Vision 2014: Profitability-driven Customer Rretention

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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, …

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.

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  • 1. ©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Profitability-driven customer retention Uzma Aziz Experian Kevin Poe Experian #vision2014
  • 2. 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
  • 3. 3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 4. 4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 5. 5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 6. 6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Consumer credit and originations $- $20 $40 $60 $80 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 Billions($) 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
  • 7. 7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 8. 8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 9. 9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 10. 10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What is attrition? 1 Closing an account 2 Taking balance / spend elsewhere
  • 11. 11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What is retention? 1 Keeping a consumer from taking their business away 2 Growing wallet share maximizing lifetime value
  • 12. 12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 13. 13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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 ComplexSimple
  • 14. 14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 15. 15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 16. 16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retention study Using the power of data to segment and predict
  • 17. 17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 18. 18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 19. 19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 20. 20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Segmentation 66%9% 25% Loyals Active attriters Silent attriters
  • 21. 21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Segments profiles 722 735 763 Loyals Active attriters Silent attriters Average VantageScore® $18,193 $23,530 $18,964 Loyals Active attriters Silent attriters Average annual spend $102,311 $109,007 $108,910 Loyals Active Attriters Silent Attriters Average income Silents Actives Loyals
  • 22. 22©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Segments profiles 18% Actives 10% Loyals $390 $1,290 $1,403 Silent attriters Loyals Active attriters Average balance on new card 7% Silents
  • 23. 23©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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 IntheMarketModelSM Total annual plastic spend Active attriters Loyals Silent attriters (Size of bubble denotes open rate)
  • 24. 24©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 25. 25©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Can we separate the active attriter from general population? High rate of active attritionLow 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
  • 26. 26©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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)
  • 27. 27©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Open rates 21% Base population 4% Low attriters 40% High attriters 1.66% (81% decrease) 8.63% 47.24% (447% increase)
  • 28. 28©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 29. 29©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 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
  • 30. 30©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 31. 31©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 32. 32©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 33. 33©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  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
  • 34. 34©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Closing summary Data Value Cost
  • 35. 35©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. For additional information, please contact: Uzma.Aziz@experian.com Kevin.Poe@experian.com Hear the latest from Vision 2014 in the Daily Roundup: www.experian.com/vision/blog @ExperianVision | #vision2014 Follow us on Twitter
  • 36. 36©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Visit the Experian Expert Bar to learn more about the topics and products covered in this presentation.