What we know:Customer Lifetime Value (CLV)

The idea behind CLV is to look at client portfolio from a behavioral perspective. In the portfolio, there are several behavior groups which are usually similar in terms of profitability. We can then look at interactions between the groups. PtB models or NBO selection supported the most profitable transitions. Retention actions supported the transitions with the highest losses.

 

Such an approach is different from today’s standard management – one has to realize that it is not the product which drives the portfolio x-sell selections, but the most profitable segment transitions. Such a difference has an impact on how x-sell is organized and motivated.

 

We can take it even step further and create an index, by which the whole portfolio can be measured. The index shows the % gap between the ideal value of the portfolio (or even individual) and the current status.

CLV Management Principle

CUSTOMER LIFETIME VALUE | Improving Value of the Credit Card Portfolio Using Behavioral Groups

Our client, one of the top global banks, with sizable business in credit cards wanted to increase the average profit per client. The client went to ABC and Adastra to solve the situation and pilot it.

 

At first, we’ve divided clients into groups. The groups were selected based on card usage. Each usage was analyzed and described in great detail, the profitability of each segment was established, and interactions between segments over time analyzed.

Interactions, their strength, and delta in profitability were analyzed and ranked from most valuable, to most costly. The best and the worst were taken into consideration and PtB models computed and combined with increased or lost profitability.

 

The value of segmentation was checked by a pilot.

We were able to get incremental lifetime value up by over one million Euro.

The ROI was higher than 20 (that is 1 EUR invested yielded 20 EUR back in the 12 months)

 

VALUE-BASED INDEX | Creating a New Way To Manage Credit Card Portfolio

The prices on the Czech telecommunication market were under constant pressure until one of the top players realized that classic PtB models are insufficient to maximize profitability. Although sales were not going down in terms of numbers, the margin was shrinking. Aside from cost-cutting, the client came with the task of maximizing customer value and hence improve margins.

 

The first action was to put clients together into coherent, behavioral segments. As the next steps came to the analysis of segment interaction, and their categorization to desirable and undesirable. After profitability was computed for each segment, the „weight“ of desirability and undesirability was calculated.

The identified flows were then supported by PtB and NBO models, either to strengthen the flow to more profitable segments, but also to minimize flows from profitable, to unprofitable segment (can be read as a retention activity).

Looking at it from the lifetime-value perspective, an index was created as the current value divided by lifetime value. The lower the percentage, the worse the individual, segment, or the whole portfolio performed

 

We call the product Value-Based Index. The index is now being used as the primary tool for portfolio management.

In the pilots, the conversion rate almost doubled (from 9% to 16%) and ROI of the project was 8 (8 EUR for 1 EUR invested in the first 12 months)

For more on our CLV related competencies and on how we can help you please contact:

Tomas Wolf,

our Subject Matter Expert and Engagement Manager for all matters related to Customer Value Management.