Innovative Strategy Approaches
“Strategies, Tactics & Dreams”
Setting the Scene
Create a backdrop against which the credit
industry leaders will be operating during 2015
3
Portfolio Life Cycle
“THROUGH THE DOOR”
[Branches & Sales Channels]
PROSPECTING (ACQUISITION)
[Direct Marketing]
1
NEW BUSINESS
APPLICATION PROCESSING (ORIGINATION)
UP-TO-DATE
[High Utilisation]
F
P
D
[Medium Utilisation]
DELINQUENT
2
[Low Utilisation]
3
[“Transactors”]
INACTIVE
4
EXISTING BUSINESS
[Mildly Delinquent]
[Recently Inactive]
[Highly Delinquent]
[Highly Inactive]
[Severely Delinquent]
[Long Term Inactivity]
WRITTEN-OFF
CLOSED BUSINESS
N
T
U
CLOSED
4
Maturity Life Stages
Return on Capital Employed
• Champion
Strategy
• Base Operations
• Base Reporting
• 1st Gen Strategy
• 2nd Gen Strategy
• Strategy MIS
• Profit Metrics
• Bespoke Models
• Simple Direct
Marketing
• Risk Proxies
• Basic Portfolio
Segmentation
• Generic Risk
• Pooled Data
• Spend
Stimulation
• Cross-Sell
• Customer
Loyalty
• Empirical
Strategy Keys
• Node Level
Analysis
• Profit Driven
Design
• Closer to Ops
• Forecasting
• Attrition Models
• One Rule For All
• Multiple
Complex
Models
• Frequent
Outcome
Review
• Markov Matrices
• Brand Affiliation
• Customer Value
Management
• Product Needs
Year
2-5
Year 1
Basic
Intermediate
• Commodity
Clusters
Year
6-14
Year
4-10
Advanced
Expert
Leader
Life Stage
5
Strategies, Tactics & Dreams
What are the credit industry leaders
considering in terms of longer term strategies,
shorter term tactics & in some cases dreams?
6
1
New Business
“Knowing Your Future Customer”
• Direct marketing strategies are deeply entrenched
– underpinned by affordability regulations through to data privacy
• SA has a rich source of consumer/credit information
– which is often not applied/used optimally
• Response models not producing cost effective results
– generating consumer direct marketing fatigue
• Innovative leaders are understanding future customers
– product needs i.e. which product are they likely to acquire next
– brand affiliation i.e. which brand appeals to them the most
– driving more focussed call centre strategies
7
New Business – contd.
“Knowing Your Future Customer”
2.5 x
better
response
rate!
Do Not Market
Select for Marketing
• Modelling towards a brand results in a lower acquisition
cost as no longer directly linked to the marketing
message, the channel used nor time
8
Up-To-Date Accounts
“Managing Past Credit Decisions”
2
• Leaders perform stringent champion: challenger testing
– crowning the new champion at the end of the test (12 months)
• Longer term effect of new strategy was not understood
– often resulting in poorer credit risk performance
• Leaders are rethinking this approach
– ensuring that these longer term effects are measured over a
longer period (36 months) applying Credit Risk Mandates
• Credit Risk Mandates curb breaching “waterfall” points
– Ensuring longer term profitability improvement of more than 10%
9
3
Delinquency Management
“Optimising Cost of Collections”
• Dire level of consumer indebtedness creating stresses
– collections burden falls back onto the collections dept. (R1.5BN?)
• Proven technologies & strategies no longer working
– bespoke Payment Projection scores, bureau-based collections
scores, multiple champion: challenger strategies, etc. having
limited real, long term effect
• Contact optimisation techniques are being sought
– sophisticated collection of contact information from within the
call centre, dialler, collections notes and alternative source other
than traditional credit bureaux
• Interactive self service Omni-channel technologies
– redirecting the collector costs/process back to the consumer
10
4
Inactive Accounts
“Remembering Your Customer”
• Retaining customers has been always challenging
–
–
–
–
the true nature of their attrition never really understood
is it your product?
Is it that the competitor simply has a better product?
has the customer outgrown your brand?
• Leaders are turning to complex modelling techniques
– commodity clustering analysis (“baskets”)
– ensures an improvement in spend stimulation (particularly in the
retail and FMCG sectors)
• Models are assisting with longer term customer retention
– more importantly understanding customer behaviour
– allowing a more targeted retention approach
11
In Conclusion
“Simple Strategies Often Work Best”
• Consumers product needs, brand affiliation
commodity cluster models are producing results:
&
– Sizeable reduction in direct marketing costs: 25% to 75%
– Satisfying customers needs and spend stimulation: 10%+ lift
• Profit-driven, longer term Credit Risk Mandates tend to
chalk out the credit risk playing field
– has curbed the effects of shorter term challenger ‘wins’
• Optimal use of internal & external contact information
– tends to outperform sophisticated collection strategies
• Redirection of collections (and customer
actions) using self-service omni-channels
services
– is proving to reduce high staffing costs
12