Customer Profitability Vs. Customer Satisfaction: Keep Guessing Or Model Your Pricing Strategies
Most Financial Institutions do not have a clear understanding of what or who drives their profitability. They make assumptions or guesswork, and most of the time, try and fix their profitability metrics into the 80/20 rule or something similar - the majority of profits (80%) come from a minority (20%) of customers, products or business segments. Is profitability as simple as this? While there is no denying the 80/20 rule, how does an organization find this 20%? And taking the converse of this much established rule, how many organizations do actually see the 20%, or in many cases, as much as 40% customers, who are 'profit destroyers'?