Rising acquisition costs and slower growth rates in highly competitive and mature markets have forced companies to take a hard look at increasing customer retention as an opportunity to improve business profits. Lost customers adversely impact the business both directly, through lost revenues and reduced lifetime, as well as indirectly, through poor word-of-mouth.
While losing profitable customers is a problem, retaining unprofitable customers can also be an area of serious concern – 30+ percent of credit card accounts maintained by top issuers are inactive, resulting in servicing costs balanced by little or no revenue . Inductis has worked with many companies to understand high-value customers who are likely to attrite, and proactively take steps to reduce this risk.
Case Study 1:Healthcare Insurance
Inductis was asked by a large healthcare insurance major to identify drivers of attrition and recommend action plans by target “at risk” customer segments. The client was facing attrition rates of 15-20%, most of which was driven by large employers electing not to renew their annual contracts.
Inductis created a data asset leveraging both internal and external (D&B, Claritas) data on the insurer’s customers (more than 5 MM subscribers). It created linkages between different databases in the firm, including data on employers, employees and brokers. It then built models to predict which customers were most likely to not renew their contracts 6 months hence. This was overlaid with customer profitability to determine the “undesirable” customers, whose attrition would actually be profitable for the client. A list of the profitable customers at high risk of attrition was shared with the sales force, which then took proactive steps towards customer retention even prior to contract renegotiation, in order to minimize the likelihood of attrition
Different models were built for different customer segments, and “productionalized”, whereby a list of customers at high risk of attrition was generated every month and shared with the sales force. The total opportunity was reduction in attrition by 20%, which would have an annual impact of $25+ MM.
Case Study 2: Credit Cards
Inductis helped a top credit card issuer develop a strategy for customer retention, by identifying “at-risk” segments and developing marketing tests. The issuer was facing attrition rates of 10% (including spend and balance attrition), which were well above the industry average.
Inductis built statistical models to predict accounts at high risk of attrition, using predictors such as historical usage (e.g. utilization in the last 3 months prior to attrition) and credit bureau variables (e.g. number of revolving tradelines). In order to take action on these models, it then determined the target population for reducing attrition. In partnership with a marketing consulting firm, it used analytical methodologies to segment customers based on transactional and psychographic behavior, using industry spend data and psychographic data from Claritas. Marketing offers to promote customer retention were created. Several offers were tested for each segment, and the most impactful offers were identified. These offer responses were then used to define the overall offer and message to each segment to maximize effectiveness. |
