vision 2014: profitability-driven customer rretention
DESCRIPTION
Not all customers are created equal. Therefore, when it comes to retaining them, the best strategy is to focus on the most profitable. This session will examine best practices in customer management, actions that signal customer attrition and segmentation tools that lenders can use to maximize return on investment on retention strategies.TRANSCRIPT
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Profitability-driven customer retention
Uzma Aziz Experian
Kevin Poe Experian
#vision2014
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Why retention stays top of mind
Increasing retention rates
by 5% increases profitability
by 25-95% Harvard Business School
It’s 6 to 7 times more costly to acquire a
new customer than it is to
retain an existing one
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But, not all retention will be profitable
Catering to the average
customer means catering
to no one Anonymous
The worst form of
inequality is to try to make
unequal things equal Aristotle
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State of the market
Industry trends
Causes of attrition
Turning data into a strategic advantage
Using segmentation to profile and align strategies
Best practices in retention
Learnings and takeaways
Agenda
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Economy on a rebound
-8
-6
-4
-2
0
2
4
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
U.S. real GDP growth rate
0%
2%
4%
6%
8%
10%
12%
2007 2008 2009 2010 2011 2012 2013 2014
U.S. unemployment rate
700
900
1100
1300
1500
1700
2007 2008 2009 2010 2011 2012 2013
Personal bankruptcy filings
2010: 1,538,033
2013: 1,072,807
Unemployment continues to decline and in Jan 2014 at
6.6% is 40% below 2010 levels
Personal bankruptcies peaked in 2010 and
declined 12% in 2013
GDP growth is positive YOY
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Consumer credit and originations
$-
$20
$40
$60
$80
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
Bil
lio
ns
($
)
Originations by risk bands
Super prime Prime Near prime Subprime Deep subprime
New card origination was
20% higher in 2013 year over
year, and more than 90% of
these were in the super prime
to near prime segments -5
0
5
10
2009 2010 2011 2012 2013
Consumer credit outstanding Percent year over year change
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2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13
Number of bankcard accounts per consumer
Industry – number of bankcards per consumer
Number of bankcard accounts per consumer has reached 2009 levels
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Spend is clustered
33% of cards capture 78% of annual spend
Very little opportunity to generate profit if your card is in the third+ position
It’s difficult, but critical, to be top-of-wallet
Total annual plastic spend
Wallet position Percent of trades Percent of total spend Average spend
1 33% 78% $12,115
2 23% 16% $3,488
3 16% 4% $1,406
4 10% 1% $710
5+ 17% 1% $290
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What does it mean for lenders?
1 With originations on the rise customers
have more opportunity to attrite
2 With everyone vying for the same low risk
customers there is a heightened need for
proactive retention
According to an annual survey of senior financial
managers 29 percent said their biggest challenge
is retaining the loyalty of their demanding, better
informed and less loyal customers Forbes
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What is attrition?
1 Closing an account
2 Taking balance / spend
elsewhere
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What is retention?
1 Keeping a consumer from
taking their business away
2 Growing wallet share
maximizing lifetime value
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Pushed away
Fees
Poor service (or change in service)
Lack of convenience
Issuer changes terms
Reward dilution
Just don’t need the product
Life event
Pulled away
Better offer
Incentive
Convenience
Why do customers attrite?
Why did you switch from your previous primary bank?
Percentage of responses
Push factors Neutral factors Pull factors
Source: Bain/Research Now US NPS Survey 2013
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Lots of retention strategies to choose from….
“Protect all”
Why – because they’re part of your portfolio!
The cost to acquire a new customer can be six to seven times the cost to retain one…
“Customize to maximize”
Why – not all customers behave the same
Identify what works for who and create customized strategies
“Decide where you must win”
Why – some customers are simply not profitable to retain
A customer who spends $50,000 a year does not generate the same income as one who spends only $500
Com
ple
x
S
imple
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Why “protect all” may not be the best strategy
Not all customers are at risk to attrite –
U.S. credit card providers deal with
annual churn rates of about 20 percent Harvard Business School
Not all customers who attrite are profitable –
80% of a company’s future revenue will come
from just 20% of their existing customers Gartner Group
Catering to the average customer means catering to no one
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Profitable retention
1 Determine who’s at risk of attrition
2 Identify who is profitable or has
opportunity for growth
3 Create retention strategies that
resonate with customer behavior
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Retention study
Using the power of data
to segment and predict
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National selection of bankcard customers who were current as of December 31, 2012
Measured key events, new account openings, closures, pay-down through June 30, 2013
Retention study analysis design
12/2012 6/2013
6-month performance window
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Sample population
151 million consumers with open bankcards
Final population: 149 million consumers
Total number of open cards: 380 million
Total balance: $600 billion
Current: Less than 60 days delinquent
Delinquent: 60 or more days delinquent, including bankruptcies and charge offs
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Segmentation
Loyals
Active attriters
Silent attriters
Silent attriter
Paid down > 30% of balance
Loyal
Did not close an account and did not pay down
Active attriter
Closed 1+ bankcard
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Segmentation
66% 9%
25%
Loyals Active attriters Silent attriters
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Segments profiles
722 735
763
Loyals Activeattriters
Silentattriters
Average VantageScore®
$18,193 $23,530
$18,964
Loyals Activeattriters
Silent attriters
Average annual spend
$102,311
$109,007
$108,910
Loyals ActiveAttriters
SilentAttriters
Average income
Silents
Actives Loyals
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Segments profiles
18%
Actives
10%
Loyals
$390
$1,290 $1,403
Silent attriters Loyals Activeattriters
Average balance on new card
7%
Silents
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Where’s the opportunity?
B
D
6.96%
10.10%
18.43%
680
690
700
710
720
730
740
750
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000
In t
he M
ark
et
Mo
delS
M
Total annual plastic spend
Active attriters
Loyals
Silent attriters
(Size of bubble denotes open rate)
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Can we predict this behavior?
CHAID analysis
Predict attriters
Predict open rates
Modeling snapshot: December 2012 Performance: June 2013 Dependent variable: Active attriters
Experian TAPSSM
Balance Transfer IndexSM
Premier AttributesSM
Trend View AttributesSM
Short-Term AttributesSM
VantageScore®
Income InsightSM
In the Market ModelsSM
Asset InsightSM
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Can we separate the active attriter from general population?
High rate of active attrition Low rate of active attrition
Prediction variables
Low ITMM <686
Low balance transfer index 115-168
High percentage of open/active revolving trades
Prediction variables
High ITMM 844+
High asset insight $919k+
Active attrition rate
Low attriters 17.9% of total population
1.66% (81% decrease)
Base population
8.63%
High attriters 4.5% of total population
47.24% (447% increase)
Opportunity for differentiated
treatment
ITMM = In the Market ModelSM
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Cluster profiles Are high attriters profitable?
730 732
779
Base Population Low Attriters High Attriters
Average VantageScore®
$104,196 $119,701
$175,619
Base Population Low Attriters High Attriters
Estimated Income
$18,780 $27,292
$49,709
Base Population Low Attriters High Attriters
Annual Spend
1.66% (81% decrease)
8.63% 47.24%
(447% increase)
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Open rates
21%
Base population
4%
Low attriters
40%
High attriters
1.66% (81% decrease)
8.63% 47.24%
(447% increase)
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Deep dive with behavioral segmentation
40% open rate – 779 VantageScore® – $175,619 income
High attriters
Consolidator 33.34%
Rate surfer 34.45%
Revolver, 3.30%
Transactor, 16.74%
Mixed, 11.25%
Other, 0.92%
Trend ViewSM Cluster
Credit-hungry Card
Switcher 33%
Reluctant Revolver
Loyal Rewards
Enthusiast 67%
Financial Personality
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Takeaway
1 We were able to determine who
was at risk of attrition
2 We were also able to determine
the profitability of these customers
3 Using segmentation tools we were able
to classify their behaviors
The right data can give you a strategic advantage
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Create loyalty programs that are relevant – according to a Forrester research while 45% of consumers on average sign up for such programs, only 16% of consumers actively use them
Make it easy for customers to redeem rewards
Customize your rewards programs
Assess effectiveness of your programs and adjust
Profitable retention – loyalty programs
On average, loyal customers are worth
up to 10 times their first purchase White House Office of Consumer Affairs
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One third of banking products in the U.S. are sold not bought
Expand share of wallet and make a client feel you are integral to their credit needs
The more products a customer has with you, the less likely they are to leave
Create a comprehensive product portfolio
Create bundled incentives, but don’t punish single product users
Profitable retention – cross sell and up sell
Probability of selling to a new prospect: 5-20% Probability of selling to an existing customer: 60-70%
Marketing Metrics
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Know your customer – customers enjoy businesses who know them
► Complaint = opportunity to implement improvement and change
► Use all forms of contact, including social media, to interact and get feedback
Be where your customers are – the best way to improve your customer service is to use channels your customers prefer – traditional channels are still relevant but don’t fall behind on what appeals to the next generation of customers
Majority of customers will never complain and simply walk away, so use data to your advantage
Profitable retention – customer is king
The two rules of customer service:
1. Customer is always right
2. If the customer is ever wrong, re-read rule # 1
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Empower customer service reps – strive for first contact resolution
Incent and reward employees for retention
Create retention programs for employees in your customer care departments – training sales reps is a cost!
Create ROI metrics – measure results and refine
Use technology to automate
Profitable retention – the power of empowerment
Customers were nine times more likely to be engaged
with a brand when they evaluated the service as
"courteous, willing, and helpful," Gallup Group
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Closing summary
Data
Value
Cost
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