The Business Challenge
Approximately 40% of most credit card issuers' customers are inactive or nearly inactive, while nearly 60% don't generate profits. That's why most credit card companies realize that increasing customer profitability is critical to long-term survival and leadership.
Our client was challenged with increasing spending for its existing credit card customer base, but had to first identify opportunities and target the right set of customers with the right spending program.
Fractal Analytics deployed its customer analysis framework to determine the needs and requirements of its customers. As a first step, the entire customer base was segmented by the Frequency and Monetary (FM) framework where each customer was placed into sub-segments based on the monetary value of transactions and the frequency of card usage in a recent time window.
"Viewing our customers through this framework allowed us to appreciate the value of each customer," said the client's VP of Customer Marketing. "More importantly, it enabled us to design segment-based strategies to increase customer lifetime value.
Driving Value-Based Strategies
From a spending perspective, high value and high frequency transactors formed the sweet spot in their customer base. The bank targeted these customers with special services.
Our consultants designed value enhancement strategies: Customers with high frequency of spending were provided with incentives to make high-ticket trans- actions; those with few high value transactions were enticed to transact more often.
By analyzing "avenues of spending" by Merchant Category Codes (MCC), our client gained an understanding of how customers in each of the segments divided spending across different outlets like restaurants, grocery stores, supermarkets, fuel stations, airlines, hotels, internet, insurance, and more. We used this analysis to tailor offers according to each customer's preferences, enhancing the probability of a customer responding to an offer.
Increasing Acquisition Effectiveness
Customers who had not transacted on their cards for an extended period of time were categorized as inactive customers. Profiles were generated that the bank now uses to be more selective in its acquisition programs, ensuring that precious acquisition dollars are not spent on acquiring customers who will not yield any profits in the future.
All segment-based strategies were implemented in a test-and-learn framework where multiple experimental campaigns were run simultaneously. The bank incorporated the lessons learned to improve their campaign offerings and define target segments more sharply. The bank has since increased its value per customer and decreased expenses on spending enhancement campaigns.