explain why you agree or disagree with RBC’s decision to withhold profitability, potential, and segment information from its front-line employees?

Once the lifetime value is estimated, new segmentations and marketing strategies started to form. Profitability, risk, vulnerability and lifetime value was included into the strategies being formulated. New ratings were given to customers based on the above factors and customers were placed in newly formed segments according to their ratings.

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