Using incremental marketing

techniques to maximise

loyalty with minimum cost

Neil Skilling, Portrait SoftwareNeil.Skilling@portraitsoftware.com

Loyalty World 15th November 2010

A Typical Customer Lifecycle

New

BuildWin-Back

page 2

Cross & Up-

SellAnti-

Churn

Save

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 customers at risk

●Target valuable customers at risk

●Reactive

●Product mismatch

●Save team and offer limits

●Win-back

page 3

Sophis

tication

Land Grab

Target on

value at risk

Target on

attrition risk

Significant Event

Increasing Sophistication in Proactive Retention

Time

Land Grab

Attrition Probability × Value

MAINSTREAM

CURRENT

PRACTICE

Attrition Probability

LAGGARDS

attrition risk

Untargeted

retention

Acquisition

Page 4

Value at Risk – Micro-Segmentation

Top5 Next 10 Next 20 Mid 30 Low40

High 1

High 2

High 3

Medium 1

Pro

pe

nsi

ty t

o l

ea

ve

Customer Profitability Segments= low / no investments

= medium investments

= high investments

Page 5

Medium 2

Medium 3

Medium 4

Low 1

Low 2

Low 3

Pro

pe

nsi

ty t

o l

ea

ve

SegmentNumber of

CustomersSaves

Save

Rate %

Value of

ResponseTotal Profit

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-£

Measurement of Effectiveness

• Uplift = Treated “Response” – Control “Response”

Value = £200

Contact Cost = £0.50

Incentive = £100

• 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

McCoy’s Revelation

“It’s worse than that —

he’s dead, Jim”

– Dr Leonard H. McCoy

page 7

Yes

Fundamental Segmentation for Retention

SLEEPING DOGS

���

LOST CAUSES

�

CHURN IF

TREATED

Page 88

No Yes

No

PERSUADABLES

�

TREATED

CHURN IF NOT TREATED

SURE THINGS

��

When are negative effects likely?

dissatisfied / angry customers

risqué / offensive

communications

attrition risk

9

communications

intrusive contact mechanisms

forgotten standing charges

Sophis

tication

Land Grab

Target on

value at risk

Target on

attrition risk

Significant Event

Increasing Sophistication in Retention

Save Prob × Value

Target on

savable

value

Time

Land Grab

Attrition Probability × Value

MAINSTREAM

CURRENT

PRACTICE

Attrition Probability

LAGGARDS

attrition risk

Untargeted

retention

Acquisition

Page 10

STATE-OF-THE-ART

When Things go Well – Mobile Phone Contract Renewal

Yes

SLEEPING DOGS

LOST CAUSESCHURN IF

TREATED

Page 11

No Yes

No

PERSUADABLES

�

TREATED

CHURN IF NOT TREATED

SURE THINGS

When Things go Wrong – Mobile Telco

SegmentNumber of

CustomersSaves

Save

Rate %

Value of

ResponseTotal Profit

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-£

Page 12

Value = £200

Contact Cost = £0.50

Incentive = £100

Avoiding Churn Stimulation – Credit Card Re-Pricing

Value = £50

Contact Cost = £0.50

SegmentNumber of

Customers

Improved

Performance

Improvement

Rate %

Value of

ResponseTotal Profit

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£

page 13

Contact Cost = £0.50

Incentive = £0

PERSUADABLES

�

SLEEPING DOGS LOST CAUSES

SURE THINGS

• Customer Management

often involves difficult

conversations

• Knowing for whom this will

have a wholly beneficial

effect is a big win.

Customer Case Studies

Initiative ROI

Use Customer Insight as never used before: Leverage Data and Analytical Excellence to increase customer retention and profitability

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

Business Goals

ROI

Initiative ROI

(£/per year)

Customer retention 8,000,000

Customer Cross-sell Cost Savings 400,000

Customer Loyalty Cost Savings 1,100,00

Customer Acquisition Growth 600,000

Customer Acquisition Cost Reduction 600,000

Online acquisition cost avoidance 100,000

Total ROI 10,800,000

300% times better ROI

• Increased the marketing response rate by 35%

47 k

108 k

164 k

193 k189 k184 k186 k

156 k

110 k

66 k

0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k

0%

1%

2%

3%

4%

5%

6%

0% 20% 40% 60% 80% 100%

0 k

50 k

100 k

150 k

200 k

250 k

Uplift Profit

Strong Positive Effect Marginal Effect Negative Effect

47 k

108 k

164 k

193 k189 k184 k186 k

156 k

110 k

66 k

0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k0 k

0%

1%

2%

3%

4%

5%

6%

0% 20% 40% 60% 80% 100%

0 k

50 k

100 k

150 k

200 k

250 k

Uplift Profit

Strong Positive Effect Marginal Effect Negative Effect

page 14

Customer Case Studies

Deliver next generation targeting for customer retention (churn) campaigns

Removing negative effects thus decreasing both churn and campaign costs

Campaign ROI increased over 11 times previous campaigns

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

Business Goals

ROI

Results • Uplift model reduced these significantly

• Saving 40% of treatment costs

• Further reducing churn to 6.8%

Without Uplift

With Uplift

Treated

Volume

100%

Treated volume reduced by 40%

60%

Reduction in

Overall Churn

Without Uplift

With Uplift

5% 6.8%

Results improved

36%

19 %

15 %14 %

12 %

14 % 13 %

15 %14 %

10 %11 %

9 %8 %

11 %10 %

9 %

23 %

19 %

17 %

14 %

18 %

16 %

20 %18 %

11 %

13 %

11 %

9 %

13 %12 %

11 %

0 %

5 %

10 %

15 %

20 %

25 %

Introduction of

first prediction

model

Introduction of

refined prediction

model

months

an

nu

al d

efe

ctio

n r

ate

page 15

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 ●Model on saveability not churn or attrition

likelihood

●Avoid the sleeping dogs, the lost causes

and the sure things

page 16

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