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Rethinking Your Customer Base

It may be time for banks to take a look at where profitability really lies and look to new avenues for customers. According to Meridien Research, the 80/20 rule, which states that 80 percent of profit comes from 20 percent of the customer base, no longer applies - it's more like the 20 percent of customers generates 150 percent these days.

At the same time, Meridien says about 30 percent of customers drain half a bank's profitability.

And U.S. Census Bureau figures reveal that the lucrative, high-end customer base may be changing - at least in cultural mix. The latest figures say that the incomes of the top 5 percent of African-American households have grown by 50 percent over the last decade. Meanwhile, African-American purchasing power is approaching $300 billion a year while Hispanic/Latino purchasing power is at about $170 billion. The Census Bureau also predicted that the number of households headed by minorities and women with annual incomes of more than $100,000 is expected to double to 1.6 million by 2010.

Meanwhile, financial institutions also need to stop thinking of the women's market as a niche, according to a consultant to the financial services industry. Carol Frohlinger of Crossell, Inc., spoke on gender marketing recently at a credit union conference. She had some interesting statistics to reveal that she got from Business Week magazine and Gallup polls. For example:

  • Projections say women will control $1 trillion or 60 percent of the wealth in the United States by the year 2010.
  • Seventy percent of women say they base their financial decisions on comments from another person.
  • Women start 60 percent of small businesses in America.
  • Currently, women influence 80 percent of financial decisions.
  • Women make up 35 percent of first-time buyers of financial products.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 9, 9/01

First published on 09/01/2001

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