The E-Finance Value Chain - E-Finance Lab Frankfurt am Main

LAYER 3
Customers in E-Finance
Prof. Dr. Andreas Hackethal, Prof. Dr. Bernd Skiera
Motivation
Research in layer 3 proceeds from the basic premise that the online environment will further gain
in importance for financial service providers and that customer management in such an online
environment poses substantial challenges. More and more banking and insurance managers need
to deal with technologies that are related to social networks, smartphones, microblogging,
wikis and avatars. Internet firms such as Google have achieved much higher stock market values
than most financial service providers.
The aim of our work is to analyze these technological trends carefully and to evaluate how
technology and business intelligence can create value for financial service providers and their
customers. We posit that customers should be viewed as assets, which requires to evaluate their
current and future values. The measurement of the value of a customer via a customer lifetime
analysis and the value of the customer base via the determination of customer equity are
particularly useful because they can also be linked to the financial value of a financial service
provider. The value of technological trends for financial service providers is best evaluated by
linking them to customer metrics, in particular customer profitability and loyalty measures such as
customer lifetime, and analyzing how they can enhance the decision support and investor
coaching by financial service providers. As improvements to customer decisions provide particular
strong incentives for customers to stay with a financial service provider, we put substantial
emphasis on analyzing factors that influence the quality of those decisions.
Module 1 focuses on investments in customers, in particular those that are related to the internet
and (online) financial advice as well as decision support provided to the customers.
Module 2 concentrates on customer decision making and in particular on individual characteristics
that influence customer preferences, beliefs and decisions.
Module 3 focuses on the five key customer metrics for financial service institutions. Multiplying the
number of customers with the profit per customer leads to the current (short-term value of)
profitability. The consideration of customer lifetime values allows for measuring the long-term
values of customers. The two key investment measures are acquisition and retention (including
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customer development) costs per customer. We develop models to appropriately measure those
five customer metrics and analyze the interdependencies among those key metrics. We then identify
the effects of investments in customer and customers' decision on those customer metrics.
Module 4 analyzes how to link customer metrics to customer value metrics, such as customer
lifetime value or customer equity.
Module 5 links customer value to shareholder value as the key success metric of financial markets.
In contrast to most discounted cash flow models, we use the five key customer metrics as the
building blocks of our shareholder value model.
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3
2
1
5
Financial Value
Shareholder Value
Customer Value
Customer Equity Customer Lifetime Value
Number of Customers
Customer Metrics
Profit per Customer Customer Lifetime
Customer Acquisition Costs Customer Retention Costs
Customer Characteristics
Investment Patterns Risk Attitude Skills Mindset Metrics
Decision Support
Customer Investments
Financial Advice Online Marketing
The figure above illustrates the framework for our research projects.