Account and Customer Level Pricing
Great strides have been made by “best practice” financial services companies to price customers based on their projected profitability. Unfortunately, most companies have missed out on the potential for added profits from these steps. Some companies have adopted penalty and risk-based pricing. However, in many cases pricing decisions are made at only one point in the customer relationship and do not remain current with changing customer profiles. Even more important, neither customer behavior (e.g., low volume credit card transactors who are not profitable) nor customer potential are taken into account in setting individual customer pricing. Companies are forgoing significant profit opportunities from pricing customers in-appropriately. We can help develop effective pricing strategies to help you maximize long-term profitability.
Account and Customer Potential
Going forward determining Account and Customer Potential will permit advanced institutions to penetrate and realize the most value from their best customers. This represents a complex area cutting across segment, channel, product, price and the sequencing of marketing offers. We rigorously tackle this challenge by designing an iterative series of analyses and tests to address each critical area. We then work with you to build custom calculations and a framework to continue testing and maintenance.
Account Management Strategies
Account Management Strategies are another area that can significantly impact profitability. Marketing promotions, credit line management, authorizations and reissue practices have revenue, retention and credit risk implications. Often the strategies have remained unchanged for years. Strategies applied across portfolios are sub-optimal. Our approach focuses on who receives each offer, what offer they get and when they get it. The emphasis largely is on segmentation of the portfolio to determine the highest value offer. The first step is to review historical account management programs to assess where and why they have been effective. This includes understanding the relative effectiveness of these programs over time. Program performance can deteriorate over time due largely to the fact that the programs have been targeted to the same audience over and over. We help implement proper metrics to ensure that programs are creating value. We then help design and deliver new programs or targeting approaches to improve long-term performance.
Collections Effectiveness
Collections is the last stop for risky accounts. While they cannot prevent all losses, Collections can impact overall losses by using creative, effective approaches. Applying appropriate techniques to different groups of accounts segmented based on factors such as bankruptcy risk, past payment history, depth of customer relationship, and balance can dramatically reduce delinquent balances and losses. We would work with you to understand what approaches have worked in the past with different groups of accounts. This would serve as a starting point to develop new strategies to improve overall Collections effectiveness and reduce credit losses.
Credit Policy Development and Testing
A crucial element to short and long-term profitability is the credit quality of accounts. Credit Policy Development and Testing is a strength built on years of experience. Our approach matches the business model with an appropriate risk profile. We help your staff understand trade-offs and interactions both at the point of acquisition and in account and customer performance over time. For most institutions, improving credit quality in the context of your business models will have a tremendous impact on long-term value. Projects can be focused on specific areas or be wide ranging. You will gain greater confidence in your credit policies and the plan to improve them. As part of these projects, we review metrics used to monitor portfolio performance to ensure you have the timely information you need.
Customer Attrition and Retention
Attrition and Customer Retention can make or break a P&L, especially for credit card issuers. While research has shown that even marginal improvements in customer retention have an enormous impact on profitability, many institutions have not focused significant resources on addressing this issue. An organization can compound the profit impact if it is able to improve retention of its highest value customers. Often a first step is updating what metrics are used to track attrition. This improves the understanding of where and when attrition occurs. We then quantify the cost of attrition and develop action plans to tackle the issue. This approach creates real value to your business.
Customer Segmentation and Strategy Development
Customer Segmentation and Strategy Development focus on the source of revenues and growth. Profitability differs dramatically by customer within a business. Many companies do not have the tools to measure accurately the current profit of individual customers. Fewer still understand the profit potential inherent in their customer base and how to realize it. Working with your staff, we develop a deep understanding of the most profitable customers. Similarly, the least profitable customers are identified. Quantifying segment value clarifies decision making around each customer segment. Strategies for dealing with all customers and high value prospects are created to grow the business and its profitability. These strategies include acquisitions and account management and range from "retain and grow" to "maintain" and "divest" actions.
Retaining Best Customers
Are you losing your most valuable customers? Managing attrition begins with understanding attrition. MIS is critical including information on silent attrition and the loss of profitability from attriting accounts. Once you understand which customers you are losing you can begin to develop strategies to retain or recapture lost profitability, something very different from simply retaining or recapturing accounts. We can help you develop proactive programs to prevent profit attrition.
Database Design
Knowledge is resident in an organization's staff and databases. Proper Database Design and Management ensures the knowledge contained in data can be harvested effectively and efficiently. While there are many technical issues to address, it is critical that business needs are made explicit, ascribed a value and prioritized. It also is imperative to track the flow of information through a company to determine what data sources exist and their quality.
Too often database or data warehouse projects are attempts to satisfy all constituencies. They lose focus on how the data warehouse will create value for the company. Our approach is geared to match investments with the value they create. We ensure the value from the data warehouse is proven at every step, building confidence and learning with the on-going development.
We also encourage a "split design" approach in which the core data warehouse supports the analytic and decision-making needs of the company while a small sample of customers have additional data captured for R&D purposes. The R&D data warehouse provides the basis for new insights to enhance decision making and deliver greater value. The combination of these two data warehouses maximizes learning and the value of the investment in a rapidly changing environment.
