Churn Reporting for The Warehouse Financial Services

The Warehouse Financial Services Limited is a joint venture between The
Warehouse and Westpac New Zealand, providing financial services to New
Zealand consumers and customers of The Warehouse. The Warehouse
Financial Services Limited offers consumer credit and risk related
products including credit cards, a store card and both travel and life
insurance cover. These products and services are sold through The
Warehouse stores as well as by direct mail, the internet and over the
telephone.

The Warehouse Financial Services wanted to understand who their credit
card customers were… Where do they live? How old are they? Are they more
likely to be female or male? How profitable are they?

Datamine were engaged in 2008 to undertake initial profiling of The
Warehouse Financial Services customer base. Datamine created
socio-demographic and behavioural profiles of Warehouse cardholders and
created several categories to distinguish groups of customers with
similar characteristics and behaviours.

The analysis found that 50% of profit was generated by only 15% of
customers, signalling a very high value group that needed to be
identified and looked after! There was a female skew across all groups
within the base and clear age differences across groups.

In order to answer all of The Warehouse Financial Services burning
questions about their customers, Datamine also provided information
surrounding the distribution of their customer base geographically;
reflecting a high concentration of customers in Auckland. This part of
the analysis was able to pinpoint that more store and rewards card
customers lived outside the main centres, churned and active customers
live in very similar regions to each other and new customers are more
likely to live in the Auckland or Waikato regions.

The analysis also found that although average Warehouse card spend had
increased overall, compared to the same period last year, the size of
the Warehouse portfolio was decreasing, due to churn and minimal
acquisition. “We had a net decline of accounts on a per month basis.
That is, we were losing more customers each month than we were gaining,”
said Phil Devlin, General Manager of The Warehouse Financial Services
Limited.

The Warehouse Financial Services recognised they had an issue and
clearly they needed to address this churn problem from a business
perspective. They approached Datamine in order to leverage the
appropriate skill sets.

Key metrics were established, which have given The Warehouse Financial
Services the ability to assess whether the customers that they are
losing are of high value to them, or not. This was an important stage in
this project, as it frames the business problem effectively before
deciding how to address it. For example, if only ‘value destroying
decile 10’ customers are being lost, that is probably not such a bad
thing. However, if higher profit decile customers are the ones dropping
off, this poses a serious business challenge, which needs to be
addressed.

Datamine proposed a suite of management reporting options that provide a
window into the dynamics of the base and what kinds of customers are
both leaving and joining. From the initial profiling, specific customer
groups were established, namely ‘new’, ‘active’, ‘inactive’, ‘churned’,
‘Christmas only spenders’ and a group who were paying off their
outstanding balances.

These groups have been carried into the reporting and a ‘Recency,
Frequency, Monetary’ (RFM) segmentation is included across the ‘new’,
‘active’ and ‘churned’ groups.  The monthly reports also enable The
Warehouse Financial Services to monitor the change in delinquency levels
and balance transfers in and out of the base.

These reports have provided The Warehouse Financial Services with a
foundation upon which to target their activity. Targeted activity can be
cheaper and deliver higher rates of returns, so The Warehouse Financial
Services are gaining efficiency in their marketing and communications
activity.

At the time of printing, The Warehouse Financial Services had received
only 3 months worth of results, so it is relatively early days. The
reports, however, are already providing value; “What we are seeing is a
greater portfolio view and enhanced insight as to the value of the
customers we are gaining and losing on a monthly basis” says Phil. The
reports are shared at board meetings and are providing valuable
visibility into the dynamics of the three key card groups; low interest,
rewards and store cards.

A churn model has recently been built to predict specific credit card
churners with a high degree of accuracy. This was run for the first time
in August 2009 to derive a list of potential churners and this is being
used to plan retention-focussed communications. a

In assessing Datamine, Phil states: “The service we have had has been
fast and accurate. Datamine can turn around jobs quickly and provide
good account management.”