The marketing cube: DIMENSION 3 RETENTION – part 2

If these models are developed, one can reasonably expect to observe the following types of predictors to emerge from a balance diminishment analysis:

—         tenure

—         type of products and/or services owned

—         change in behaviours year over year

—         customer service contacts.

While beyond the scope of this paper, care must be taken when defining diminishment. For example, an individual whose balance declines from $20 to $5 experiences a 75 per cent ‘diminishment’. On the other hand, a customer travelling from $10,000 to $6,000 is ‘only’ reducing his balance 40 per cent, but clearly the potential revenue in this latter case is quite significant.

The author has seen many cases of anti- balance diminishment programmes implemented, with little follow-up evaluation. Assessing the success of such campaigns is critical. Below are some guidelines in appraising programme achievement.

The criteria for success usually include three measures. These may be defined as:

—         reduction in customer defection

—         reduction in revenue defection

—         as a result of the above two measures, the incremental net income or some other profitability measure.

Table 2

Case

Customer

Revenue

Rate

Decision

defection

defection

of

reduced by

reduced by

return

1

>7.5%

> 7.5%

> 17%

Continued
programme efforts

2

>7.5%

> 7.5%

> 0%

Costs
excessive-discontinue programme

3

>7.5%

> 7.5%

> 0%

Not affecting the
‘right’ customer

4

>7.5%

> 7.5%

> 17%

Continued,
‘right’ customers being affected

Table 2 looks at some possible outcomes. It suggests several potential outcomes from a test programme and some potential decisions that could be taken. In Case 1, the marketer is experiencing a reduction in customer attrition, as well as reduction in revenue attrition. For some reason, many managers disregard the impact on revenue, which is wrong. The 80/20 rule points to the fact that 80 per cent of the revenue comes from 20 per cent of customers. If the programme is influencing the 80 per cent of the customers that contribute 20 per cent of the revenue, it may not be profitable. Case 3 highlights this particular scenario. Remember, the particular ‘figures’ in Table 2 are dependent on the business objectives; they vary drastically by industry.

Table 3

Profit

Potential

Probability of

balance

diminishment

Possible action

High

High

Low

Mine for more of
them

High

Low

Low

Service and
protect them

Low

Low

High

Focus them
elsewhere

High

Low

High

Intervene and
rescue them

These are the three faces of the ‘cube’:

—         profitability

—         potential

—         balance diminishment likelihood (retention).

Programmes can now be constructed to address the various segments that emanate from these three dimensions. Table 3 shows four segments and possible actions that can be taken.

Representative APR 391%

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