Title: Characterizing profitability tiers in financial services
Description: Customer profitability has emerged as a key metric in financial services firms, driving decisions about individual customer relationships ranging from service tiering and product pricing to cross-sell and retention efforts. Academics and practioners, contending that current customer profitability is insufficient, argue that such decisions should be based on estimates of lifetime profitability. Relative to the types of information to incorporate into models that predict future profitability, many financial services institutions assuming demographics to be correlated with profitability, have relied on relatively expensive purchased demographic data. Limited attention has been paid to empirical examinations of the predictive ability of either demographic data or current customer profitability with respect to future customer profitability. We use customer level data from a large retail financial services firm to address two research questions. Is current customer profitability a strong predictor of future customer profitability?