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Do you know what makes your customer tick and what ticks them off?

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Attrition analysis unveils insights to develop attractive offers to retain customers

The Business Challenge

A leading credit card issuer was faced with high attrition rates. A large number of customers had requested cancellation of their accounts before they had been with the bank long enough to generate any profits. (On average, it takes 12 to 18 months for a bank just to break even on the cost of acquiring a new customer.)

The bank's retention program was costly and ineffective. The client had even deployed retention agents in an attempt to preserve these customers. However, the retention rates for this program were low as only a small percentage of the customers contacted agreed to continue using their credit cards.

Our client needed a proactive retention approach for identifying customers who were most likely to cancel their cards, and a way to structure offers to entice them to stay.

"Customer retention is a critical issue because it affects revenues, profitability, as well as employee morale," said the client's VP of Customer Retention. "We were clear that we needed to proactively get in touch with customers who were at the risk of attrition. However, our biggest challenge was identifying these customers sufficiently in advance to prevent their cancellation.

The Solution

The bank relied on Fractal Analytics' expertise in customer retention. We customized our Cards Retention Manager, an advanced analytics tool, to identify patterns in customer attrition. Using advanced modeling techniques, we created a system to predict cardholder behavior and respond appropriately.

As a first step, we looked at a sample of behavioral and demographic data built from different time slices. The model assigned a score to each customer and combined that with the expected lifetime value of their account. This information allowed the bank to forecast a customer's likelihood to cancel their card within 60 days, giving them enough time to present this group with appealing offers to stay.

Key Findings

  • Inactivity is the primary driver of attrition. In fact, inactive accounts drop at twice the rate of actives.
  • Attrition rates are highest around the time of annual renewal.
  • Higher engagement with the card leads to lower attrition, such as a greater propensity to revolve, owning add-on cards, using international transactions, or having a photo card.

The Results

These insights helped the bank's Customer Retention Team develop offers that would motive customers to keep their cards. They targeted accounts that showed the highest profit potential, yet were the most likely to cancel. Over a one-year period, retention rates not only increased, but the cost of retaining those accounts was substantially reduced, resulting in higher profits.