Using incremental marketing techniques can maximize customer loyalty while minimizing costs. A typical customer lifecycle involves acquiring new customers and then building, saving, cross-selling and up-selling existing customers to prevent churn. Sophisticated retention strategies involve micro-segmenting customers based on their value and propensity to churn, and targeting the most valuable at-risk customers. Measurement of retention campaign effectiveness requires comparing response rates to a control group. Retention efforts can backfire and actually increase churn if not carefully targeted to the right customer segments.

1. Using incremental marketing
techniques to maximise
loyalty with minimum cost
N Skilling, P
eil ortraitSoftware
Neil.Skilling@portraitsoftware.com
Loyalty World 15th November 2010

2. A Typical Customer Lifecycle
New
Win-
Build
Back
Cross
Save & Up-
Sell
Anti-
Churn
page 2

3. Typical Retention Strategies
● Pre-Emptive
● Build customer value into the relationship
● Ensure full-value understood, used and appreciated by
customers
● Improve customer experience
● Proactive
● Target customers at risk
● Target valuable customers at risk
● Reactive
● Product mismatch
● Save team and offer limits
● Win-back
page 3

4. Increasing Sophistication in Proactive Retention
Sophistication
Target on
Significant
Event value at risk
Target on
Land Grab attrition risk
Attrition Probability × Value
Untargeted
retention
Attrition
Probability MAINSTREAM
Acquisition
CURRENT
LAGGARDS
PRACTICE
Time
Page 4

5. Value at Risk – Micro-Segmentation = high investments
= medium investments
Customer Profitability Segments = low / no investments
Top5 Next 10 Next 20 Mid 30 Low40
High 1
High 2
Propensity to leave
High 3
Medium 1
Medium 2
Medium 3
Medium 4
Low 1
Low 2
Low 3
Page 5

6. Value = £200
Measurement of Effectiveness Contact Cost = £0.50
Incentive = £100
Number of Save Value of
Segment Saves Total Profit
Customers Rate % Response
Treated 100,000 75,000 75% £ 15,000,000 £ 7,450,000
Control 100,000 70,000 70% £ 14,000,000 £ 13,880,000
Uplift 5,000 5% £ 1,000,000 -£ 6,430,000
• Uplift = Treated “Response” – Control “Response”
• Uplift can only be measured against a control group or background
response rate
• Campaign profitability is measured from Uplift only not total
responses
• Where did the Uplift come from?
• Can we target on Uplift only?
Page 6

7. McCoy’s Revelation
“It’s worse than that —
he’s dead, Jim”
– Dr Leonard H. McCoy
page 7

8. Fundamental Segmentation for Retention
SLEEPING DOGS LOST CAUSES
Yes
CHURN IF
TREATED
SURE THINGS PERSUADABLES
No
No Yes
CHURN IF NOT TREATED
8 Page 8

9. When are negative effects likely?
attrition risk
dissatisfied / angry customers
risqué / offensive
communications
intrusive contact mechanisms
forgotten standing charges
9

10. Increasing Sophistication in Retention
Target on
savable
Sophistication
value
Target on
Significant
Event value at risk
Target on Save Prob × Value
Land Grab attrition risk
Attrition Probability × Value
Untargeted
retention
Attrition
Probability MAINSTREAM
Acquisition STATE-OF-THE-ART
CURRENT
LAGGARDS
PRACTICE
Time
Page 10

11. When Things go Well – Mobile Phone Contract Renewal
SLEEPING DOGS
Yes
LOST CAUSES
CHURN IF
TREATED
SURE THINGS PERSUADABLES
No
No Yes
CHURN IF NOT TREATED
Page 11

12. When Things go Wrong – Mobile Telco
Number of Save Value of
Segment Saves Total Profit
Customers Rate % Response
Treated 100,000 90,000 90% £ 18,000,000 £ 8,950,000
Control 100,000 91,000 91% £ 18,200,000 £ 18,059,000
Uplift - 1,000 -1% -£ 200,000 -£ 9,109,000
Value = £200
Contact Cost = £0.50
Incentive = £100
Page 12

13. Avoiding Churn Stimulation – Credit Card Re-Pricing
Number of Improved Improvement Value of
Segment Total Profit
Customers Performance Rate % Response
Treated 100,000 49,520 49.5% £ 2,476,000 £ 2,426,000
Control 100,000 43,470 43.5% £ 2,173,500 £ 2,173,500
Uplift 6,050 6.1% £ 302,500 £ 252,500
Value = £50
Contact Cost = £0.50
Incentive = £0
SLEEPING DOGS LOST CAUSES
• Customer Management
often involves difficult
PERSUADABLES
conversations
• Knowing for whom this will
SURE THINGS have a wholly beneficial
effect is a big win.
page 13

14. Customer Case Studies
Business Goals Use Customer Insight as never used before: Leverage Data and
Analytical Excellence to increase customer retention and profitability
ROI Key breakthroughs with Portrait Analytics and Uplift Optimizer
at Lloyds TSB Insurance
• Added over £10 million incremental profit per year in the last two years
• Increased the retention rate by 4.09%,
300% times better ROI Initiative ROI
• Increased the marketing response rate by 35% (£/per year)
Customer retention 8,000,000
Strong Positive Effect Marginal Effect Negative Effect
6% 250 k
Customer Cross-sell Cost Savings 400,000
5%
186 k 184 k
189 k 193 k
200 k Customer Loyalty Cost Savings 1,100,00
164 k
4% 156 k
150 k
Customer Acquisition Growth 600,000
3% 110 k 108 k
Customer Acquisition Cost Reduction 600,000
100 k
2% 66 k
47 k
Online acquisition cost avoidance 100,000
50 k
1%
Uplift Profit Total ROI 10,800,000
0k
0% 0k
0% 20% 40% 60% 80% 100%
page 14

15. Customer Case Studies
Deliver next generation targeting for customer retention (churn) campaigns
Business Goals
Removing negative effects thus decreasing both churn and campaign costs
Campaign ROI increased over 11 times previous campaigns
ROI
Churn rate decreases by an additional 36% over traditional approach
• Traditional targeting reduced churn by 5% (from 23% to 18%)
• But significant negative effects observed
• Uplift model reduced these significantly Results
Without Uplift improved
Reduction in
• Saving 40% of treatment costs Overall Churn
36%
• Further reducing churn to 6.8% With Uplift
Introduction of 5% 6.8%
first prediction Introduction of
model refined prediction
25 % model
23 %
20 %
19 % 19 % 20 % Without Uplift
18 % 18 %
17 %
16 % Treated
15 %
annual defection rate
15 % 15 %
14 % 14 %
14 % 13 %
14 %
13 %
Volume Treated volume
12 % 11 %
13 %
11 %
12 %
11 %
With Uplift reduced by 40%
11 % 11 %
10 % 10 %
9%
10 %
9% 9%
8%
5% 60% 100%
0%
months
page 15

16. Lessons
● Embed value within the relationship and
avoid proactive retention
● Measure, Measure, Measure the
incremental effect and look for negative
effects
● Model on saveability not churn or attrition
likelihood
● Avoid the sleeping dogs, the lost causes
and the sure things
page 16

17. Europe (Headquarters)
The Smith Centre, The Fairmile
Henley-on-Thames, Oxfordshire,
RG9 6AB, United Kingdom
T: +44 (0)1491 416600
F: +44 (0)1491 416601
Americas
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16th Floor
Boston MA 02110, USA
T: +1 617 4575200
F: +1 617 4575299
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15-17 Young Street
Sydney NSW 2000
Australia
T: +61 2 9276 2728
F: +61 2 9276 2799
Scandinavia
Maridalsveien 87, Bygg 1
0461 Oslo
Norway
T: +47 22 38 91 00
F: +47 23 40 94 99
Edinburgh
39 Melville Street
Edinburgh
EH3 7JF, United Kingdom
T: +44 (0) 131 220 4491
F: +44 (0) 131 220 4492