Requirement 1. Compute the 2017 profitability of the Harvin, Stanback, and Graham Premier Accounts at GSB. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell. Round your answers to the nearest cent. Use parentheses or a minus sign for operating losses.) Harvin Stanback Graham Total Revenues Spread revenues on annual basis Monthly fee charges Total revenues Costs Deposit/withdrawal with teller Deposit/withdrawal with ATM Deposit/withdrawal on prearranged basis Bank checks written Foreign currency drafts Inquiries Total costs Operating income (loss) Requirement 2. Why might GSB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? across individual Premier Accounts occur when profits made on some accounts are account shows a small profit but only because of the It is unlikely that The account is highly profitable, while the account is sizably unprofitable. will keep paying these high fees and that GSB would want them to pay such high fees from a customer relationship standpoint. The The facts also suggest that the customers the bank services uniformly. For example, have a lot of transactions with the teller or ATM, and also inquire about their account balances more often than GSB V. Competition likely would "understand" that high-balance low-activity type accounts are highly profitable. Offering free services to these customers likely to retain these accounts if other banks offer higher interest rates. Competition likely will the interest rate spread GSB can earn on the high-balance low-activity accounts they are able to retain. Requirement 3. What changes would you recommend for GSB's Premier Account? Possible changes GSB could make are: a. Offer interest rates on accounts to increase GSB's competitiveness in attracting and retaining these accounts. b. V In determining its pricing strategy, GSB need to consider how other competing banks are pricing their products and services. P. More Info Depositors receive a 2% annual interest rate on their average deposit. GSB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus, GSB would gain $60 on the interest spread if a depositor had an average Premier Account balance of $2,000 in 2017 ($2,000 x 3% = $60). The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts. Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than $1,000 pay a $18-a-month service fee for their Premier Account. Print Done Data Table - X Account Usage Activity-Based Cost per "Transaction" Harvin Stanback Graham $ 2.50 43 52 7 Deposit/withdrawal with teller Deposit/withdrawal with automatic teller machine (ATM) Deposit/withdrawal on prearranged monthly basis 0.70 10 19 14 0.40 0 15 59 Bank checks written 8.10 9 1 3 12.00 4. 2 6 Foreign currency drafts Inquiries about account balance Average Premier Account balance for 2017 1.30 11 20 10 $ 1,175 $ 875 $ 24,500 Print Done Requirement 1. Compute the 2017 profitability of the Harvin, Stanback, and Graham Premier Accounts at GSB. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell. Round your answers to the nearest cent. Use parentheses or a minus sign for operating losses.) Harvin Stanback Graham Total Revenues Spread revenues on annual basis Monthly fee charges Total revenues Costs Deposit/withdrawal with teller Deposit/withdrawal with ATM Deposit/withdrawal on prearranged basis Bank checks written Foreign currency drafts Inquiries Total costs Operating income (loss) Requirement 2. Why might GSB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? across individual Premier Accounts occur when profits made on some accounts are account shows a small profit but only because of the It is unlikely that The account is highly profitable, while the account is sizably unprofitable. will keep paying these high fees and that GSB would want them to pay such high fees from a customer relationship standpoint. The The facts also suggest that the customers the bank services uniformly. For example, have a lot of transactions with the teller or ATM, and also inquire about their account balances more often than GSB V. Competition likely would "understand" that high-balance low-activity type accounts are highly profitable. Offering free services to these customers likely to retain these accounts if other banks offer higher interest rates. Competition likely will the interest rate spread GSB can earn on the high-balance low-activity accounts they are able to retain. Requirement 3. What changes would you recommend for GSB's Premier Account? Possible changes GSB could make are: a. Offer interest rates on accounts to increase GSB's competitiveness in attracting and retaining these accounts. b. V In determining its pricing strategy, GSB need to consider how other competing banks are pricing their products and services. P. More Info Depositors receive a 2% annual interest rate on their average deposit. GSB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus, GSB would gain $60 on the interest spread if a depositor had an average Premier Account balance of $2,000 in 2017 ($2,000 x 3% = $60). The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts. Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than $1,000 pay a $18-a-month service fee for their Premier Account. Print Done Data Table - X Account Usage Activity-Based Cost per "Transaction" Harvin Stanback Graham $ 2.50 43 52 7 Deposit/withdrawal with teller Deposit/withdrawal with automatic teller machine (ATM) Deposit/withdrawal on prearranged monthly basis 0.70 10 19 14 0.40 0 15 59 Bank checks written 8.10 9 1 3 12.00 4. 2 6 Foreign currency drafts Inquiries about account balance Average Premier Account balance for 2017 1.30 11 20 10 $ 1,175 $ 875 $ 24,500 Print Done