QUESTION 6 (40) A new bank has entered the market by differentiating itself on charging less bank charges per current or cheque book account. This development has taken the banking industry by storm. Convenience Bank, a bank that has existed for many years has decided to change its approach in charging its clients holding current accounts by eliminating the cost of each cheque issued by the client for payment i.e. cheque payments will no longer be charged by the bank. This case scenario indicates that cheque book accounts will still be profitable under the new approach to bank charges but the bank would lose revenue of up to R6 million when the existing clients switch to the new type of cheque book account. The bank currently has 420 000 cheque book account clients combining all 240 branches it operates. The cost accountants of the bank have established that the bank would make R54 profit per account having made r450 revenue per account. The department of marketing at the bank suggested that the public needs to be made aware of this new development by promoting the new type of current account for a period of twelve weeks at a cost of R420 000. 6.1 How many additional new accounts need to be gained by the bank to cover the expected loss of R6 million? 6.2 How many new accounts must each branch gain to attain this goal? 6.3 How many customers on average does each branch currently have? 6.4 What growth rate must be achieved to cover the expected loss? 6.5 how many additional new accounts must be gained to cover the additional marketing cost of R420 000? 6.6 Considering this additional marketing cost implications, how many new accounts overall must be gained by the bank? 6.7 What is the overall growth rate that the bank must achieve? (6 x 7 = 35 marks) QUESTION 6 (40) A new bank has entered the market by differentiating itself on charging less bank charges per current or cheque book account. This development has taken the banking industry by storm. Convenience Bank, a bank that has existed for many years has decided to change its approach in charging its clients holding current accounts by eliminating the cost of each cheque issued by the client for payment i.e. cheque payments will no longer be charged by the bank. This case scenario indicates that cheque book accounts will still be profitable under the new approach to bank charges but the bank would lose revenue of up to R6 million when the existing clients switch to the new type of cheque book account. The bank currently has 420 000 cheque book account clients combining all 240 branches it operates. The cost accountants of the bank have established that the bank would make R54 profit per account having made r450 revenue per account. The department of marketing at the bank suggested that the public needs to be made aware of this new development by promoting the new type of current account for a period of twelve weeks at a cost of R420 000. 6.1 How many additional new accounts need to be gained by the bank to cover the expected loss of R6 million? 6.2 How many new accounts must each branch gain to attain this goal? 6.3 How many customers on average does each branch currently have? 6.4 What growth rate must be achieved to cover the expected loss? 6.5 how many additional new accounts must be gained to cover the additional marketing cost of R420 000? 6.6 Considering this additional marketing cost implications, how many new accounts overall must be gained by the bank? 6.7 What is the overall growth rate that the bank must achieve? (6 x 7 = 35 marks)
