Cross-selling Opportunities Research Articles

Credit Limits, Stress Testing and Model Risk for Capital Metrics

The topics of Economic Capital modelling, reverse stress testing and credit limits are inextricably intertwined as they all focus on exceptional loss events. In this paper, we use the KVA framework in to frame these three topics within a single unified approach. We propose setting credit limits based on an incremental KVA metric interpreted as a measure of capital consumption for each individual client. Compared to Potential Future Exposure (PFE), incremental KVA is more risk sensitive as i) it is portfolio sensitive and detects cross-selling opportunities, ii) captures wrong-way-risk, iii) accounts for idiosyncratic features such as granularity and credit risk concentration, iv) measures also other risks besides the default of the counterparty such as CVA and FVA mark-to-market losses and is suitable to generalisations driven by regulatory changes such as MVA.A reverse stress testing exercise based on KVA metrics reveals stress scenarios of two kinds: the ones where losses are due to an idiosyncratic vulnerability of the portfolio and the ones tied to systemic risk and the credit cycle. The latter are completely missed by the PFE, although crucially important during periods of market distress.Since different pricing models tend to diverge the most for stressed scenarios, model risk has a material impact on capital projections and, consequently, on the KVA metric. We discuss model risk comparing Gaussian interest rate models admitting arbitrarily negative rates with alternative models where rates are bounded from below.

Effectiveness of Pakistani Banks after Merger and Acquisition

The aim of merger of banks is to increase the value of banks in one way or another. The days of globalization and liberalization are in and there is a rash of merger and acquisition which is sweeping the corporate world. Consolidation in banking industry should essentially be synergy-driven to obtain a quantum leap in the effectiveness of the merged entity. It can be attained by merging complementary strength, serving a greater number of customers in a good way with more differentiated skills and products, giving a well geographical spread, comprising the cost of combined entity, better utilization of available resources, recognizing the opportunities for cross selling, deriving economies of scale and reduced competition. Over the last span, the banking industry in Pakistan has not only grown-up in terms of size but also consolidated, matured and diversified to contribute towards constructing a strong financial system. In this study, five bank merger’s cases have been taken and Null Hypothesis (there is no difference in the mean value of selected variables before and after the merger) is found rejected. Based on overall analysis, merger of My Bank Limited with Summit Bank Limited was more effective in most of the variables as compared to the merger of PICIC Commercial Bank Limited with National Investment Bank Limited, Union Bank Limited with Standard Chartered Bank Limited, JS investment Bank Limited with JS Bank Limited and Askari Leasing Limited with Askari Bank Limited.

Price Dispersion and Loss Leader Pricing: Evidence from the Online Book Industry

In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss leader pricing on high demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on bestsellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes to the bestseller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.

Converting service encounters into cross-selling opportunities

Purpose– This paper aims to examine how the motivation and ability of individual employees to sell influences their units’ capability to align their service delivery with sales in a way that satisfies customers. It also addresses the potential influence of employees’ confidence in their supervisor’s ability to sell, such that they predict a joint influence of personal and proxy agency.Design/methodology/approach– This study uses hierarchical linear modeling to address the research issues.Findings– Employees’ learning orientation has a positive influence on service-sales ambidexterity, but the impact of a performance-avoidance goal orientation is negative, and a performance-prove orientation has no influence. Proxy efficacy enhances the positive impact of learning orientations due to the manager’s ability to lead by example, facilitate knowledge sharing and provide advice. However, it attenuates the impact of self-efficacy on service-sales ambidexterity, because skilled supervisors tend to take over and eliminate opportunities for employees to build their own skills. It also confirms the positive influence of service-sales ambidexterity on branch performance.Originality/value– To examine the emerging service-sales ambidexterity issues raised in frontline service units, this study adopts a motivation and capability paradigm. It is among the first studies to address service-sales ambidexterity issues by considering both individual and branch contextual factors.

A data mining approach to optimise shelf space allocation in consideration of customer purchase and moving behaviours

A good shelf space allocation strategy can help customers easily find product items and dramatically increase store profit. Previous studies generally relied on the space elasticity formula to optimise space allocation models, but space elasticity requires estimates of many parameters, resulting in high costs and frequent errors in the mathematical models. In this study, a three-stage data mining method is proposed for solving the shelf space allocation problem with consideration of both customer purchase and moving behaviours. In the first stage, the customer’s purchasing behaviour is derived from records of previous transactions, while moving behaviour is collected through radio frequency identification systems. In the second stage, the A priori algorithm is applied to obtain frequent product association rules from purchase transactions. In addition, the UMSPL algorithm is adopted to derive high-utility mobile sequential patterns from customer mobile transaction sequences. In the third stage, all product items are classified as either major, minor or trivial according to a set of criteria. A Location preference evaluation procedure is then developed to calculate location preference if a minor item is placed at a given section of the store. Based on the location preference matrix, minor items are reassigned to optimal shelves. The experimental results show the proposed method can reassign items to suitable shelves and dramatically increase cross-selling opportunities for major and minor items.

International Perceptions of Online Banking Security Concerns

INTRODUCTION For nearly two decades the banking industry has been evolving in tandem with e-commerce capabilities. During this time, the ability to conduct business online has frequently been viewed as a strategic opportunity for banks, who could save transaction costs, expand their customer market, and improve customer service and cross-selling opportunities (Nath, Schrick, & Parzinger, 2001). In its short history, research activity in the field of Internet banking has directed much effort into understanding the phenomenon of consumer adoption of the new banking channel (Kolodinsky, Hogarth, & Hilgert, 2004; Tan & Teo, 2000; Xue, Hitt, & Chen, 2011). At a time when Internet connectivity was new and uncertain for many people, research findings aided banks in their quest for the best way to ease the market into a new medium for banking transactions. In addition to the expected technology acceptance variables (Lee, 2008) and the growing knowledge of what aspects make Web sites successful (Jarvenpaa & Todd, 1997), studies have, historically, overwhelmingly suggested that in banking in particular, trust of the banking medium and perceived of the transactions play major roles in customers' decisions of whether or not to adopt Internet banking (Pavlou, 2003; Yousafzai, Pallister, & Foxall, 2009). While information practices are crucial to ensure continuity of any business, online banks have approached it with an additional focus. Due to the sensitive nature of their transactions and continuous media reports of breaches of financial systems (including the recent events at Global Payments (Sidel & Johnson, 2012)), banks are aware that their users' perception of transaction is of equal importance to the measures themselves as it is a major factor in users' willingness to participate in online banking. To that end, a bank's online strategy ideally includes a full evaluation of its perceived trustworthiness in the eyes of its potential consumers (Yousafzai, Pallister, & Foxall, 2005). Logically, in order to help customers convert to online banking from traditional banking, the bank must actively manage the customers' perception of the of doing so. Today, online banking has gained explosive popularity in the United States (American Bankers Association, 2010 & 2011) and other parts of the world (Anderson, 2010). Statistics reported indicate that the banking landscape has shifted and, for example, in the United States, online banking is practiced by the majority (Zickuhr & Smith, 2012), rapidly becoming the norm. Yet, interestingly, as the banking industry continues to increase its investment in now widely accepted online capabilities (BusinessWire, 2011), doubts still remain at the forefront of research inquiries (Jain & Kohli, 2009) and banks continue to investigate users' perception of them (Hanzaee & Alinejad, 2012; Yousafzai et al., 2005). Furthermore, some banks are still trying to convince users to participate in online banking - at least in some parts of the world, such as India (Sharma, 2011). Although is and always has been a major area of concern for online banking customers, the nature of those concerns is not widely discussed. (For exceptions see (Moscato & Moscato, 2004 & 2007)). Therefore, we cannot fully understand the connection between concerns and banks' attempts to alleviate them. Furthermore, it is not well understood if these concerns have been the same throughout the world and over the history of online banking. One tool that online banks commonly use to manage their customers' perceptions of is the security policy. The policy is an explicit description on the bank's Web site of the measures taken by the bank to protect the personal information of its customers, such as encryption, firewalls, server authentication, and password protection. …

Effectiveness of Banks after M & A

The goal of a bank merger is to increase the bank’s value in one way or another. The days of liberalization and globalization are in and there is a spate of mergers and acquisition which is sweeping the corporate world. Consolidation in the banking sector should largely be synergy-driven to acquire a quantum jump in the performance of the combined entity (2 + 2 ≥ 5). It can be achieved by combining complementary strengths, giving a better geographical spread, serving a larger number of customers in a better way with more diversified products and skills, realizing the opportunities for cross-selling, containing the cost of the merged entity, reduced competition, better utilization of available resources and deriving economies of scale. Over the last one and a half decade, the banking sector in India has not only grown in terms of size but also matured, diversified and consolidated to contribute towards building a robust financial system. In this paper, five cases of bank merger have been taken and Null Hypothesis, i.e. there is no difference in mean value of selected variables before merger and after the merger, is set and found rejected (in most of the variables). On the basis of the overall analysis, merger of Bank of Karad Ltd. (BOK) with Bank of India (BOI) was more effective in most of the variables as compared to merger of the New Bank of India (NBI) with Punjab National Bank (PNB), Benaras State Bank Ltd. (BSB) with Bank of Baroda (BOB), Nedungadi Bank Ltd. (NBL) with Punjab National Bank (PNB) and Global Trust Bank Ltd. (GTB) with Oriental Bank of Commerce (OBC).

Management Insights

Management Insights

Price Dispersion and Loss-Leader Pricing: Evidence from the Online Book Industry

In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations. This paper was accepted by Sandra Slaughter, information systems.

Establishing bank–corporate relationships and building competitive advantages

This article investigates how banks build competitive advantage through relationship banking. Using a grounded theory approach, 29 interviews were conducted with relationship managers and corporate banking directors in 21 case banks from 2004 to 2008. Grounded theory models were developed to illustrate the value creation process in relationship banking. It was found that long-term bank–corporate relationships were established through trust-based personal communications. In the case, banks customer information and knowledge advantages were created. Risk-adjusted returns on assets were used to measure customer relationship performance, and relationship managers were rewarded accordingly. The interviewees thought that bank performance could be improved by managing customer credit risk and identifying cross-selling opportunities. This study starts to open up the ‘black box’ of how banks create shareholder value through relationship banking, provides a picture of relationship banking as a social phenomenon, and supplies some theoretical and managerial implications. The article also links the literature relevant to relationship banking from different disciplines. This is a new way of looking at the relationship banking phenomenon and relevant literature in an integrated manner.

Customer Segmentation Using CLV Elements

To have an effective customer relationship management, it is essential to have information about the different segments of the customers and predict the future profit of them. For this reason companies can use customer lifetime value that consists of three factors-current value of customers, potential value, and customer churn. Potential value of customers focuses on the cross-selling opportunities for current customers. Therefore, cross selling models are built on the total customers of the database that is not interesting. To overcome this, we presented a framework that estimates the current value and churn probability for the customers and then segmented them base on these two elements and select the most profitable segment for the cross-selling models. In this study we predict the customer churn base on logistic regression as a case study on the insurance database.

Combining Banking with Private Equity Investing

Bank-affiliated private equity (PE) groups account for 30% of all PE investments. These affiliated groups’ market share is highest during peaks of the PE market, as is the fraction of transactions where the parent bank leads the loan syndicate (parent-financed deals). Bank-affiliated deals are similar in characteristics and financing to stand-alone deals, but have worse outcomes if consummated during the peaks of the credit market. Parent-financed deals enjoy significantly better financing terms than standalone deals, but do not exhibit better performance. The parent-financing advantage in loan terms is concentrated during credit market peaks when banks tend to syndicate more of the loans to external loan investors, and is not explained by the banks’ previous relationships with the targets, the PE groups’ reputations, or the banks’ prominence in structured financing markets. Banks’ involvement in private equity investments provides significant cross-selling opportunities. Collectively, this evidence is consistent with banks’ taking advantage of favorable credit-market conditions.

Integrating Product and Service Innovation

OVERVIEW:Product innovation alone does not produce sufficient or sustained competitive advantage and growth. Increasingly, industry leaders—such as HP, Apple, Rolls-Royce, TomTom, and GE—are complementing their product offerings with service innovations to create solutions that generate greater customer value, improve brand preference, and create greater cross-selling opportunities. There are four stages of service management maturity: Product-Centric Manufacturer, As-Needed Service Provider, Full-Line Service Expert, and Integrated Solutions Provider. Each stage adds higher levels of service, provides more sophisticated solution offerings, and generates more attractive margins. Moving to these higher stages of maturity requires expanding your value proposition beyond existing products to provide customers with solutions that include integrated products and services. You also need to fuse technology and business model innovation by organizing and leveraging the appropriate resources. Finally, you need to develop robust partnerships to support the enhanced value proposition.

Privacy, Customization, and Cross-Selling of Information

An unavoidable aspect of electronic commerce is the collection of personal information. Although personal information is paramount to improving services and designing personalized offerings, its collection and use also generates privacy concerns. This study analytically examines the optimal information collection and usage practices in the presence of privacy costs. We use an analytical model in which a firm makes decisions on pricing, level of information collection and customization, and the extent of cross-selling. We find that cross-selling opportunities create value for consumers and sellers since consumer surplus and total profits may both increase with cross-selling. Advances in information technology motivate cross-selling and provide more incentives for the firms to engage in cross-selling. Consequently, firms are better off when cross-selling while offering customized products even in the presence of privacy costs. We find that serving a niche market and limiting the demand is a winning strategy when consumers' value for customization increases. On the other hand, an increase in the profitability of cross-selling favors a mass market strategy in which a firm serves a broader range of customers. Interestingly, cross-selling strategies may lower prices and provide significant strategic advantages with increased customer satisfaction while reaching a broader market. Total surplus increases at a decreasing rate as the amount of information collection and the extent of cross-selling increase. A niche marketing strategy facilitated by improvements in customization technology increases both consumer and total surplus.

Investigating purchasing-sequence patterns for financial services using Markov, MTD and MTDg models

In the past, several authors have found evidence for the existence of a priority pattern of acquisition for durable goods, as well as for financial services. Its usefulness lies in the fact that if the position of a particular customer in this acquisition sequence is known, one can predict what service will be acquired next by that customer. In this paper, we analyse purchase sequences of financial services to identify cross-buying patterns, which might be used to discover cross-selling opportunities as part of customer relationship management (CRM). Hereby, special attention is paid to transitions, which might encourage bank-only or insurance-only customers to become financial-services customers. We introduce the mixture transition distribution (MTD) model as a parsimonious alternative to the Markov model for use in the analysis of marketing problems. An interesting extension on the MTD model is the MTDg model, which is able to represent situations where the relationship between each lag and the current state differs. We illustrate the MTD and MTDg model on acquisition sequences of customers of a major financial-services company and compare the fit of these models with that of the corresponding Markov model. Our results are in favor of the MTD and MTDg models. Therefore, the MTD as well as the MTDg transition matrices are investigated to reveal cross-buying patterns. The results are valuable to product managers as they clarify the customer flows among product groups. In some cases, the lag-specific transition matrices of the MTDg model give better insight into the acquisition patterns than the general transition matrix of the MTD model.

Research Note: Customer Intimacy and Cross-Selling Strategy

Better targeting opportunities and the increasing role of information-intensive environments have created new challenges for firms in obtaining customer information. Such information can help firms increase their profits through cross-selling opportunities. However, revealing personal preferences and contact information can raise the risks for customers when dealing with a firm. Consequently, some customers trade off the benefit and risks of revealing information. As the opportunity to obtain a higher level of information increases, customers incur a higher level of risk when dealing with a firm. This increases the firm’s incentive to commit on a cross-selling level. By such a commitment, a firm can obtain customer intimacy and benefit from detailed customer information. As a result, profits increase while prices decrease. Thus, legal regulations that explicitly require firms to spell out the extent of cross-selling may actually improve the profits of the firm.

Direct Investments in Securities: A Primer

Direct investment plans (commonly known as DRIPs) let investors bypass traditional investment channels and avoid problems such as high transactions costs and the relatively large dollar amounts necessary to purchase certain assets. While no one expects these plans to answer all of the modern investor's needs, DRIPs probably appeal to the buy-and-hold clientele seeking the lowest possible transactions costs. This article discusses DRIPs and describes how the financial services industry has evolved to meets the needs of the small investor. The author identifies the remaining limitations on this sort of investment, noting that mutual funds continue to offer convenience and unmatched diversification for small accounts. He then presents reasons why companies might offer DRIPs. For example, companies that face political or regulatory scrutiny may want a broad, stable ownership base. Such shareholders also tend to vote with management, offering potential as a takeover defense. Finally, a broad ownership base provides opportunities for cross-selling. The article also identifies empirical differences between companies that offer DRIPs and those that do not. The analysis shows that large companies, more mature companies, and companies in industries that are subject to relatively high levels of regulation are more likely to offer the plans. Finally, the discussion speculates about the future of direct investments. One obvious tool for DRIP investors is the Internet. Broker-run DRIPs provide another evolutionary direction.

Cross-selling through database marketing: a mixed data factor analyzer for data augmentation and prediction

An important aspect of the new orientation on customer relationship marketing is the use of customer transaction databases for the cross-selling of new services and products. In this study, we propose a mixed data factor analyzer that combines information from a survey with data from the customer database on service usage and transaction volume, to make probabilistic predictions of ownership of services with the service provider and with competitors. This data-augmentation tool is more flexible in dealing with the type of data that are usually present in transaction databases. We test the proposed model using survey and transaction data from a large commercial bank. We assume four different types of distributions for the data: Bernoulli for binary service usage items, rank-order binomial for satisfaction rankings, Poisson for service usage frequency, and normal for transaction volumes. We estimate the model using simulated likelihood (SML). The graphical representation of the weights produced by the model provides managers with the opportunity to quickly identify cross-selling opportunities. We exemplify this and show the predictive validity of the model on a hold-out sample of customers, where survey data on service usage with competitors is lacking. We use Gini concentration coefficients to summarize power curves of prediction, which reveals that our model outperforms a competing latent trait model on the majority of service predictions.

Customer retention in the insurance industry: Using survival analysis to predict cross-selling opportunities

In saturated markets customer retention offers a number of benefits to companies. While these benefits are recognised by financial institutions, many have not fully embraced the concept in practice. This paper focuses on the prediction of crossselling opportunities and attempts to answer the questions of who is likely to buy additional products from the same company, what the next product is likely to be and when the purchase is likely to be made. The analysis is based on a sample of 9,000 customers selected at random from the data warehouse of a large international financial institution. The paper discusses and illustrates the application of survival analysis techniques in this context and makes suggestions for further research in this area.

Acquisition pattern analyses for recognising cross-sell opportunities in the financial services sector

In previously published papers it was shown that consumers often acquire financial products in the same order. Knowledge on such acquisition patterns is useful for marketing purposes. This study aims to define optimal utilisation of the acquisition pattern approach for cross-sell purposes. The proposed approach borrows a psychometric tool, the Mokken scale analysis, to investigate acquisition patterns. The sequential logit decision model is used to establish which clients found at a certain step in an acquisition pattern are most likely to acquire the next product found in such an order. The study focuses on this particular application of the sequential logit decision model.