Bbva Compass: Marketing Resource Allocation

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Assume its aim is similar or slightly higher than industry average

Growth Rate 0% Assume growth rate is 0

The profit/ margin for banking industry calculated based on the above assumptions is $187.

Appendix 2: Calculating the Lifetime Value of Customer Acquired from the Online Channel

Cost per Application (CPA) Online $81

Online Application Approval Rate 80%

Average Additional Promotional Cost

(per approved application) $100

Actual cost per Successful Application

(or Acquisition Cost) $81/ 80% + $100 = $201.25

Profit Per Year

(Assume profit from online channel is the same as industry standard) $187

BBVA Customer Lifetime and Loyalty - Online Customer

Loyalty Rate 55.0%

Interest Rate 1.0%

Sales Growth 0.0%

Acquisition Cost 201.25

Profit Per Period 187

Lifetime value

5 period $198.63

10 period $208.82

Customer Tenure Profit Retention E[Profit] NPV

0 $(14.25) 100% $(14.25) $(14.25)

1 $187.00 55% $102.85 $101.83

2 $187.00 30% $56.57 $55.45

3 $187.00 17% $31.11 $30.20

4 $187.00 9% $17.11 $16.44

5 $187.00 5% $9.41 $8.95

6 $187.00 3% $5.18 $4.88

7 $187.00 2% $2.85 $2.66

8 $187.00 1% $1.57 $1.45

9 $187.00 0% $0.86 $0.79

10 $187.00 0% $0.47 $0.43

Appendix 3: Calculating the Lifetime Value of Customer Acquired from the Offline Channel

Online Offline (Calculated) Remarks

Marketing Expense

(Jan – Nov 2010) $1,153,000 (21%) $4,337,476 (79%) Based on the data in the case, offline advertising budget is 79% of total advertising budget. Assume expense is the same.

Other Offline Marketing Expenses - $30,000,000 Per references in the case, BBVA Compass signed multi-million dollar sponsorship with NBA and other sports league. Assume the sponsorship expense in 2010 is $30 million

Completed Application 14,316 (5%) 272,004 (95%) Given 5% of BBVA Compass’s applications come from online channel and 95% through offline channels; we can project the completed applications from Jan – Nov 2010 offline channels

Cost Per Application (CPA) $201.25 $126.24

Application Approval Rate 80% 95% Based on the data in the case

Average Additional Promotional Cost

(per approved application) $100 -

Actual cost per Successful Application

(or Acquisition Cost) $81/ 80% + $100 = $201.25 $126.26/96% =

$131.5

Profit per Period $187 $187*90% = $168.3 Based on the data in the case, online channel yields slightly higher profit than offline. Assume offline profit is 90% of online.

BBVA Customer Lifetime and Loyalty - Offline Customer

Loyalty Rate 65.0%

Interest Rate 1.0%

Sales Growth 0.0%

Acquisition Cost 131.5

Profit Per Period 168.3

Lifetime value

5 period $307.13

10 period $336.97

Customer Tenure Profit Retention E[Profit] NPV

0 $36.80 100% $36.80 $36.80

1 $168.30 65% $109.40 $108.31

2 $168.30 42% $71.11 $69.71

3 $168.30 27% $46.22 $44.86

4 $168.30 18% $30.04 $28.87

5 $168.30 12% $19.53 $18.58

6 $168.30 8% $12.69 $11.96

7 $168.30 5% $8.25 $7.70

8 $168.30 3% $5.36 $4.95

9 $168.30 2% $3.49 $3.19

10 $168.30 1% $2.27 $2.05

Appendix 4: Customer Lifetime Value of BBVA Compass from Paid Search Vs Display Ad

BBVA Customer Lifetime and Loyalty - Paid Search BBVA Customer Lifetime and Loyalty - Display Ad

Loyalty Rate 55.0% Loyalty Rate 55.0%

Interest Rate 1.0% Interest Rate 1.0%

Sales Growth 0.0% Sales Growth 0.0%

Acquisition Cost 191.25 Acquisition Cost 210

Profit Per Period 187 Profit Per Period 187

Lifetime value Lifetime value

5 period $208.63 5 period $189.88

10 period $218.82 10 period $200.07

Customer Tenure Profit Retention E[Profit] NPV Customer Tenure Profit Retention E[Profit] NPV