Analysing Channel Effectiveness

Channel effectiveness is a combination of finding the best route to the customer which is also the most cost efficient.

Many financial institutions ask us to help them to measure channel profitability, but it can be difficult to measure profitability by channel accurately. This is mainly because organisations tend to offer the same products and transactions through a variety of channels and cannot separate the revenue by channel. Yet channel usage and the relative cost of each channel can be measured.

A customer may open an account in the branch, but may pay bills from the account using the Internet. If these bill payments do not generate direct revenue but are simply funded through other account charges then it may be very difficult to identify profitability for these individual transactions.

Typically product reports also show the relative costs of different channels through which the products are sold or distributed. This will help managers when making decisions about which channels to promote. Product management can use product-by-channel reporting to determine the distribution strategy for a product and the cost effectiveness of the sales and service channels. It can also help the product distribution strategy by better explaining the economics within the channels.

Often the financial analysis is only part of the information that is useful to management. They will also receive usage information by channel for each product and for each customer segment. This will support decision making about the relative use of each channel for each product/customer combination. The bank can ensure that it is selling the right product through the right channel to the right customers.

The underlying activity analysis will also be useful when used to identify high cost activities that could be automated or areas where the business process could be simplified.

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