Getting Your Arms Around Customer Retention

Background

RedPort has been working on bank retention problems since 1998 when one of our partners took on the challenge of running customer value and retention activities for US Bancorp during a difficult merger. Over the ensuing years, we have developed a sophisticated data-driven approach to identifying root causes of retention and have developed specific programs to attack them. Learnings from these programs formed some of the early use cases that SmartBanker was developed for.

Customer retention in general

In our long experience, retention problems in financial institutions stem from three reasons.

  1. The first reason is that despite their marketing spin, many FI’s do not truly run customer-centric models and instead operate product-by-product. The classic example is a bank customer that takes out a loan and when the loan is paid off, closes their account and gets counted as a “lost” customer even though the bank never had a committed relationship to “lose”.  Solving this type of problem is not something that can be done on a case-by-case basis and instead requires evolving to a customer-centric business model.
  2. The second reason for retention problems has to do with poor customer service which in the end “drives” customers away. At some point, regardless of how sticky the customers’ relationship is if service is bad enough, they will slowly take their financial business elsewhere. (Thankfully – most of the truly bad FI’s have been run out of business over the last decade.)
  3. The final and in our belief, most prevalent reason for retention problems is that FI’s do not manage retention systematically. Many FI’s have built churn models and a percentage understand customer profitability well – but few FI’s have wired retention into their customer management programs in a way that ensures that each and every customer who shows signs of leaving the FI is scored, targeted, and acted upon.

A well-managed retention program has two major elements.

First, FI’s with sophisticated retention programs understand precisely which customers are a retention risk and how much value will be lost if the customer at risk departs. To manage this precisely requires a mature data and modeling infrastructure with the ability to predict both the likelihood of attrition (generally a statistical or machine learning model) and a nuanced understanding of both current and potential future customer profitability. This allows FI’s to focus efforts on attrition of current or potential customer value vs trying to save everyone.

Second, FI’s need to be able to execute sophisticated, multi-segment/channel/offer retention programs. This is where FI’s often fail as quickly identifying retention risks, understanding potential lost customer value, triggering a profitable “retention lead” and getting the right retention message in front of a customer is a complex problem that involves multiple departments and technology systems. In our experience, this is an iterative process and the ability to quickly test multiple retention actions and messages and then optimize those that work is one of the most important features in running a successful retention program. (We have lost count of how many FI’s we have worked with that have great models but no way to activate them!)

SmartBanker support of retention

The SmartBanker program was specifically designed to help manage problems like customer retention. First of all, SmartBanker contains in its’ data models all of the elements required to understand and quantify retention risks. These include integrated churn models (either developed by clients or standard models that are pre-built in SmartBanker), and a sophisticated ability to roll up customer profitability from individual products. Combined these capabilities allow SmartBanker to understand when a customer at risk and to quantify how much value is actually at risk to the FI.

SmartBanker automatically “triggers” customer retention actions based on the modeling. This allows FI’s to have access to a prioritized list of at-risk customers on a daily, hourly, or even near real-time basis. With proper data loads and training, SmartBanker can even alert FI’s to the potential reason for the trigger and recommend potential responses.

These retention triggers can then be acted upon across multiple channels and types of actions. Importantly, SmartBanker allows for multiple offers and scripting to be tested to determine for each specific retention segment. Financial institution clients can use their own channels or contract with the SmartBanker program to execute for them.

Finally, SmartBanker reporting allows FI’s to understand their retention problem and the result of retention actions. Through a multi-dimensional data model that drills through customer segments, product categories, geographies, credit bins, engagement levels, sales channels etc. – customer managers can gain a nuanced view of both where their attrition problem lies, and where they are successful at combating it.

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