Big Data MeetsCustomer Profitability AnalyticsJaime Fitzgerald, Founder and President,Fitzgerald AnalyticsApril 17, 2012  ...
Table of Contents                         Introduction:                         1. Big Data… Big Results?                 ...
Nice to Meet You!                                                           Data to Dollars™ specialist.                  ...
From to Data to Dollars       It’s a journey…           1                                                                 ...
My Perspective Towards “Big Data”       Skeptical (of the hype)…                                                   ….yet  ...
Big Data Hype – Does is Cause a Problem?              “Data is the New Oil” – World Economic Forum ReportBig Data Meets Cu...
The Potential is Real…It’s Just Not Easy to GetBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Anal...
And Something Old, Essential, & Profitable             “There is only one valid definition of a business purpose:         ...
Table of Contents                         Introduction                         1. Big Data… Big Results?                  ...
Will Big Data Unlock Big Results?           It depends…           ...on the           principles you           work by.   ...
The Word’s Most Successful Data Professionals…                                                                            ...
Beginning with the End in Mind                                                      1. Your Goal                          ...
“A Journey of a Thousand Miles….”                                                                                         ...
Key Steps in the Journey to Results                     1. Data                              2. Analytics                 ...
Data Management: Especially Important in the Big Data EraBig Data Meets Customer Profitability Analytics | Copyright Fitzg...
Table of Contents                         Introduction                         1. Big Data… Big Results?                  ...
Definition      Customer Profitability Analysis is:      1) Measuring the contribution each customer makes to      overall...
History of Customer Profitability Analysis:       1. Around since at least the early 1980s.       2. Banks were early adop...
The Concept Illustrated                      Your P&L                                                      Deconstructed i...
Customer Profitability Metrics Can Seem Simple…                                                                 Revenue   ...
Yet in a complex organization       Example: A “Universal Bank”               Sales & Trading                            I...
And with the Impact of Mergers       Here come the data silos…                                                            ...
Data Management = Precondition of Customer AnalyticsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald...
Customer Profitability Output: Classic 1st Step                           Best Customers                                  ...
What do Customer Profitability Metrics Enable?          A Top 5 List…         1                      Customer Segmentation...
Integration: Connecting The Dots                  A few examples of how inter-related these processes are…                ...
Example: Better Pricing of Risk vs. Reward                                   Using CLV metrics to predict profits over the...
“Lifetime Performance Curves”: Finance + Late Fee Income      The divergence is even more striking when Late Fees are adde...
Challenge: From Descriptive to Prescriptive.       I can’t deposit decile charts in the bank either…     And my analysts c...
Known Pitfall: Not Looking Beyond the Data…       …       …             1995             2012Big Data Meets Customer Profi...
Table of Contents                         Introduction                         1. Big Data… Big Results?                  ...
Defining Big Data: “Three Vs”        "Big Data“ is seen as data with:                       greater volume…               ...
Another Way to Define “Big Data” -       What are the optimal methods to accomplish your goal?          Traditional Method...
Big Data Approaches and Tools Make Data Analysis        Possible, for very large data sets that cannot be handled at all ...
Big Data Allows Us To Work with Large Datasets       We can analyze datasets larger than ever before                      ...
Big Data Allows Us To Get Results Faster       We can get results faster than ever before                                 ...
Table of Contents                         Introduction                         1. Big Data… Big Results?                  ...
Profitability Management Improves through iteration, mainly       because new info and insights are gained…               ...
Impact of Speed…                 Type of data and                                                            Our understan...
…as well as “resolution”                                                                        All his                   ...
So how does Big Data + Related Tools Help With…         1                      Customer Segmentation and Lifetime Value (C...
Q&A       …Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved   42
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Big Data Meets Customer Profitability Analytics

  1. 1. Big Data MeetsCustomer Profitability AnalyticsJaime Fitzgerald, Founder and President,Fitzgerald AnalyticsApril 17, 2012 Architects of Fact-Based Decisions™
  2. 2. Table of Contents Introduction: 1. Big Data… Big Results? 2. Customer Profitability Analysis 3. Implications of Big Data 4. Conclusion and QuestionsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 2
  3. 3. Nice to Meet You! Data to Dollars™ specialist. To do this, created a structured methodology and toolkit to accomplish this. Will share at EDW12! • Key Mission is to Find & unlock opportunities via data, technology, people, + processes. Principles: Jaime Fitzgerald @jfitzgerald “Begin with the End in Mind” (Covey) “Quality is Free” (McGregor)Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 3
  4. 4. From to Data to Dollars It’s a journey… 1 2 Small Data Big Data Product of Alberta 3 Really Big Data Product of everywhereBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 4
  5. 5. My Perspective Towards “Big Data” Skeptical (of the hype)… ….yet Cautiously Optimistic! Big Data Product of AlbertaBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 5
  6. 6. Big Data Hype – Does is Cause a Problem? “Data is the New Oil” – World Economic Forum ReportBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 6
  7. 7. The Potential is Real…It’s Just Not Easy to GetBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 7
  8. 8. And Something Old, Essential, & Profitable “There is only one valid definition of a business purpose: to create a customer.” (The Practice of Management, ‘54).Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 8
  9. 9. Table of Contents Introduction 1. Big Data… Big Results? 2. Customer Profitability Analysis 3. Implications of Big Data 4. Conclusion and QuestionsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 9
  10. 10. Will Big Data Unlock Big Results? It depends… ...on the principles you work by. Stephen CoveyBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 10
  11. 11. The Word’s Most Successful Data Professionals… #B W T E I M! What is Covey was a data professional today? Stephen CoveyBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 11
  12. 12. Beginning with the End in Mind 1. Your Goal 2. Insight You Need 3. Analytic Methods 4. Data You Need 5. Tools, Platforms, Technology, People, and ProcessesBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 12
  13. 13. “A Journey of a Thousand Miles….” 2 1 Fitzgerald Analytics: Converting Data to Dollars™ Better Data Better Analysis Better Results 3 Worth The Trip!Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 13
  14. 14. Key Steps in the Journey to Results 1. Data 2. Analytics 3. Results  Data Governance  Better Decisions Analysis Insight  Data Management  Better Processes  Data Quality  More Customers  New Data Source  Happier Customers AcquisitionBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 14
  15. 15. Data Management: Especially Important in the Big Data EraBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 15
  16. 16. Table of Contents Introduction 1. Big Data… Big Results? 2. Customer Profitability Analysis 3. Implications of Big Data 4. Conclusion and QuestionsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 16
  17. 17. Definition Customer Profitability Analysis is: 1) Measuring the contribution each customer makes to overall profits, and to the key drivers of those profits. In other words, a “customer-level version” of your corporations P&L statement. 2) Analysis that USES these customer-level metrics to improve results (there are a large number of applications)Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 17
  18. 18. History of Customer Profitability Analysis: 1. Around since at least the early 1980s. 2. Banks were early adopters 3. Massive results unlocked over the years 4. Some notable mishaps along the way… 5. Still considered “obscure” by many…Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 18
  19. 19. The Concept Illustrated Your P&L Deconstructed into a P&L Statement for each of your customersBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 19
  20. 20. Customer Profitability Metrics Can Seem Simple… Revenue Direct Profit Expense Expenses + Allocated ExpensesBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 20
  21. 21. Yet in a complex organization Example: A “Universal Bank” Sales & Trading Investment Banking Transaction Banking  Equities  Capital Markets (IPO)  Cash Management  Stocks  Mergers & Acquisitions  Trade Finance  Derivatives  Project Financing  Corporate Trust  Program Trading  Structured Financing  Custody  Fixed Income  Corporate Bonds  Municipal Bonds  Derivatives  Interest Rate  Credit Asset Management Private Wealth Mgmt  Commodities  Mutual Funds  Wealth Management  Futures  Separately Managed Consulting  Forwards  Trust Services  Foreign ExchangeBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 21
  22. 22. And with the Impact of Mergers Here come the data silos… Equity Single Product Area Trading By Region Americas Europe Asia By Company Bank 1 Bank 2 Bank 1 Bank 2 Bank 1 Bank 2 • One product, if booked into regional systems and sold by both companies, in a merger can feed from 6 separate systems. • At the very least, numbering schemes from the two companies will be different. • At worst, every system will have a unique number or name for a single client.Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 22
  23. 23. Data Management = Precondition of Customer AnalyticsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 23
  24. 24. Customer Profitability Output: Classic 1st Step Best Customers Losing Money Profit per Customer Mid-Value Loss per Customer Top 2nd 3rd 4th 5th 6th 7th 8th 9th Bottom Average (Most (Least Profitable Profitable 10%) 10%) Profitability Deciles (each bar = 10% of customers, ranked by profitability)Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 24
  25. 25. What do Customer Profitability Metrics Enable? A Top 5 List… 1 Customer Segmentation and Lifetime Value (CLV) 2 Customer Retention 3 Cross-sell, Up-sell 4 Marketing Optimization & ROI 5 New Financial Product Design & InnovationBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 25
  26. 26. Integration: Connecting The Dots A few examples of how inter-related these processes are… 1 Customer Lifetime Value + Segmentation New Information and Insights 2 3 Cross-Sales / Customer Retention Up-Sales 4 Marketing ROI 5 New Product DesignBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 26
  27. 27. Example: Better Pricing of Risk vs. Reward Using CLV metrics to predict profits over the customer lifetime, lenders make better decisions about lending to “riskier” customers $0.10 Lifetime Profit per Dollar of Sales The Riskier Half of The Card Company Customers Generate 6 to 9 Cents per Dollar of Sales…. $0.08 $0.06 …while the “Safer Half” of The Card Company Customers Produce only 1 to 3 Cents per Dollar of Sales…. $0.04 $0.02 $- 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile More Risk Credit Score Band Less RiskBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 27 27
  28. 28. “Lifetime Performance Curves”: Finance + Late Fee Income The divergence is even more striking when Late Fees are added to Finance Income. Performance Curves by Credit Quartile: Income from Finance and Late Fees $175.00 Quartile1 1st Quartile $150.00 Quartile2 Accounts generate more Finance Fees + Late Fees Quartile3 $125.00 than 6 times as Quartile4 $100.00 much revenue from these $75.00 sources as accounts from $50.00 the 4th $25.00 Quartile…. $0.00 1 4 7 10 13 16 19 22 25 28 31 Months after 1st PurchaseBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 28 28
  29. 29. Challenge: From Descriptive to Prescriptive. I can’t deposit decile charts in the bank either… And my analysts can only think up so many customer segments, A|B Tests, Etc….Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 29
  30. 30. Known Pitfall: Not Looking Beyond the Data… … … 1995 2012Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 30
  31. 31. Table of Contents Introduction 1. Big Data… Big Results? 2. Customer Profitability Analysis 3. Implications of Big Data 4. Conclusion and QuestionsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 31
  32. 32. Defining Big Data: “Three Vs” "Big Data“ is seen as data with: greater volume… greater variety… and/or greater velocity….Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 32
  33. 33. Another Way to Define “Big Data” - What are the optimal methods to accomplish your goal? Traditional Methods? Big-Data Methods? or • Centralized data storage • Distributed data storage • Centralized processing/analysis • Distributed processing/analysis • Relational databases (tables) • Non-relational databases • SQL queries to access data • Map-reduce (et al) to access data • Standardized basic analytics • Customized basic analytics • Typical tools: • Typical tools: • MS SQL Server • Hadoop • Oracle • BigTable • Tableau • Riak • Excel pivot tables • Amazon S3Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 33
  34. 34. Big Data Approaches and Tools Make Data Analysis  Possible, for very large data sets that cannot be handled at all with typical relational databases.  Faster, for large data sets that can be handled with typical relational databases, but doing so would take a long time. This is the situation in the example above.  Cheaper, for large data sets that can be handled with typical relational databases, but doing so would be very expensive.Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 34
  35. 35. Big Data Allows Us To Work with Large Datasets We can analyze datasets larger than ever before For a given desired speed of analysis… Beyond a certain point, conventional methods just aren’t feasible – Google couldn’t run on a relational DB IT Costs For larger datasets, big-data methods make more sense Dataset size For smaller datasets, conventional methods are more cost-effective Traditional Big-data methods methodsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 35
  36. 36. Big Data Allows Us To Get Results Faster We can get results faster than ever before For a given dataset size… IT Costs SLOW FAST Analysis speed Conventional Big-data methods methodsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 36
  37. 37. Table of Contents Introduction 1. Big Data… Big Results? 2. Customer Profitability Analysis 3. Implications of Big Data 4. Conclusion and QuestionsBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 37
  38. 38. Profitability Management Improves through iteration, mainly because new info and insights are gained… Build/Maintain Customer Take Smarter Actions w/ Customers Profitability Models:  Target: Who? • Create consistent message  • Message or action: What? Target action to individuals  Identify costs & revenues • Optimize product / service  Build profiles Data  Offering: Product design portfolio Warehouse  Service: How delivered?  Integrate data from “new” sources (how experienced by customer?) External New Customer Knowledge Data  Results of our actions Sources  Assess accuracy of our predictive models  Refine segmentation schema  Define new goals, questions, data “wish lists” (big data? Or small…)Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 38
  39. 39. Impact of Speed… Type of data and Our understanding technology tools: Of customers: Daily / weekly / Small Data monthly (+ related tech) Big Data Instantly (+ related techBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 39
  40. 40. …as well as “resolution” All his His son’s friends have favorite Chase color is blue Instantly Father just started at Big Data Instantly Bank of America (+ related tech Instantly Instantly Helping us Take Smarter Actions w/ Customers  Target: Is he one?  Message or action: What?  Offering: Product design  Service: How delivered? (how experienced by customer?)Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 40
  41. 41. So how does Big Data + Related Tools Help With… 1 Customer Segmentation and Lifetime Value (CLV) 2 Customer Retention 3 Cross-sell, Up-sell 4 Marketing Optimization & ROI 5 New Financial Product Design & InnovationBig Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 41
  42. 42. Q&A …Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 42
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