Mechanics Bank in Richmond, Calif., recently was trying to poach a small-business customer from a competing bank. The firm's original bank then counteroffered with a loan that had more favorable terms.
"We just had to stop the bidding at that point," said Bob Leet, executive vice president at $1 billion-asset Mechanics. "The other bank lowered its price to a point that we just couldn't afford to do business."
Mechanics dropped out of the running after using a system to analyze the profitability of the prospective loan.
"We're trying to make better decisions," Mr. Leet. "We're trying to understand how we can do business so that in advance of getting into a relationship, we know whether or not the relationship is going to be profitable."
Mechanics is among the growing number of banks - including community banks - that are using sophisticated systems to measure profitability, set rational prices, and determine which customers to target for different products. Mechanics uses profitability software system from Interactive Planning Systems Inc. for its commercial business.
And to help understand consumers, it also installed a new MCIF (a marketing customer information file) from John H. Harland & Co. less than a year ago.
"It's more important now to target groups of customers, households, or even individuals, so the bank is as sure as it can be that new customers will be profitable," said Mr. Leet. The MCIF "essentially helps to take a lot of the guesswork out of the marketing and sales effort."
Mechanics wants to gauge customer behavior and profitability so it can encourage high-transaction customers to use telephone and on-line channels that are cheaper than a visit to the branch. "We can use this system to understand, from a portfolio management basis, which relationships are continuing to be profitable," he said. "We'd like to be able to use MCIF to be very, very specific in targeting what our customers would want to purchase from the bank."