Do better customers utilize electronic distribution channels?

Firms are increasingly implementing electronic distribution strategies to augment existing physical infrastructure for product and service delivery. However, to date there has been little systematic study on how these distribution channels affect profitability. In this study we explore the revenue enhancement potential for electronic delivery in retail banking by comparing customers who utilize personal-computer based home banking ("PC Banking") to other bank customers. Our results, based on case studies and detailed customer data from four institutions, suggest that while PC banking customers appear to be more profitable, most of the differences are due to unobservable characteristics of these customers. Demographic characteristics and changes in customer behavior following the adoption of the product account for only a small fraction of the overall differences. We conclude that, at least to date, the primary value of the product is in the retention of high value customers rather than cost savings or incremental sales. Our results also suggest that it is important to distinguish behavioral changes from pre-existing customer characteristics when evaluating the impact of added electronic delivery channels.