Technology And Consumers Peer-Reviewed Research

Changing Channels

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  • Multi-channel customers are good for business, according to conventional wisdom.
  • But when customers use every channel, the spiraling costs to accommodate them can slash profitability.
  • The solution: Concentrate on high-margin channels or on certain channel combinations. 

It’s never been so easy to spend. Or borrow. Or invest.

From an ATM on every street corner to downloadable apps to handshakes at the local branch, banks today are consumed with meeting customer needs through whatever channel is most convenient. All of which is good news for consumers.

What about the banks?

Conventional wisdom has it that multi-channel customers drive profitability. The theory is that varied sales channels increase the frequency of customer touchpoints, which in turn increase the number of opportunities to make a purchase. Then there’s the added value of increased convenience and comfort for the customer. This, together with the opportunity to combine multi-channel benefits, makes it more likely that customers will derive greater value — and therefore spend more.  

But in practice, this doesn’t really work, says Rice Business Professor Wagner A. Kamakura.

Analyzing data from a leading European bank, Kamakura and colleagues from the universities of Pablo de Olavide and Zaragoza found that customers who make use of all the channels available to them are not, in fact, the most profitable in terms of margin. The reason: costs and efficiencies.

Kamakura and his co-authors parsed two years’ worth of transactions made by 1,000 customers across four major channels: online banking, point of sale transactions in retail outlets, ATM use and face-to-face interaction in branches. They analyzed three primary service areas: asset management, credit, and everyday banking services such as debit cards and insurance.

Recent research about purchasing had already challenged the assumption that multi-channel marketing is always a boon to business. While customers shopping for luxury goods typically generated higher profit by using multiple channels, that wasn’t true for people purchasing less expensive day-to-day products.

Kamakura and his team decided to test the same assumptions about banking services.

“We suspected that with goods, multi-channel use did expose customers to opportunities to purchase and spend more. But with services, the outcome would be different because of the costs associated with serving the customer across different channels,” Kamakura wrote. “We wanted to test the theory that overall profitability was tied to two things: the nature of the channel itself, and the quality of the customer-bank interactions each channel promoted.”

What they found was that when customers used all four channels offered by the bank, profits actually decreased.

“We call this the augmentation effect, where customers use a convenient channel leading to an increase in demand for services,” Kamakura explained. “This in turn leads to more costs but doesn’t create a corollary upsurge in the quality of customer relationships.”

On the other hand, when customers used a three-way combination of channels — point of sale transactions, branch banking and online services — profitability was markedly enhanced. Other permutations — branch and point of sale or branch and ATM, for instance — were also relatively good for business.

“There’s an interesting interplay and a complex dynamic when you combine certain platforms and set this in turn against cost implications to the business,” Kamakura said. “Where you see customers using a dual-channel combination of ATM and the branch, for instance, the net outcome is greater profitability to the bank. This is because it’s easy for customers to migrate routine operations to the ATM, reducing costs to the branch without impairing the human relationships with the bank.”

This human dimension offered by branch banking, he said, means that high-value transactions tend to happen here. And when high-value customers arrive at the branch, there’s an opportunity to cross-sell. This makes branch banking a high-margin channel.

Conversely, internet banking, while still relatively cheap to the bank, yields little in terms of relationship-building and makes it easier for customers to manage their own accounts — and switch service providers if they choose to.

In the age of AI and the seamless user experience, the implications of these findings for service firms are significant.

“It’s important to look at the big picture,” Kamakura said. “You need to be thinking about how technology and automation, self-service mechanisms might trim your overheads, but might also reduce your customer satisfaction. It’s about balancing and monitoring the tradeoffs between speed, efficiency, ubiquity and things like loyalty, behavior and emotions.”


Wagner A. Kamakura is the Jesse H. Jones Professor of Marketing at the Jones Graduate School of Business at Rice University.

To learn more, please see: Cambra-Fierro, J., Kamakura, W.A., Melero-Polo, I., and Sese, F.J. (2016). Are Multichannel Customers Really More Valuable? An Analysis of Banking ServicesInternational Journal of Research and Marketing, 33(1), 208-212.

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