1. Evaluate RBCs strategy and organizational structure.

Is RBC well equipped to

compete with niche operators such as Internet-only banks with focused product offerings?
Answer: Infrastructure wise, RBC is well equipped to compete with the small players and
niche operators as it has the advantage of size and a foothold in all segments. But to
retain that foothold and constantly remain ahead in the game RBC will need to offer
innovative services and products at competitive rates as the Internet Only banks. It can
use its brand equity and solid & secure foundation among customers and differentiate
itself as a bank which provides all latest offerings at competitive rates and with additional
security. The Internet only banks can offer better rates but they do not have the risk
tolerance levels of RBC. This can be marketed among the customers and used as a tool to
retain and preserve the customers and encourage them to grow further in RBC rather than
other banks.
2. RBC is unique in how it computes the lifetime value of its customers.

a. What additional insights are likely to come from lifetime value computations
for customers as opposed to annual customer profitability numbers?
Answer: The LTV computation gives the future profitability estimates for a customer as
opposed to the annual profitability numbers which directs the bank on how the customers
should be treated, what priority to be given to them, what all services and products can be
offered to them for further selling, and how to preserve and increase their value. Also, the
SM&A teams do not have to run for separate data on each customer and process it.

b. Should RBC compute lifetime values at the segment level or the individual
customer level for strategy formulation? How about strategy execution?
Answer: RBC should compute the LTV at customer level because LTV at segment level
cannot give accuracy. After that some generalizations in the form of customer insights
can be formed at segment level and product level using that LTV.

3. Do you agree with RBCs decision to withhold profitability, potential, and segment
information from its front-line employees?
Answer: No, withholding customer information from front line employees is not
advisable as they are the people who are in direct contact with the customers. The
information like profitability, potential and segment of the customer will help the front
line employees to treat the customers very specifically and offer them products
completely suited to their taste and requirements. It will also help in building customer
intimacy, trust and assurance which are the most important for a customer going to the
bank.

4. Should Reich make the car loan to Niece and if so at what interest rate?
Answer: Reich should give the car loan to the niece as she holds a personal and check in
account at the bank and has a potential (lifetime value) to the bank. If she is given a loan
today at a competitive rate then later she can be a potential customer to several other
products like credit cards as her earnings will only increase when she gets a job.

5. What should RBC do about customers who are unprofitable because they use the retail
branches and ABM machines for bill payments?
Answer: RBC should separate out customers which are unprofitable and examine that if
they are future profitable. If they can be profitable in future, then RBC should see what
all products can be offered to them for sale. If the LTV is too low, then customers are
unprofitable, then RBC should try to shift them from category C to category A via
category B. This can be done by first levying convenience charges for bill payments and
after that introducing discounts on them on making deposits of certain amounts or on
purchase of credit cards.

6. One of the new concepts we have covered in this case is profit potential. It is
sometimes called lifetime value of a customer. The case talks about two methods to
compute profit potential. To concretize our understanding of these two methods we will
analyze the following two numerical examples.

The customer profitability analysis conducted but the co-op Bank did not have effective
and updated technology within their information systems to extend the analysis to
individual customers.
Therefore, they were unable to access a lot of customer data which drew upon more
questions that could potentially have been answered if they had better access.
Their analysis revealed that half of their current accounts with low balances were
unprofitable which they then segmented those particular customers with Visa service into
profitable and unprofitable customers
This also drove their marketing campaign towards customers with profitable behaviour.
The customer profitability analysis through RBC shows much more comprehensive and
detailed information for individual customer preferences and needs. By also segmenting
their customers into different profitability groups, RBC was also able to identify new
questions like:
How can company consider a customer with potential profitability?