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Assignment Questions
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?
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?
b. Should RBC compute lifetime values at the segment level or the individual
customer level for strategy formulation? How about strategy execution?
3. Do you agree with RBCs decision to withhold profitability, potential, and segment
information from its front-line employees?
4. Should Reich make the car loan to Niece and if so at what interest rate?
5. What should RBC do about customers who are unprofitable because they use the retail
branches and ABM machines for bill payments?
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.
a. Assume RBC has only three segments of customers based on age: (1) 20 to 35
years old, (2) 36 to 60 years old, and (3) 61 to 75 years old. The distribution of
average annual customer profitability in dollars for each of the three segments is
given in the Table below. What is the profit potential or lifetime value of the
niece if the bank estimates that she is in the 30th percentile for current
profitability? Recall that the niece is currently aged 23. Use a discount rate of 8%
and the first method described at the bottom of page 12 of the case. Assume that
there is a 5% chance of customer attrition each year.
c. What information could RBC use in the real world to estimate the probabilities
that we have assumed in the table above?
d. What does the matrix of probabilities above imply about cross-selling potential
and customer loyalty as a function of number of products purchased?
e. What are the pluses and minuses of the two methods described above?
f. How hard will it be to implement the second method for 20 products? RBC
computes only a five-year value of each customer (instead of lifetime value). Why
do you think that is?