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CONSUMER FINANCE Retention in Consumer Finance How we keep our profitable customers engaged 7 & 8 October 2008 - Budapest Ruben Sinnecker Customer base manager

EFMA Conference Budapest

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Page 1: EFMA Conference Budapest

CONSUMER FINANCE

Retention in Consumer FinanceHow we keep our profitable customers engaged

7 & 8 October 2008 - BudapestRuben SinneckerCustomer base manager

Page 2: EFMA Conference Budapest

CONSUMER FINANCE 2

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 3: EFMA Conference Budapest

CONSUMER FINANCE 3

Mature consumer finance market in The Netherlands

Consumer Finance market in the Netherlands

20.000

21.000

22.000

23.000

24.000

25.000

26.000

27.000

Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08

Mark

et

vo

lum

e (

mln

)Stable market

Many competitors

Page 4: EFMA Conference Budapest

CONSUMER FINANCE 4

Retaining profitable customers is essential

Huge customer base

Fair market share

1,5 mln customers in database

All customer segments and consumer

finance products represented

Market share ABN Amro Consumer Finance

86%

14%

Page 5: EFMA Conference Budapest

CONSUMER FINANCE 5

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 6: EFMA Conference Budapest

CONSUMER FINANCE 6

Successful retention strategy in place

Attrition development (balances)

01-2005

03-2005

05-2005

07-2005

09-2005

11-2005

01-2006

03-2006

05-2006

07-2006

09-2006

11-2006

01-2007

03-2007

05-2007

07-2007

09-2007

11-2007

01-2008

03-2008

Average contract duration (years)

0,0

0,5

1,0

1,5

2,0

2,5

3,0

01-2005

03-2005

05-2005

07-2005

09-2005

11-2005

01-2006

03-2006

05-2006

07-2006

09-2006

11-2006

01-2007

03-2007

05-2007

07-2007

09-2007

11-2007

01-2008

03-2008

Attrition development (contracts)

01-2005

03-2005

05-2005

07-2005

09-2005

11-2005

01-2006

03-2006

05-2006

07-2006

09-2006

11-2006

01-2007

03-2007

05-2007

07-2007

09-2007

11-2007

01-2008

03-2008

Page 7: EFMA Conference Budapest

CONSUMER FINANCE 7

Effective retention strategy requires full life cycle approach

Retention strategy

Acquisition of profitable customers

Managing cancelations

Customer winback

Increase loyalty of profitable customers

Proactive retention propositions

Management of cancelations, winback strategies and retention model propositions not sufficient!

Page 8: EFMA Conference Budapest

CONSUMER FINANCE 8

Retention is about building loyalty with profitable customers

Retention strategy

Acquisition of profitable customers

Managing cancelations

Customer winback

Increase loyalty of profitable customers

Proactive retention propositions

Page 9: EFMA Conference Budapest

CONSUMER FINANCE 9

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 10: EFMA Conference Budapest

CONSUMER FINANCE 10

We have customer life cycle program as basis for retention strategy

> 700.000 customer contacts a year

> 37.000 conversions a year

> 1,5 mln revenues

10% of cross sell

30% of deep sell

Page 11: EFMA Conference Budapest

CONSUMER FINANCE 11

We base customer needs on customer life cycle phases

Time

activation

developmentutilization

retention

Value

acquisition

Segmentationbased on

product usage

Each lifecycle phase has

specific needs

Closure

Better offer

Down-payment

Control

Transparency

Line that fits

needs

Coaching

Confirmation

Suggestions for

effective usage

Customer

needs

Objec-tives

Defini-tions

Maintain

customer

Re-activate or

close contract

Utilization < 20%

or high attrition

risk

Increase usage

of line

Maintain loyalty

Provide suitable

line

Build loyalty

Establish

relationship

Activate usage

Utilization > 20%

and 60% or limit

> 25.000

Utilization >60%

and limit < 25.000

Latest contract

of customer < 6

months

Advice on

suitable

lending product

Offer loan that

fits best to

customer

needs

No loan with

ABN Amro

Closure

Better offer

Down-payment

Control

Transparency

Line that fits

needs

Coaching

Confirmation

Suggestions for

effective usage

Customer

needs

Objec-tives

Defini-tions

Maintain

customer

Re-activate or

close contract

Utilization < 20%

or high attrition

risk

Increase usage

of line

Maintain loyalty

Provide suitable

line

Build loyalty

Establish

relationship

Activate usage

Utilization > 20%

and 60% or limit

> 25.000

Utilization >60%

and limit < 25.000

Latest contract

of customer < 6

months

Advice on

suitable

lending product

Offer loan that

fits best to

customer

needs

No loan with

ABN Amro

Closure

Better offer

Down-payment

Control

Transparency

Line that fits

needs

Coaching

Confirmation

Suggestions for

effective usage

Customer

needs

Objec-tives

Defini-tions

Maintain

customer

Re-activate or

close contract

Utilization < 20%

or high attrition

risk

Increase usage

of line

Maintain loyalty

Provide suitable

line

Build loyalty

Establish

relationship

Activate usage

Utilization > 20%

and 60% or limit

> 25.000

Utilization >60%

and limit < 25.000

Latest contract

of customer < 6

months

Advice on

suitable

lending product

Offer loan that

fits best to

customer

needs

No loan with

ABN Amro

Page 12: EFMA Conference Budapest

CONSUMER FINANCE 12

We have automated tailor made offers via multiple channels

Time

activation

developmentutilization

retention

Value

acquisition

Direct mail InsertsCall centerLeads

bankshopsInternet Banking

Distribution channels

Automatically generated propositions

Segmentation

ClosureBetter offer

Down-paymentControl

Transparency

Line that fits needs

Coaching

ConfirmationSuggestions for effective usage

Maintain customer

Re-

Utilization< 20% orhigh attrition

risk

Increase usage of line

Maintain loyalty

Provide suitable line

Build loyalty

Establish relationship

Activate usage

Utilization> 20% and 60% orlimit

> 25.000

Utilization >60% and limit < 25.000

Latest contract of customer < 6

months

Advice on suitable

lending product

Offer loan that

No loan with ABN Amro

ClosureBetter offer

Down-paymentControl

Transparency

Line that fits needs

Coaching

ConfirmationSuggestions for effective usage

Reactivation

Anti attrition

of lineProvide suitable

lineBuild loyalty

Establish relationship

Activate usage

Utilization> 20% and 60% orlimit

> 25.000

Utilization >60% and limit < 25.000

Latest contract of customer < 6

months

Event based cross sell

DeactivationPayment holidays

Balance transfers

Activation

Line decreases

Line increases

Welcome calls

Model based cross sell

Page 13: EFMA Conference Budapest

CONSUMER FINANCE 13

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 14: EFMA Conference Budapest

CONSUMER FINANCE 14

We use customer life time value to contact our profitable customers

We calculate CLV’s for all new campaigns

Campaigns should be profitable within 2

years for sign off on BC Business cases based on CLV

Campaign selection

based on CLV

We use CLV to calculate break even

response rate

With response models we determine

campaign target group

Page 15: EFMA Conference Budapest

CONSUMER FINANCE 15

We take into account all value drivers

Customer Value

Direct CostsOperationalMarketing

ProvisionsCredit risk

MarginInterest rate

Funding

VolumeLine

Balance(withdrawals,

deposits)x

-/-

-/-

=

Economic Capital

-/-

Page 16: EFMA Conference Budapest

CONSUMER FINANCE 16

We look at full customer life timePay off marketing campaign

-200.000

-100.000

0

100.000

Year

Valu

e

Reeks1 -150.000 86.808 80.303 60.000 10.000

year 1 year 2 year 3 year 4 year 5

High marketing and application expenses

in year 1

Gradual additional usage of product over

time

Gradual additional usage and

high marketing costs

No immediate pay off

Page 17: EFMA Conference Budapest

CONSUMER FINANCE 17

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 18: EFMA Conference Budapest

CONSUMER FINANCE 18

We offer best products only to most profitable customers

330.000 customers

26.000 customers

Flexibele LoanInterest rate: 11,5%

Flexibele Loan with personal tariffInterest rate: 10%

26.000 customers

Proactive migration campaign of:

•Preferred Bankers•Clients with high attrition risk

Page 19: EFMA Conference Budapest

CONSUMER FINANCE 19

We fund loyalty offer with price increase on less profitable customers

304.000 customers

26.000 customers

Flexibele LoanInterest rate: 12,1% (+ 0,6%)

Flexibele Loan with personal tariffInterest rate: 10%

Page 20: EFMA Conference Budapest

CONSUMER FINANCE 20

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 21: EFMA Conference Budapest

CONSUMER FINANCE 21

Mistrust in the market and consumer need for guidance and control

Stichting 

NooitMeerRood  Nederland

Consumer insights

Need for controlFear to lose control over loan

Need for shared responsibility Borrowing is shared responisbility between consumer and loan provider Right balance between guiding

and facilitating by provider

Mistrust in market

Need for guidance and control

Page 22: EFMA Conference Budapest

CONSUMER FINANCE 22

We engage our customers by giving them guidance and control

Product overview

Insight in costs

Insight in usage

Personal advice on:

-Cheaper products

-Responsible usage

-Easier usage

Control

Guidance

Page 23: EFMA Conference Budapest

CONSUMER FINANCE 23

Need for retention strategy

Vision

Fundamentals

New opportunities

Lessons learned

Agenda

Page 24: EFMA Conference Budapest

CONSUMER FINANCE 24

Lessons Learned

Think of retention as a full customer life cycle strategy

Use customer life cycle marketing program as basis

Make marketing program efficient with automated campaign process

Base targeting and ROI decisions on customer life time calculations

Reward most profitable customers proactively with best products

Fund loyalty offers with price increases on less profitable customers

Improve customer engagement by giving transparancy in product costs and

usage

Advice customers proactively on what is really best for them

Page 25: EFMA Conference Budapest

CONSUMER FINANCE 25

Thanks for your attention!

Ruben Sinnecker

[email protected]