Infinity Bank - Will the Supermarket Strategy Work?
Introduction
Infinity bank was one of the 10 largest banks in the UK with over 1800 retail branches. However, due to the change in the nature of the banking industry since the 1980’s Infinity bank had seen a consistent drop in its profitability. Deregulation of the industry had been one of the major changes that had taken place during this time which had increased the competition in the industry. Even though Infinity had followed other major banks in responding to this challenge by cutting costs, closing branches and making use of information technology, its results were far worse than others.
Since retail banking was a major source of their costs as well as revenue, they conducted a branch efficiency review which pointed out issues with underperformance and wastage of resources. Another issue that cropped up was that branches did not know which the most profitable products were. After conducting their first costing activity to understand product profitability they found out that Current accounts, which was their main product, were highly unprofitable. Mortgages and Credit Cards on the other hand were profitable. Details of the customer segments are given in Table 1. This led them to devise a strategy called the “Supermarket Strategy” which made branch manager responsible for their own P&L and be rewarded for selling profitable products.
Product Combinations | Accounts(in Millions) | Current Account only | 3.70 | Credit Card only | 0.50 | Mortgage only | 0.11 | Current Account + Credit Card | 4.20 | Curent Account + Mortgage | 0.39 | Credit Card + Mortgage | 0.05 | All 3: CA + CC + M | 0.31 | Total Customers | 9.26 |
Table 1: Customer Segment Details
However, some managers believed that this strategy would not work and that they needed to sell unprofitable products like Current Accounts to customers in order to build relationships which would lead to the selling of more profitable products later. Accordingly, a customer profitability
Infinity bank was one of the 10 largest banks in the UK with over 1800 retail branches. However, due to the change in the nature of the banking industry since the 1980’s Infinity bank had seen a consistent drop in its profitability. Deregulation of the industry had been one of the major changes that had taken place during this time which had increased the competition in the industry. Even though Infinity had followed other major banks in responding to this challenge by cutting costs, closing branches and making use of information technology, its results were far worse than others.
Since retail banking was a major source of their costs as well as revenue, they conducted a branch efficiency review which pointed out issues with underperformance and wastage of resources. Another issue that cropped up was that branches did not know which the most profitable products were. After conducting their first costing activity to understand product profitability they found out that Current accounts, which was their main product, were highly unprofitable. Mortgages and Credit Cards on the other hand were profitable. Details of the customer segments are given in Table 1. This led them to devise a strategy called the “Supermarket Strategy” which made branch manager responsible for their own P&L and be rewarded for selling profitable products.
Product Combinations | Accounts(in Millions) | Current Account only | 3.70 | Credit Card only | 0.50 | Mortgage only | 0.11 | Current Account + Credit Card | 4.20 | Curent Account + Mortgage | 0.39 | Credit Card + Mortgage | 0.05 | All 3: CA + CC + M | 0.31 | Total Customers | 9.26 |
Table 1: Customer Segment Details
However, some managers believed that this strategy would not work and that they needed to sell unprofitable products like Current Accounts to customers in order to build relationships which would lead to the selling of more profitable products later. Accordingly, a customer profitability
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