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Extracting ROI From The Engaged Customer A Portfolio Management Approach to CRMKeith Shields Laura Benard Jen BoyerChief Analytics Officer Client Services Director Marketing Strategy ManagerMagnify Analytic Solutions Magnify Analytic Solutions Ford Motor Company10/28/2014



How related are the following two topics?Consumer Loan ManagementCRM MarketingVS.1

How related are the following two topics?a. Not At All RelatedConsumer Loan ManagementCRM MarketingVS.2

How related are the following two topics?b. Somewhat RelatedConsumer Loan ManagementCRM MarketingVS.3

How related are the following two topics?c. Very Related

Consumer Loan ManagementCRM MarketingVS.4

Both Consumer Loan Managers and CRM Managers

Start with a portfolio of customersHave access to enormous amounts of customer data

Can manage their portfolio using predictive analytics

Both are responsible for the long term value of their assets


Big Data and new tools are quickly changing this landscapeWe can apply learnings from the Consumer Loan Industry to manage our customer portfoliosWhy is this an important discussion for us? Spending on Marketing Analytics is expected to increase 72% over the next 3 years*

Only 32% of marketing projects use analytics

Most companies do not have the right talent to fully leverage Marketing Analytics*2014 February; The CMO Highlights and Insights77% of marketers surveyed believe data on customer purchase histories can improve marketing ROI, yet only 21% actually use it. Likewise, 88% believe behavioral data can do the same, but only 20% use it6

Conceptual Nonsense from the Scientist

Defining Portfolio ManagementA portfolio of consumer loans, not securities.

Portfolio Management, loosely, is the application of a set of analytically-driven collections and servicing techniques aimed at forecasting and maximizing a loan portfolios cash flows.

Quantifying credit risk and predicting future payment is at the heart of portfolio management.

Credit Risk and CRM seemingly dominate the Big Data landscape. Next slide


Big Data infects the CRM and Credit Risk disciplines more than almost any other Why the pervasive interest in Big Data?Largely to satisfy CRM and credit risk needsData: Information Week Analytics, Business Intelligence and Information Management Survey of 417 business technology professionals at companies using or planning to deploy data analytics, BI or statistical analysis software, October 2012


(Re)Defining CRMA portfolio of customers, not loans.

Portfolio Management CRM, loosely, is the application of a set of analytically-driven collections and servicing marketing techniques aimed at forecasting and maximizing a loan portfolios customers cash flows purchases.

Quantifying credit defection risk and predicting future payment purchases is at the heart of portfolio management CRM.

Incidentally, the Wikipedia definition of CRM is: CRM is a system for managing a companys interactions with current and future customers. It involves using technology to organize, automate and synchronize sales, marketing, customer service, and technical support.


Portfolio Management and CRMFrom an Analytics perspective, these are the same. The only difference lies in the target variable and predictors.

PD = 1 / (1+e-z), where z = A + Bx1 + Cx2 + Dx3 +

Portfolio Management: PD = Probability of DEFAULTx1 = credit score, x2 = days past due, x3 = loan to value ratio, etc

CRM: PD = Probability of DEFECTION x1 = prior purchases, x2 = months since last purchase, x3 = unfavorable tweets, etc10

11Auto Pre-Approval

Merchant Cash Advance and Small Business Loans

Pier-to-Pier lending

Student loan servicing

Business Rules EnginesOthers have recognized and leveraged the overlap

The Portfolio Management Paradigm 14CASH FLOWS$A1Customer makes partial payment$A2Loan impaired, collections calls ensueCustomer pays off rewritten balanceTimet=0t=1t=3Customers loan is rewritten for empirically-derived optimal amountThe value of this bond (loan) is $A1/(1+i)1 + $A2/(1+i)3This paradigm applies equally to CRM. The portfolios managed by CRM professionals are the customer bases of the companies they serve.Managing a loan portfolio requires that we turn impaired (high credit risk) loans into cash-flowing bonds 12

Adopting the PM paradigm for CRM 15An engaged customer is a bond. The effectiveness of our CRM strategies determines the yield of that bond.15CASH FLOWS$A1Customer comes in for service$A2Customer signs up for rewards programCustomer purchases a new vehicleTimet=0t=1t=3Customer visits company websiteThe value of this bond (customer) is $A1/(1+i)1 + $A2/(1+i)3Customer Lifetime Value (CLV) models help quantify the value of customer behaviors and CRM tactics. The success of CRM can be measured by the extent to which CLV increases, irrespective of test-control results. 13

14Marketers already recognize the need to view their customer base as a portfolio71% of marketers want predictive analytics around lifetime value added to their customer data profiles

Lifetime value models are nothing more than a forecast of cash flows at the customer level

Survival analysis, vintage-level monitoring, and other popular PM disciplines are a must

15But CRM trails Credit Risk / Portfolio Management in the adoption of Big Datawhy?RegulationAccountability is fuzzyMetrics are inexact and not directly reflective of behavior.Secondary marketsWhat would CRM analytics look like if marketers were forced to buy, sell, and value their customer portfolios?Metrics are inexact and not directly reflective of behavior.77% of marketers surveyed believe data on customer purchase histories can improve marketing ROI, yet only 21% actually use it. Likewise, 88% believe behavioral data can do the same, but only 20% use it

16Take a longitudinal view of the customer. This is the only way to get an accurate outlook and valuation. Implies a need for a CLV model CLV = p(sale at time 1)*E($ profit from sale) / (1 + d)1 +p(sale at time 2)*E($ profit from sale) / (1 + d)2 + p(sale at time 3)*E($ profit from sale) / (1 + d)3 + Engagement is measured longitudinally; enticement is measured cross-sectionally.

Quantify the impact of mix shift on outcomes of interest.Establish regulatory-like rigor around model validation.Understand that the two share not only a brain, but also a nervous system. Next slideWhat PM practices will help our CRM?

ENOugh Conceptual Nonsense from the Scientist. now some practical stuff the marketer

Does This Change the Way We Practice CRM? 17We think so, especially in the following areas:Measuring Success

Metrics should be more bottom-line oriented and exactShift from basing success solely on campaign performance to understanding performance of the portfolioPredicting Outcomes

Predictions should go beyond the next transactionAll available data should be leveraged to proactively manage customers throughout the lifecycle to desired business objectivesInfluencing Behavior

CRM becomes our sand box for going beyond understanding just correlations; to understanding causation as a way to change customer behavior

Predicting Outcomes18Transaction vs. Portfolio Management approach to predicting outcomes.

Short-Term: Optimizing campaign performance to campaign objectives% In-Market

Longer-Term: Enables management of entire portfolio to business objectives (i.e. increasing CLV)

Segment SizeOpportunity

Influencing BehaviorTest and learn approach will determine how we influence and change the long term health of our customer portfolio

Monitor drivers across the portfolioDesign treatments, messaging and investment based on customer value, individual customer drivers and predicted outcomeEvery CRM treatment should be analytically drivenensuring that every CRM dollar spent is working to move the customer into a more valuable state Understand Drivers of Desired Outcomes


Measuring SuccessPortfolio HealthWhat is the value of my customer portfolio?What is the mix and risk of my customer portfolio?Dashboard and Diagnostics Which champion vs. challenger campaign performs best?Which actions influence customer outcomes both positive and negative?

Performance and ForecastingDo I understand both rear-ward and forward-looking performance?What is the aggregate impact of our CRM initiatives on improving sales? 20

Thus Ends the Prepared Remarks21Understand that the job of CRM is to extract repeat sales and revenue from the portfolio of customers. The best way to do this is make sure that customers remain engaged over a long period of time.If a customer is a bond, then improving engagement, in effect, increases the life of the bond.CRM groups should measure themselves with this standard in mind.

Keeping customers in their most valuable state is a matter of advanced analytics and strong marketing tacticsboth of which are done with an eye towards engagement.

The disciplines applied routinely to the management of loan portfolios are equally applied to CRM. Champion / Challenger tests are simply one tool in a larger toolbox.

Thank you for your time and attention.

Judge a man by his questions rather than his answers. -- Voltaire