First Commerce Corp., a pioneer in customer profitability analysis, has become one of the first banks to incorporate that information in a marketing plan - one that actually hurts the bank's short-term profitability.

Last year, New Orleans-based First Commerce approached its most profitable retail customers and suggested products for them that actually earn less money for the bank, for example, an interest-bearing checking account to replace a noninterest account.

First Commerce said the effort cost it $5 million in 1995 and will probably cost another $9 million this year but has paid off in 94% retention of the targeted retail customers.

"If you're taking a long-term view of your best clients' lifetime value and the ability to maintain those clients, I don't think you can do otherwise," said Joseph V. Wilson 3d, senior executive vice president, strategic support.

First Commerce's research, which was done during the last three years, revealed that the company got 80% of its profits from just 20% of its customers, a finding that held true for both the retail and commercial sides of the bank. That prompted greater efforts to retain and deepen relationships with the top 20%.

What First Commerce achieved in terms of building a detailed customer profitability data base is not unique. But the company seems further along than many of its peers in terms of actually applying its information.

"They're on the leading edge of the banks I've taken a look at," said analyst R. Harold Schroeder of Keefe, Bruyette & Woods Inc.

Mr. Wilson said the heart of First Commerce's strategy, for both retail and commercial, is to get its relationship managers focused on interacting with the bank's best customers. "It's tightening the focus per relationship manager and making sure that relationship managers' contact frequency is greatly increased with that client," he said.

Last year, First Commerce, which has $8.4 billion of assets, identified its 287 best commercial clients, who were connected with more than $1 billion of loans and deposits. Since then, the bank has worked to retain all those relationships and has added 26 to the list.

While applying customer profitability information has cost First Commerce in the short run, it's expected to boost the company's future earnings. During a recent daylong session with analysts in New Orleans, First Commerce executives predicted that this, combined with completion of a multiyear investment program, would help improve the bank's 67.4% efficiency ratio in 1995 to 57% this year.

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