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Account Management Credit Strategies: A profitable Pursuit (Part 2)

July 7, 2020 at 11:30 AM

In our previous blog we introduced the value of effective account management strategies.  In this blog we continue to run through different account management decision areas. In our next blog we will discuss what is needed for an effective account management strategy.

Existing Customer Marketing: Up-sell/Cross-sell

There are a host of existing customer marketing strategies focusing primarily on improving the spend of the customer and retaining the customer.  Up-sell strategies often involve “upgrading” the customer’s current product (e.g. credit card) to a superior card (e.g. gold to platinum).  If the customer is a good customer, decisions can be made to waive fees for the upgraded card.

Cross-sell involves offering another product or ancillary product to the customer. For term products, this could be insurance products, or perhaps a different loan. Clever utilisation of this allows you to grow good customers within your portfolio

Existing Customer Marketing: Balance-Build

Within a revolving retail environment, the focus is to encourage a customer to shop regularly. Choosing customers with low-ish spend patterns who are likely to respond to an offer means that you can encourage more spend by selecting customers to receive vouchers to shop. Vouchers such as “get 30% off when you spend more than X” are common offers. The discount is more than covered by the retail mark-up.

Existing Customer Anti-Attrition and dormancy reactivation

Once you have profitable customers on your books, the trick is to keep them. For term products lenders offer them top-ups or renewals. For revolving customers, a variety of anti-attrition activities are used. For revolving cards, loyalty and point schemes are ubiquitous. Credit card issuers often offer special offers through partners that are not available to non-card holders.

Amongst credit card portfolios many credit managers will be concerned about the accounts with low or zero utilisation. It is likely that these credit cards are secondary or tertiary to a customer’s primary card (also known as back-of-wallet/front-of-wallet cards). Encouraging spend, luring them into loyalty programmes and offering an expanded value proposition are all tools to stop attrition.

Retail accounts tend to become dormant (instead of attrite) as there is often zero account fees. Resurrecting these accounts through vouchers are often used to lure the customer into the store.

Whilst the use of vouchers is effective in many cases, some retailers have seen that they can also change the habits of consumers in a negative way. Some consumers who would otherwise shop on credit regularly in a store, may learn that not shopping for three months may earn them an anti-dormancy voucher. Vouchers therefore need to be used sparingly and targeted and the results of the marketing campaigns need to be carefully managed.

Loan top-ups

In the interest of keeping good repaying term-loan customers, lenders have resorted to offering top-ups to these good customers when the customer is nearly done with repaying the loan. The term loan then becomes essentially a revolving product. Some lender who don’t offer this find that their good customers are poached by competitors who consolidate the customer’s loan into a new bigger loan. This reduces the profitability of these good customers.  A proactive loan top-up strategy can be very effective in retaining your good customers.

Predelinquency

A predelinquency strategy is used to act on customers before they become delinquent. Typically, lenders do not take action on the entire up-to-date book, just those with a high probability of becoming delinquent in the near future (or new customers). The reason for this is that a reminder to pay may annoy habitual payers. Predelinquency strategies often use a behavioural scorecard within a strategy to determine predelinquency, but more advanced lenders will use a predelinquency score which is built slightly differently.

Conclusion

We will continue the discussion around account management strategies in our next blog. In the meantime if you would like to ask us a question about account management strategies send us an email and we will publish a Q&A blog shortly.  

To find out how Principa can assist you with implementing account management strategies, get in touch with us on info@principa.co.za.

Thomas Maydon
Thomas Maydon
Thomas Maydon is the Head of Credit Solutions at Principa. With over 17 years of experience in the Southern African, West African and Middle Eastern retail credit markets, Tom has primarily been involved in consulting, analytics, credit bureau and predictive modelling services. He has experience in all aspects of the credit life cycle (in multiple industries) including intelligent prospecting, originations, strategy simulation, affordability analysis, behavioural modelling, pricing analysis, collections processes, and provisions (including Basel II) and profitability calculations.

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