[Dr. Sonja Gensler, Prof. Dr. Bernd Skiera, Universität Frankfurt]

Firms are increasingly utilizing electronic distribution channels to augment or possibly supplement “traditional” product and service delivery processes. Nowhere has this trend been more important in business-to-consumer electronic commerce than in the financial services industry, especially in retail banking. Major investments in online banking date back to the early 1980s when the home computer was still a rarity. As these investments in online delivery become larger and more central to the long-term strategy of financial institutions, it becomes important to understand whether and how online channels add value to the banks that invest in them.

So far, most studies, which were designed to measure the profit contribution of the online channel, have chosen a simple mean of comparison: the average profitability of offline and online users. The result of most of these studies was that online customers are more profitable than offline customers. These studies offered multiple explanations for the differences in profitability. On one hand they suggested that serving online customers is more cost efficient due to the higher level of automation in online environments. It was argued on the other hand that customers tend to purchase more products more often at higher margins due to the increased convenience when purchasing via the Internet.

Based on these findings sales channel managers concluded that customers become more profitable as soon as they start using the online channel. They therefore suggested to foster and push the implementation of the online channel. They aim to migrate as many customers as possible to the online channel in order to increase the overall profitability of the customer base.

The problem with these simple profitability comparisons are that they neglect one very important question: where do the profitability differences really come from? These studies never answered or even questioned the causes of higher profitability of online customers. They simply inferred that the higher average profitability of online customers is due to the impact of the online channel.

herefore, the resulting question has to be whether online customers are more profitable because they started to use the online channel or whether they have always been the more profitable customers?

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