Textbook Assignment 6-26 Customer Profitability

Textbook Assignment 6-26

Customer Profitability

1. Applies for credit in response to a low introductory interest rate: transfers balance to new account, but when the low introductory rate expires; the customer transfers the balance to an account with a different credit card company that has offered a low introductory rate.

(Next Least Profitable)

This type of customers is only profitable for a temporary time period. Once the customer transfers the balance to another credit card company they are no longer profitable for the company.

2. Charges a large dollar volume of purchases; pays balance in full and on time each month.

(Fourth Most Profitable)

This customer makes large purchases that allow the company to make profits from these transactions but pays the balance is paid off in full each month. Since there is no ending balance left over the company will not make any interest of this type account.

3. Carries a high balance; pays only the minimum required payment but pays regularly with occasional late payment.

(Third Most Profitable)

This customer is the third most profitable. These individuals have a high balance but they pay on a regular basis with an occasional late payment. This type of customer poses is a much higher to serve and has the possibility of falling in to default. However, these individuals will still help the company make some profits in the short-term.

4. Carries a high balance; pays at least the minimum required payment but does not pay in full and always pays on time.

(Next Profitable)

This customer would be the next profitable for the credit card company. This individual has a higher card balance and may need a little more servicing than the individual that carries a lower balance. However, this type of customer pays on time and pays at least the minimum balance.

5. Carrie a low balance: pays at least the minimum required payment but does not pay in full and always pays on time.

(Most Profitable)

This customer is the most profitable for the credit card company. Most likely not to

default on the account. They are easy to service and the company can depend on

this type of customer to pay on time without paying the balance off in full.

6. Does not use the account but does not close the account.

(Least profitable)

The