A new customer profitability strategy is starting to show some results for Wachovia Corp.

Wachovia started rolling out its Profitable Relationship Optimization, or Pro, strategy in January. The Winston-Salem, N.C.-based banking company closed the third quarter with a 97% retention rate among its most profitable customers and notable improvements in product sales and deposit growth, officials said.

The new strategy is largely to thank for the gains, according to Wachovia. Moreover, Pro - along with other recent changes in Wachovia's retail network, such as the beefing up of alternative delivery options-has been designated by bank officials as one of the most significant factors shaping Wachovia's consumer banking future.

"This is allowing us to begin to realize an upward slope in profitability on a number of fronts," said Stanhope A. Kelly, senior vice president of consumer banking. "This is a new way of doing business for us. We will be doing this for the rest of our lives."

At Pro's core is a technologically advanced data warehouse containing individual profitability measurements for each of Wachovia's 1.7 million retail households. Current data shows that 10% of Wachovia's customers account for 50% of its profits. Pro's analysis measures potential future profitability and sorts customers into categories for different types of handling.

"If it's a household that is not profitable or potentially profitable, we're not spending as much human capital around that household," said Mr. Kelly.

The Pro system scores each of Wachovia's products on the likelihood of selling those products to each customer. This information is combined into thousands of sales leads that are fed daily to Wachovia's sales force. Pro currently generates about 2,000 sales leads for about 700 sales reps each day. The number of leads is expected to grow to 3,000 by January and 5,000 by September 1998, according to Mr. Kelly.

"This lets us match up the sales force with targeted customers," he said.

Measuring customer profitability and matching sales and service levels to customer segments is not a new concept. Most major banking companies around the country are experimenting with strategies similar to Wachovia's.

But analyst Thomas K. Brown of Donaldson, Lufkin & Jenrette said Wachovia's strategy sets it apart from competitors because its program allows the company to continuously monitor results and make adjustments.

"Most banks are trying to sell more. Wachovia's Pro banker program tries to sell more profitably," said Mr. Brown. "Everybody is so focused on revenue growth, but that is the wrong approach."

The Pro strategy is one reason that Donaldson Lufkin raised its rating of Wachovia's stock this week, from "market performer" to "buy."

Mr. Brown said Pro will help Wachovia's earnings per share growth average between 13% and 15% for the next couple of years, giving Wachovia an edge over competitors who will find it increasingly difficult to keep up. Wachovia's earnings-per-share growth lagged many competitors' in 1996 and in the second quarter of 1997, partly because of investments in Pro.

"I'm expecting everybody else's growth rate to go down, while I'm expecting Wachovia's to go up," said Mr. Brown.

But another analyst, who would speak only on condition of anonymity, was skeptical. Slicing and dicing customer data is a popular concept now, he said. But the success of such strategies and the impact they have on the bottom line will depend on a variety of factors, among them a company's geographic market, he said.

Still, Wachovia officials said Pro's early success gives them confidence it will help drive significant profits in the future.

So far, Wachovia sales staff using Pro-generated leads have averaged a 25% success rate in selling a product on either the first or second attempt, according to Wachovia officials.

Year-to-date, Wachovia has retained 97% of its most profitable customer households-well above both national averages and Wachovia retention averages. And both deposit growth and share of customer wallet has increased because of the program, said Wachovia officials, though they would not disclose those numbers.

Also, in a test earlier this year, a dedicated sales team targeting a group of the company's most profitable customers improved revenues generated by those customers 94%, and profits by 74%.

More than 50% of Wachovia's franchise is now running the Pro strategy and the company is continuing to roll out the program, market by market.

Darren Short, an analyst with Robinson-Humphrey Co., said the Pro strategy should be particularly significant to Wachovia as it ventures into competitive Virginia, where it will become a major player, after completing two pending acquisitions.

The Pro strategy is "going to be a huge positive for them," he said.

Wachovia officials acknowledge that Pro has shortcomings. It does not, for example, say how likely a customer is to buy given product. Nor do observations gleaned from conversations with customers affect product scoring; a banker could note that a customer plans to buy a new car in six months, but that information would not automatically generate a sales lead for an auto loan.

Still, Mr. Brown gives the Wachovia program high marks. "Rather than wait till they got it perfect, they are out in the market making a difference," he said.

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