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PILGRIM BANK CASE

AMR Assignment

Shubham Shakar 19PGP216


Abhijeet Rajora 19PGP232
Sahil Tambi 19PGP248
Bharath Kumar G 19PGP270
Nitin Jangra 19PGP198
1.Introduction
The case revolves around the internet strategy of Pilgrim Bank. Company is trying to decide
whether to start charging fees for use of their online channels or rather provide incentives
such as rebates and lower service charge to increase the usage of its internet channels. The
bank is trying to decide whether online customers are actually better customers.
Customer profitability at Pilgrim (retail banking)
Revenue: Investment income from deposit balances, fee income, loan interest & base lending
rates.
Cost-to-serve: Transaction related cost, Allocated Fixed costs
Managing Customer profitability: through Tiered Service, Pricing Initiatives, Fees, and
Cross-selling Programs, Branch Consolidation, Anticipating Customer Behaviour, etc.
In the case the protagonist is provided with a randomly sampled dataset of 30000 customers
from 1999 (initially) which has their demographic information like district, income group,
age etc along with their profitability.

Research Objectives:
1. Would encouraging transaction migration to lower cost channels improve customer
profitability? (Is there a difference between the profitability of on-line and off-line
customers?)
2. Is profitability different for different types of people?
 Income group wise
 Age wise
 District wise

2.Data:

Dataset Headers (Variables):


ID: Customer ID
9Profit- Profit metric in the year 1999
9Online- Online use in the year 1999: 1 = uses online banking; 0 = does not use online
banking
9Age- Age buckets are as follows:
1 = less than 15 years; 2 = 15-24 years; 3 = 25-34 years; 4 = 35-44 years; 5 = 45-54 years;
6=55-64 years; 7 = 65 years and older.
9Inc- Income buckets are as follows:
1 = less than $15,000; 2 = $15,000-$19,999; 3 = $20,000-$29,999; 4 = $30,000-$39,999;
5=40,000- $49,999; 6 = $50,000-$74,999; 7 = $75,000-$99,999; 8 = $100,000-$124,999;
9=$125,000 and more.
9Tenure- number of years of customer service
9District- The three selected geographic regions are designated 1100, 1200, and 1300
0Profit- Profit metric in the year 2000
0Online- Online use in the year 2000: 1 = uses online banking; 0 = does not use online
banking
9Billpay- Electronic BillPay use in 1999: 1 = uses electronic BillPay; 0 = does not use
electronic BillPay
0Billpay- Electronic BillPay use in 2000: 1 = uses electronic BillPay; 0 = does not use
electronic BillPay
3.Methodology:
Research Objective #1:
To analyse whether profitability of a customer varies in online and offline mode we need to
perform am independent sample T-test taking 1999 Profitability (9profit) as test variable &
1999 online customer base(9online) as grouping variable at 95% confidence interval. We take
the null hypotheses that mean of the profits in either case i.e. either online or offline is equal.
If we get a significance value <0.05 or t value >|2| we can reject the null hypotheses and say
concretely that online and offline medium have different profitability and vice versa.

Research Objective #2:


To analyse if profitability different for different types of people. the sample can be divided
into three major groups and can be compared for profitability
 On the basis of district (1100/1200/1300)
 On the basis of income group (1-9)
 On the basis of their age (1-7)
Since for all the objectives we have more than 2 groups a simple T-test will not work so we
first resort to an F-test or a One-way ANNOVA test which will tell us whether profitability
means for various categories are similar or not. If they are not, we can either conduct multiple
independent t tests or resort to means plot to understand relations between them two at a time.
Although Using T test will give a more accurate result means plot can help us see the trend if
any.

Results & Conclusions:

Results of Research Objective #1:


Test Variable: 9profit
Grouping Variable: 9online (0=offline; 1=online)
Null Hypothesis: P0=P1 (mean of profit in offline = man of profit in online)
Alternate Hypothesis: P0≠P1 (mean of profit in offline ≠ man of profit in online

Output:

Conclusion of Research Objective #1:


Since p value or significance value is >0.05 (0.225) or t value is <|2| (1.254) we accept the
null hypotheses i.e. profitability of a customer is the same irrespective of the medium (online
or offline) P0=P1
Results of Research Objective #2:
On the basis of District:
D1 represents profitability mean of District 1100
D2 represents profitability mean of District 1200
D3 represents profitability mean of District 1300
Null Hypotheses: D1=D2=D3
Output:

Conclusion:
From the above F-test & Means plot between district and profitability it can be seen that due
to <0.05 significance level we reject the null hypotheses and accept the alternate hypotheses
that Profitability varies with district and in the means plot we can see that on an average
customers from D2(1200) are most profitable followed by customers from D3(1300) &
customers from D1(1100) are the least profitable
On the basis of Income Group:
I1 is profitability mean of all customers in Income bracket 1 and so on
Null Hypotheses: I1=I2=I3=I4=I5=I6=I7=I8=I9
Output:

Conclusion:
From the above F-test & Means plot between income group and profitability it can be seen
that due to <0.05 significance level we reject the null hypotheses and accept the alternate
hypotheses that Profitability varies with income groups and in the means plot we can see that
customers profitability increases gradually in correspondence with the income level. As
visible from the means plot increase in profitability is not as significant for income groups 1-
5 but after that there is a huge spike in term of profitability.
On the basis of Age Group:
A1 is profitability mean of all customers in Age bracket 1 and so on
Null Hypotheses: A1=A2=A3=A4=A5=A6=A7

Conclusion:
From the above F-test & Means plot between income group and profitability it can be seen
that due to <0.05 significance level we reject the null hypotheses and accept the alternate
hypotheses that Profitability varies with Age group and in the means plot we can see that
customers profitability increases gradually in correspondence with the age group.