American Investment Management Services

MEMO

Date: February 10, 2008

To: Ms. Kim Davis, Executive Vice President of American Investment Management Services

Subject: Evaluating the customer segment analysis and determining customer profitability for American Investment Management Services.

Introduction

American Investment Management Services (AIMS) is one of the larger investment services providers in the U.S. focusing on mutual funds and full-line brokerage services with almost $500 billion in assets. Over the past ten years, AIMS has taken advantage of the longest economic expansion of the century and been very profitable. However, with signs of weakness in the economy, their leadership decided that it was important to look for analytical tools that could be used to think more strategically and impact business performance. They quickly realized that this could be done by creating a system to measure the profitability of their 3.9 million customers.

In the past, AIMS has struggled to determine which types of households (customers) to add and market towards. Their basic thought was to target high wealth customers; however, the competition was also actively targeting this group. To better understand the market, AIMS introduced segment analysis which they used by separating their customers into one of four categories, "High Net Worth" (HNW), "Active Traders" (AT), and "Retirees". Everyone leftover was lumped into the category "Core". As could be expected, performance was not consistent across all the customer segments. In fact, the range was startling with the pre-tax margin ranging from 48% for HNW to a low of -4% for the Core.

Those categories were then broken down even further in an attempt to better identify customer clusters that would be responsive to specific managerial actions. The original four segments were expanded to 11 categories which gave management an opportunity to analyze the customer mix carefully and identify problem areas and corrective actions.

Analysis

Figure 1: ABC Analysis for "Average" Household

Total ABC Rate Per Household

Revenue $2,173 3880K $560

Processing Exp. Ex.2

Branch Interactions 875 3880 $74.51 $17

Rep Assisted Calls 54200 3880 $10.59 $148