Vision 2014: Profitability-driven Customer Rretention

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Profitability-driven customer retention

Uzma Aziz Experian

Kevin Poe Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

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


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


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


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


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


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


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


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


What is attrition?

1 Closing an account

2 Taking balance / spend

elsewhere


What is retention?

1 Keeping a consumer from

taking their business away

2 Growing wallet share

maximizing lifetime value


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


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


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


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


Retention study

Using the power of data

to segment and predict


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


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


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


Segmentation

66% 9%

25%

Loyals Active attriters Silent attriters


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


Segments profiles

18%

Actives

10%

Loyals

$390

$1,290 $1,403

Silent attriters Loyals Activeattriters

Average balance on new card

7%

Silents


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)


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


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


Cluster profiles Are high attriters profitable?

730 732

779

Base Population Low Attriters High Attriters

Average VantageScore®

$104,196 $119,701

$175,619


Estimated Income

$18,780 $27,292

$49,709


Annual Spend


8.63% 47.24%

(447% increase)


Open rates

21%

Base population

4%

Low attriters

40%

High attriters


8.63% 47.24%

(447% increase)


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


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


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


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


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


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


Closing summary

Data

Value

Cost


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Vision 2014: Profitability-driven Customer Rretention

Economy & Finance

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