Customer Retention with Predictive Churn Risk Modelling.

The banking sector is one of the industries where the acquisition cost of a customer is significantly high. Acquiring new customers on average can cost five times more than retaining existing customers. Retention of customers in the banking sector has taken a passive approach.

Many banks try retention strategies when customers come to the bank branch with the intent to close their accounts. By this time, the relationship has been spoiled and a competing bank has already won their heart. Many banks don’t realize that many of their existing customers are being silently wooed away by competitor offers and have reduced or stopped using a product, even when their account is in open status. They are in the ‘silent attrition’ phase where they may not openly raise a complaint but are not actively pursuing the banking services. Examples include credit card accounts with little or no spending, which once used to be very active.

Unnoticed customer churn often proves very costly. It’s not just lost in terms of revenue but also the added marketing expenses to acquire another customer that could substitute for the same revenue. Different phases in the customer journey before full attrition must be identified to devise strategies that favor a timely intervention towards customer retention. A proactive strategy involves identifying different causes for churn and classifying high-value customers who are at the highest risk of canceling their services immediately is what ‘churn modeling’ is all about.

By converting structured and unstructured data collected while using the banking products could help derive meaningful insights – typical customer transaction history, demographic data, and usage pattern shifts are some of the key inputs that could predict customers who are likely to churn.

Once the cluster of customers who are likely to churn is identified they could be saved using reactivation methodologies such as providing new usage stimulation offers, product activation offers free upgrade of product benefits based on the tenure of usage, periodically reminding them of pre-approved products, and even extending tailor-made partnership offers, leveraging their transactions history – through affinity marketing.

Other retention methodologies would include giving the option to the customer to move up from a low-value relationship program to high-value relationship programs and vice versa, incrementally - without incurring switching charges and without the burdens of long lock periods.

References

[1].https://www.gainsight.com/

[2].https://www.totango.com/