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Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information  - Equifax
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Inspire 2013 - Money matters- Enhancing Database Marketing with Relevant Economic Information - Equifax

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The ultimate aim of database marketing is to identify customers and prospects who are most likely to buy our products and spend more money with our company. This session will explore how a …

The ultimate aim of database marketing is to identify customers and prospects who are most likely to buy our products and spend more money with our company. This session will explore how a segmentation framework based on financial and economic data will greatly improve predictive power. In addition, we will examine several enhancements that go far beyond a simple segmentation framework, including forecasting which customers are improving their economic positions (upwardly mobile economically), segment optimization, and also a new structure for customer lifetime value

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  • 1. Money MattersEnhancing database marketing withrelevant economic informationMike JacobsSVP & General Manager, Segmentation SolutionsEquifax@EquifaxBusiness Leadership trackMarch 7, 201311:00 – 11:45 am #
  • 2. Money matters Your most valuable data resides within your customer database --- transaction history, customer interactions etc. This provides a limited view; the customer may have minimal dealings with your company, yet have significant financial / economic capacity overall It is highly beneficial to append demographic and economic data to customer records Economically based segmentation provides a composite framework, and forms a bridge between internal and external views of the customer #
  • 3. Economic Cohorts IXI Services collects detailed financial data from around 100 of the USA’s largest financial institutions Publicly available data sources are paired with factors derived from this proprietary data foundation Economic Cohorts classifies households into 71 distinct clusters with similar economic characteristics Classification variables include:  Income (wages + investments)  Discretionary spending  Credit (# accounts, balance, adverse)  Home ownership and mortgage  Lifestage demographics  Geography #
  • 4. Economic Cohorts: 16 groups, 71 clusters Income Low Moderate High Elite $0k-$50k $50k-$100k $100k-$200k $200k+ Young A E I M <35 Clusters 1-6 Clusters 22-27 Clusters 43-48 Clusters 64Working Years B F J N 35-54 Clusters 7-12 Clusters 28-33 Clusters 49-54 Clusters 65-67Pre-Retirement C G K O 55-64 Clusters 13-17 Clusters 34-38 Clusters 55-59 Clusters 68-69 Retired D H L P 65+ Clusters 18-21 Clusters 39-42 Clusters 60-63 Clusters 70-71 #
  • 5. SimCo --- simulated telecommunications SimCo sells a subscription product, which normally has a 2-year initial contract SimCo has approximately 1.65 million past and present customers There are three product packages: Basic: 49.2% of sales, average value $40 per month Enhanced: 27.2% of sales, average value $75 per month Premium: 23.6% of sales, average value $120 per month Subscribers may also have additional features in their contracts. Basic: 18.7% subscribe to additional features Enhanced: 29.7% subscribe to additional features Premium: 13.9% subscribe to additional features There are also additional usage charges. #
  • 6. Penetration index: Active subscribers LOWER INCOME <$50,000 MODERATE INCOME $50,000-$100,000 0 100 200 300 400 0 100 200 300 400 A01: Tough Start: Young Single Parents 141 E22: Credit City: Young Families 199 A02: Tough Start: Young Singles 70 E23: Credit City: Young Singles 112 A03: Starting Small: Small-Town Families 181 E24: Midscale Mainstream: Small-Town Families 157 < 35 < 35 A04: Starting Small: Small-Town Singles 87 E25: Midscale Mainstream: Small-Town Singles… 54 A05: Living on Loans: Young Urban Single… 198 E26: Getting Ahead: Young City Families 135 A06: Living on Loans: Young Urban Singles 60 E27: Getting Ahead: Young City Singles 98 B07: Mid-Life Strugglers: Families 150 F28: Living Simply: Small-Town Families 188 B08: Mid-Life Strugglers: Singles 58 F29: Living Simply: Small-Town Singles and… 62 35 - 54 35 - 54 B09: Getting By: Small-Town Families 98 F30: Credit Rules: Urban Families 198 B10: Getting By: Small-Town Singles and Couples 42 F31: Credit Rules: Urban Singles 72 B11: Credit Crunched: City Families 184 F32: Suburban Stability: Families 208 B12: Credit Crunched: City Singles 66 F33: Suburban Stability: Singles and Couples 91 C13: Retiring on Empty: Singles 43 G34: Committed to Credit: Small-Town Couples 10 G35: Striving for Balance: Urban Pre-… 55 - 64 C14: Burdened by Debt: Singles 121 55 - 64 51 C15: Sensible Spenders: Families 105 G36: Conservative Consumers: Small-Town… 78 C16: Sensible Spenders: Small-Town Empty… 40 G37: Conservative Consumers: Suburban… 111 C17: Sensible Spenders: Urban Pre-Retirement… 29 G38: Solid Foundation: Suburban Empty Nesters 61 D18: Relying On Aid: Retired Singles 41 H39: Retired on Credit: City Singles and Couples 60 D19: Rough Retirement: Small-Town and Rural… 42 H40: Safety Net Seniors: Small-Town Retired… 27 65+ D20: Struggling Elders: Singles H41: Nest Egg Elders: Older Retirees 11 65+ 20 D21: Modest Means: Urban Retirees 47 H42: Comfortable Retirement: Suburban Couples 54 * Penetration index = 100 * [customer household %] / [market household %] #
  • 7. Penetration index: Active subscribers HIGH INCOME $100,000-$200,000 ELITE INCOME $200,000+ 0 100 200 300 400 0 100 200 300 400 I43: Charge-It Champs: Young Suburban Families 351 M64: Big Shots: Young Upmarket Urbanites 132 I44: Charge-It Champs: Young Suburban Singles 112 I45: Confident Futures: Young City Families 161 < 35 < 35 I46: Confident Futures: Young City Singles and… 74 I47: Material World: Urban Families 204 I48: Material World: Urban Singles 53 J49: House of Cards: Suburban Families 270 N65: Careers First: Urbanites 172 J50: House of Cards: Suburban Singles and… 90 N66: Executive Spenders: Suburban Families 300 35 - 54 35 - 54 J51: Prudent Professionals: Suburban Families 299 N67: Executive Spenders: Suburban Couples 184 J52: Prudent Professionals: Suburban Singles… 91 J53: Suburban Success: Upscale Families 262 J54: Suburban Success: Upscale Singles and… 110 K55: Living for Today: Couples 71 O68: Corner Offices: Executive Urbanites 136 O69: Champagne Tastes: Executive Empty 55 - 64 K56: Planners and Savers: Suburban Families 55 - 64 156 148 Nesters K57: Planners and Savers: Suburban Couples 90 K58: Planners and Savers: City Couples 128 K59: Country Club Climbers: Suburban Empty… 187 L60: Comfortable with Credit: Upscale Retirees 44 P70: Flush Funds: Wealthy Urban Seniors 18 L61: Rewarding Retirement: Affluent Suburbanites 47 P71: Diamonds and Pearls: Wealthiest Retirees 46 65+ L62: Affluent Elders: Older Upscale Suburbanites 65+ 29 L63: Established Wealth: Suburban Retirees 111 * Penetration index = 100 * [customer household %] / [market household %] #
  • 8. Value index: Penetration vs. revenue LOWER INCOME <$50,000 MODERATE INCOME $50,000-$100,000 0 200 400 600 0 200 400 600 A01: Tough Start: Young Single Parents E22: Credit City: Young Families A02: Tough Start: Young Singles E23: Credit City: Young Singles A03: Starting Small: Small-Town Families E24: Midscale Mainstream: Small-Town Families < 35 < 35 A04: Starting Small: Small-Town Singles E25: Midscale Mainstream: Small-Town Singles… A05: Living on Loans: Young Urban Single… E26: Getting Ahead: Young City Families A06: Living on Loans: Young Urban Singles E27: Getting Ahead: Young City Singles B07: Mid-Life Strugglers: Families F28: Living Simply: Small-Town Families B08: Mid-Life Strugglers: Singles F29: Living Simply: Small-Town Singles and… 35 - 54 35 - 54 B09: Getting By: Small-Town Families F30: Credit Rules: Urban Families B10: Getting By: Small-Town Singles and Couples F31: Credit Rules: Urban Singles B11: Credit Crunched: City Families F32: Suburban Stability: Families B12: Credit Crunched: City Singles F33: Suburban Stability: Singles and Couples C13: Retiring on Empty: Singles G34: Committed to Credit: Small-Town Couples C14: Burdened by Debt: Singles G35: Striving for Balance: Urban Pre-… 55 - 64 55 - 64 C15: Sensible Spenders: Families G36: Conservative Consumers: Small-Town… C16: Sensible Spenders: Small-Town Empty… G37: Conservative Consumers: Suburban… C17: Sensible Spenders: Urban Pre-Retirement… G38: Solid Foundation: Suburban Empty Nesters D18: Relying On Aid: Retired Singles H39: Retired on Credit: City Singles and Couples D19: Rough Retirement: Small-Town and Rural… H40: Safety Net Seniors: Small-Town Retired… D20: Struggling Elders: Singles H41: Nest Egg Elders: Older Retirees 65+ 65+ D21: Modest Means: Urban Retirees H42: Comfortable Retirement: Suburban Couples * Value index = 100 * [revenue %] / [market household %] Key: Active subscribers Subscription revenue #
  • 9. Value index: Penetration vs. revenue HIGH INCOME $100,000-$200,000 ELITE INCOME $200,000+ 0 200 400 600 0 200 400 600 I43: Charge-It Champs: Young Suburban Families M64: Big Shots: Young Upmarket Urbanites I44: Charge-It Champs: Young Suburban Singles I45: Confident Futures: Young City Families < 35 < 35 I46: Confident Futures: Young City Singles and… I47: Material World: Urban Families I48: Material World: Urban Singles J49: House of Cards: Suburban Families N65: Careers First: Urbanites J50: House of Cards: Suburban Singles and… N66: Executive Spenders: Suburban Families 35 - 54 35 - 54 J51: Prudent Professionals: Suburban Families N67: Executive Spenders: Suburban Couples J52: Prudent Professionals: Suburban Singles… J53: Suburban Success: Upscale Families J54: Suburban Success: Upscale Singles and… K55: Living for Today: Couples O68: Corner Offices: Executive Urbanites O69: Champagne Tastes: Executive Empty 55 - 64 K56: Planners and Savers: Suburban Families 55 - 64 Nesters K57: Planners and Savers: Suburban Couples K58: Planners and Savers: City Couples K59: Country Club Climbers: Suburban Empty… L60: Comfortable with Credit: Upscale Retirees P70: Flush Funds: Wealthy Urban Seniors L61: Rewarding Retirement: Affluent Suburbanites P71: Diamonds and Pearls: Wealthiest Retirees 65+ L62: Affluent Elders: Older Upscale Suburbanites 65+ L63: Established Wealth: Suburban Retirees * Value index = 100 * [revenue %] / [market household %] Key: Active subscribers Subscription revenue #
  • 10. Value index: By product category LOWER INCOME <$50,000 MODERATE INCOME $50,000-$100,000 0 100 200 300 400 500 600 0 100 200 300 400 500 600 A01: Tough Start: Young Single Parents E22: Credit City: Young Families A02: Tough Start: Young Singles E23: Credit City: Young Singles A03: Starting Small: Small-Town Families E24: Midscale Mainstream: Small-Town Families < 35 < 35 A04: Starting Small: Small-Town Singles E25: Midscale Mainstream: Small-Town Singles… A05: Living on Loans: Young Urban Single… E26: Getting Ahead: Young City Families A06: Living on Loans: Young Urban Singles E27: Getting Ahead: Young City Singles B07: Mid-Life Strugglers: Families F28: Living Simply: Small-Town Families B08: Mid-Life Strugglers: Singles F29: Living Simply: Small-Town Singles and… 35 - 54 35 - 54 B09: Getting By: Small-Town Families F30: Credit Rules: Urban Families B10: Getting By: Small-Town Singles and Couples F31: Credit Rules: Urban Singles B11: Credit Crunched: City Families F32: Suburban Stability: Families B12: Credit Crunched: City Singles F33: Suburban Stability: Singles and Couples C13: Retiring on Empty: Singles G34: Committed to Credit: Small-Town Couples G35: Striving for Balance: Urban Pre-… 55 - 64 C14: Burdened by Debt: Singles 55 - 64 C15: Sensible Spenders: Families G36: Conservative Consumers: Small-Town… C16: Sensible Spenders: Small-Town Empty… G37: Conservative Consumers: Suburban… C17: Sensible Spenders: Urban Pre-Retirement… G38: Solid Foundation: Suburban Empty Nesters D18: Relying On Aid: Retired Singles H39: Retired on Credit: City Singles and Couples D19: Rough Retirement: Small-Town and Rural… H40: Safety Net Seniors: Small-Town Retired… H41: Nest Egg Elders: Older Retirees 65+ D20: Struggling Elders: Singles 65+ D21: Modest Means: Urban Retirees H42: Comfortable Retirement: Suburban Couples * Value index = 100 * [revenue %] / [market household %] Key: Basic package Enhanced Premium #
  • 11. Value index: By product category HIGH INCOME $100,000-$200,000 ELITE INCOME $200,000+ 0 100 200 300 400 500 600 0 100 200 300 400 500 600 I43: Charge-It Champs: Young Suburban Families M64: Big Shots: Young Upmarket Urbanites I44: Charge-It Champs: Young Suburban Singles I45: Confident Futures: Young City Families < 35 < 35 I46: Confident Futures: Young City Singles and… I47: Material World: Urban Families I48: Material World: Urban Singles J49: House of Cards: Suburban Families N65: Careers First: Urbanites J50: House of Cards: Suburban Singles and… N66: Executive Spenders: Suburban Families 35 - 54 35 - 54 J51: Prudent Professionals: Suburban Families N67: Executive Spenders: Suburban Couples J52: Prudent Professionals: Suburban Singles… J53: Suburban Success: Upscale Families J54: Suburban Success: Upscale Singles and… K55: Living for Today: Couples O68: Corner Offices: Executive Urbanites O69: Champagne Tastes: Executive Empty 55 - 64 K56: Planners and Savers: Suburban Families 55 - 64 Nesters K57: Planners and Savers: Suburban Couples K58: Planners and Savers: City Couples K59: Country Club Climbers: Suburban Empty… L60: Comfortable with Credit: Upscale Retirees P70: Flush Funds: Wealthy Urban Seniors L61: Rewarding Retirement: Affluent Suburbanites P71: Diamonds and Pearls: Wealthiest Retirees 65+ L62: Affluent Elders: Older Upscale Suburbanites 65+ L63: Established Wealth: Suburban Retirees * Value index = 100 * [revenue %] / [market household %] Key: Basic package Enhanced Premium #
  • 12. Trend analysisEconomic trends at the micro-neighborhood level #
  • 13. Economic Rating We want to determine which micro-neighborhoods are improving their economic wellbeing; that is which micro-neighborhoods have an “upward” trend? First, we need an appropriate measure of economic health, or prosperity: “Income” alone is insufficient as a target variable The Economic Rating is a composite of the core building blocks of Economic Cohorts It is an integer index 1 - 20 It is a demi-decile value, i.e. 5% of USA households fall into each Economic Rating category Economic Rating uses economic data only, no demographics nor geographic data elements #
  • 14. Economic Rating Micro-neighborhoods with a high Economic Rating ……. Earn more Have greater spending capacity Total Income ($000) Spending Capacity ($000) 200 150 150 100 100 50 50 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Use more credit Are more credit worthy Number of credit lines Vantage score 9 850 8 800 7 750 6 5 700 4 650 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating #
  • 15. Economic Rating Micro-neighborhoods with a high Economic Rating ……. Have higher credit limits Have higher credit balances Credit Limit ($000) Credit balance ($000) 80 30 60 25 40 20 20 15 0 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Have lower credit risk Credit Risk 5% 4% 3% 2% 1% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating ** Percent of non-mortgage credit balance with severe derogatory #
  • 16. Economic Rating Micro-neighborhoods with a high Economic Rating ……. Spend more on domestic travel Spend more on foreign travel Spend $2000+ Spend $3000+ 25% 15% 20% 10% 15% 10% 5% 5% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Are more likely to take a cruise Are more likely to own timeshare Taken a Cruise Own timeshare 18% 10% 15% 8% 12% 6% 9% 4% 6% 3% 2% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Source: MediaMark Research #
  • 17. Economic Rating Micro-neighborhoods with a high Economic Rating ……. Spend more on their cellphones Are more likely to have an iPhone Cellphone $200+ per month Own iPhone 8% 10% 6% 8% 6% 4% 4% 2% 2% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Are more likely to buy a new car Are more likely to buy an expensive car Last car purchased : New Last car purchased : $30,000+ 80% 25% 60% 20% 15% 40% 10% 20% 5% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Source: MediaMark Research #
  • 18. Economic Rating Micro-neighborhoods with a high Economic Rating ……. Are financially active Shop in high-end retail stores Bought Mutual Funds High-end retail clothing store 12% 15% 10% 8% 10% 6% 4% 5% 2% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Economic Rating Economic Rating Source: MediaMark Research #
  • 19. Economic Trend We examined year-on-year changes in Economic Rating over 4 years A micro-neighborhood forecast model for change in economic prosperity was built The Economic Trend model uses macro economic factors for larger geographies And also direct-measured micro-neighborhood economic data (the building blocks of Economic Cohorts) Economic Trend is the capacity of the micro-neighborhood to improve its Economic Rating, i.e. improve its economic prosperity It is an integer index 1 - 20 It is a demi-decile value, i.e. 5% of USA households fall into each Economic Trend category #
  • 20. Simco application SimCo subscriber base in terms of Economic Rating Customer penetration 0.0% 0.5% 1.0% 1.5% 1 2 Low penetration. 3 Approach: Low price, basic package (if anything) 4 5 6 Economic Rating 7 8 9 10 Strategy is unclear ???? 11 12 13 14 15 16 17 18 High penetration. 19 Approach: Premium target market; best opportunities 20 #
  • 21. Simco application SimCo subscriber base in terms of Economic Trend Economic Rating categories 9 and 10 only Average revenue Upgrade rate 0 20 40 60 80 100 0% 1% 2% 3% 4% 5% 6% 7% 1 1 2 2 3 3 4 4 5 5 6 6 Economic Trend Economic Trend 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 * Average monthly revenue per customer * Percent package upgrade in past 12 months #
  • 22. Improving performance: Economic Relativity Economic Cohorts is built using “unsupervised” clustering, i.e. it clusters records that have similar characteristics Performance e.g. value We superimpose a measure of “performance”, e.g. customer value. This is known as a “response surface” and differs by client, even line-of business Statistical technique of “bump hunting” uses economic data in the underlying grid to adjust the cluster solution. This is to maximize identification of top performance areas #
  • 23. Improving performance: Economic Relativity The response surface can be represented by a contour map. Contours show “height”, i.e. areas of top performance A Cluster represented by red ellipse contains records with good and poor performance. By adjusting its position slightly, to remove “low” records, we improve performance but retain the essential characteristics of the cluster Cluster represented by green ellipse is on a B steep slope. This is a good candidate for improving performance. Clusters in the “valleys” cannot be improved much. We typically seeks an optimized solution that targets say the top 30% of performance #
  • 24. Value index: Economic Relativity HIGH INCOME $100,000-$200,000 ELITE INCOME $200,000+ 0 200 400 600 800 0 200 400 600 800 I43: Charge-It Champs: Young Suburban Families M64: Big Shots: Young Upmarket Urbanites I44: Charge-It Champs: Young Suburban Singles I45: Confident Futures: Young City Families < 35 < 35 I46: Confident Futures: Young City Singles and… I47: Material World: Urban Families I48: Material World: Urban Singles J49: House of Cards: Suburban Families N65: Careers First: Urbanites J50: House of Cards: Suburban Singles and… N66: Executive Spenders: Suburban Families 35 - 54 35 - 54 J51: Prudent Professionals: Suburban Families N67: Executive Spenders: Suburban Couples J52: Prudent Professionals: Suburban Singles… J53: Suburban Success: Upscale Families J54: Suburban Success: Upscale Singles and… K55: Living for Today: Couples O68: Corner Offices: Executive Urbanites O69: Champagne Tastes: Executive Empty K56: Planners and Savers: Suburban Families 55 - 64 55 - 64 Nesters K57: Planners and Savers: Suburban Couples K58: Planners and Savers: City Couples K59: Country Club Climbers: Suburban Empty… L60: Comfortable with Credit: Upscale Retirees P70: Flush Funds: Wealthy Urban Seniors L61: Rewarding Retirement: Affluent Suburbanites P71: Diamonds and Pearls: Wealthiest Retirees L62: Affluent Elders: Older Upscale Suburbanites 65+ 65+ L63: Established Wealth: Suburban Retirees Key: Subscription revenue * Value index = 100 * [revenue %] / [market household %] With Economic Relativity #
  • 25. Performance statistics 100 KEY PERFORMANCE STATISTICS 90 80 Value Economic 70 index Relativity Response percent 60 Maximum index 417 634 50 40 Average index top 5 clusters 358 548 30 Clusters with index >200 10 15 20 10 χ2 86.6 244.3 0 0 10 20 30 40 50 60 70 80 90 100 Contact percent This is an ACQUISITION scenario, assuming that customers are Key: Random acquired in cluster order, starting with the best performing clusters. Subscription revenue Response equates to customer acquisition. With Economic Relativity #
  • 26. Customer lifetime value and Customer equity A customer can be in one of several states, normally expressed in terms of subscription/product type and status of contract We can calculate customer lifetime value if we have the probabilities of transitions between states and the value (profitability) of each state Customer lifetime value is a discounted infinite sum, but there are simple formulae to do the calculations Customer equity is the sum of lifetime values for a group of customers and/or prospects --- this emphasizes that customers are financial assets of the company #
  • 27. Customer equity Multi-state model : 2 products, 3 values States Ni1 Vi Ni2 Vi Ni3 Vi Prospect p01 A high$ n11 * v1 =r11 1 p02 n12 * v1 =r12 n13 * v1 =r13 A medium$ n21 * v2 =r21 2 n22 * v2 =r22 n23 * v2 =r23 A low$ n31 * v3 =r31 3 n32 * v3 =r32 n33 * v3 =r33 B high$ n41 * v4 =r41 4 n42 * v4 =r42 n43 * v4 =r43 B medium$ n51 * v5 =r51 5 n52 * v5 =r52 n53 * v5 =r53 B low$ n61 * v6 =r61 6 n62 * v6 =r62 n63 * v6 =r63 Gone n71 * 0 n72 * 0 n73 * 0 Σ = R1 Σ = R2 Σ = R3 Discounted R1*(1-d) R2*(1-d)2 R3*(1-d)3 #
  • 28. Matrix representation of Customer equity If a group contains n customers in each state, with transition probability matrix P and v being the value/profitability of each state, then customer equity for one period is n’ P v Total customer equity is an infinite sum of such terms, with discount factors applied to future terms to get present value. Calculations use matrix algebra. In practice, there can be a large number of customer states, with various product combinations, contract states and value tiers The transition probability matrix P and value/profitability vector v are determined empirically from the company’s historic data There should be different P and v for different Economic Cohorts clusters Clusters have different transition probabilities and values! #
  • 29. Total customer equity ($million) by cluster LOWER INCOME <$50,000 MODERATE INCOME $50,000-$100,000 0 50 100 0 50 100 A01: Tough Start: Young Single Parents 10.6 E22: Credit City: Young Families 16.1 A02: Tough Start: Young Singles 15.5 E23: Credit City: Young Singles 34.3 A03: Starting Small: Small-Town Families 19.1 E24: Midscale Mainstream: Small-Town Families 17.2 < 35 < 35 A04: Starting Small: Small-Town Singles 29.7 E25: Midscale Mainstream: Small-Town Singles… 14.2 A05: Living on Loans: Young Urban Single… 17.8 E26: Getting Ahead: Young City Families 19.6 A06: Living on Loans: Young Urban Singles 25.5 E27: Getting Ahead: Young City Singles 46.4 B07: Mid-Life Strugglers: Families 13.4 F28: Living Simply: Small-Town Families 63.4 B08: Mid-Life Strugglers: Singles 8.0 F29: Living Simply: Small-Town Singles and… 21.5 35 - 54 35 - 54 B09: Getting By: Small-Town Families 20.4 F30: Credit Rules: Urban Families 54.8 B10: Getting By: Small-Town Singles and Couples 14.0 F31: Credit Rules: Urban Singles 26.7 B11: Credit Crunched: City Families 36.9 F32: Suburban Stability: Families 100.7 B12: Credit Crunched: City Singles 18.7 F33: Suburban Stability: Singles and Couples 57.7 C13: Retiring on Empty: Singles 3.6 G34: Committed to Credit: Small-Town Couples 1.4 C14: Burdened by Debt: Singles G35: Striving for Balance: Urban Pre-… 55 - 64 55 - 64 6.9 35.3 C15: Sensible Spenders: Families 17.7 G36: Conservative Consumers: Small-Town… 20.7 C16: Sensible Spenders: Small-Town Empty… 10.0 G37: Conservative Consumers: Suburban… 31.8 C17: Sensible Spenders: Urban Pre-Retirement… 6.0 G38: Solid Foundation: Suburban Empty Nesters 32.3 D18: Relying On Aid: Retired Singles 8.0 H39: Retired on Credit: City Singles and Couples 13.5 D19: Rough Retirement: Small-Town and Rural… 15.2 H40: Safety Net Seniors: Small-Town Retired… 7.9 D20: Struggling Elders: Singles H41: Nest Egg Elders: Older Retirees 65+ 65+ 6.9 3.7 D21: Modest Means: Urban Retirees 16.9 H42: Comfortable Retirement: Suburban Couples 22.9 #
  • 30. Total customer equity ($million) by cluster HIGH INCOME $100,000-$200,000 ELITE INCOME $200,000+ 0 50 100 0 50 100 I43: Charge-It Champs: Young Suburban Families 20.1 M64: Big Shots: Young Upmarket Urbanites 6.7 I44: Charge-It Champs: Young Suburban Singles 13.4 I45: Confident Futures: Young City Families 10.6 < 35 < 35 I46: Confident Futures: Young City Singles and… 16.6 I47: Material World: Urban Families 12.5 I48: Material World: Urban Singles 8.8 J49: House of Cards: Suburban Families 81.9 N65: Careers First: Urbanites 13.7 J50: House of Cards: Suburban Singles and… 23.5 N66: Executive Spenders: Suburban Families 73.3 35 - 54 35 - 54 J51: Prudent Professionals: Suburban Families 120.9 N67: Executive Spenders: Suburban Couples 26.8 J52: Prudent Professionals: Suburban Singles… 42.0 J53: Suburban Success: Upscale Families 126.8 J54: Suburban Success: Upscale Singles and… 46.8 K55: Living for Today: Couples 13.8 O68: Corner Offices: Executive Urbanites 9.3 O69: Champagne Tastes: Executive Empty K56: Planners and Savers: Suburban Families 55 - 64 55 - 64 46.6 17.6 Nesters K57: Planners and Savers: Suburban Couples 40.3 K58: Planners and Savers: City Couples 24.8 K59: Country Club Climbers: Suburban Empty… 49.1 L60: Comfortable with Credit: Upscale Retirees 5.5 P70: Flush Funds: Wealthy Urban Seniors 0.6 L61: Rewarding Retirement: Affluent Suburbanites 8.7 P71: Diamonds and Pearls: Wealthiest Retirees 2.1 L62: Affluent Elders: Older Upscale Suburbanites 65+ 65+ 3.9 L63: Established Wealth: Suburban Retirees 27.0 #
  • 31. Evaluating marketing strategies The monetary effect of a proposed marketing strategy can be evaluated by altering the parameters in the customer equity model The change can be applied to selected or all clusters. For example:  An acquisition program aims to grow new customers by 5%. Increase the probabilities in the first row of the transition matrix by 5% and re-calculate. This yields the exact increase in customer equity of the program.  An up-sell program aims to get existing customers to use more services, and hence increase their spend by an average of 5%. Increase the appropriate value vector numbers by 5% and re-calculate.  A retention program aims to reduce attrition by 5%. Reduce the probabilities in the last column of the transition matrix by 5% and re-calculate. #
  • 32. Conclusions A segmentation system with a solid economic base provides an excellent framework for incorporating customer demographics and economic capacity Segmentation has many benefits in its own right, principally for identifying which customers are more likely to purchase high-value products Economic Trend identifies customers that are improving their economic position and are thus more likely to be in the market for new products and services Economic Relativity enables the framework to be optimized, which greatly enhances oure ability to identify top performing customers and prospects The Customer Equity model identifies which clusters are truly valuable to the business in the long-term; it also allows us to evaluate marketing strategies before implementation #
  • 33. #Thank You! Mike Jacobs SVP & General Manager Segmentation Solutions Equifax @Equifax

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