Live from NCDM: The Case for Consumer-Centricism
What looked on paper like an $18 million profit for Chase’s Group Sales program was actually an $18 million loss for the entire company. But the loss had been hidden because the firm was locked into a product-centric mentality.
The group was charged with bringing customers into its direct deposit program. It was seemingly successful, generating 30% of the customers establishing new relationships with the bank. But only half of those targeted ended up using the direct deposit service: The rest used other services with lower, and in some cases negative, margins for the bank, formerly known as Chemical.
When Chase did a profitability analysis, it found that these customers were generating less than their fair share of income for the bank (80% what the non-group-sales customers were creating) while incurring a higher level of expenses than their numbers warranted.
Group Sales had targeted hospital employees and was able to hide its losses for as long as it did because of a few high-income physicians. But while several of these valuable customers signed up, so did orderlies and other staff workers. When these low-balance customers wrote checks and visited tellers, they ate into the profit margins of other units.
Rather than scrap the program, the bank took aggressive steps to convert customers to direct deposit, which cut down teller expenses. It also repriced its Group Sales fees, building more margin into the program. Within 12 months the unit showed a $4 million profit
