贝恩战略分析方法市场营销customerloyalty019

1、1cu7030298imb author: jennifer mcenroe tarr bc customer loyalty contributors: kara gruver, ruma sanyal march 1998 copyright 1998 bain paid to the agent/sales representative who sells the policy the commission expense for new customers is 17% and for existing customers 6.5% of the premium, since it i

2、s more difficult to bring in new customers than to retain existing ones following are the drivers of profitability in the auto insurance business: bc 46cu7021398rsa customer loyalty insure inc. - profitability drivers (p.2) expense ratio - the ratio of operating expenses (e.g., underwriting, claims

3、expenses) to premiums the average expense ratio for new customers is 67% versus 23.5% for a customer with 10 years of tenure expenses are typically lower for existing customers because they have fewer questions and because insurance clerks can make quicker, more educated decisions based on knowledge

4、 of customers histories loss ratio - the ratio of accident payout to premium it is about 88% of premium for new customers and 65% of premium for a customer with 10 years of tenure the reason for higher loss ratios for customers with shorter tenure is that as customers get into accidents, their premi

5、ums go up and they go to lower premium insurers. customers staying for longer periods are the ones who are less accident prone combined ratio - the sum of expense ratio and loss ratio bc 47cu7021398rsa customer loyalty insure inc. - revenue growth and combined ratio trend from 1989 to 1991, insures

6、revenue growth rate declined, while its combined ratio increased. 19899091 0% 2% 4% 6% 8% 10% revenue growth in percent 198990 91 80% 90% 100% 110% combined ratio in percent 9% 4% 3% 89% 96% 103% bc 48cu7021398rsa customer loyalty insure inc. - profitability trend as a result, insures profitability

7、declined. 19899091 (15%) (10%) (5%) 0% 5% 10% profitability in percent 5% (2%) (10%) bc 49cu7021398rsa customer loyalty insure inc. - profit per customer by tenure investment income auto premium acquisition cost commission expense expense ratio loss ratio 12510 $890 ($1,553) $988 ($1,132) $1,205 ($1

8、,068) $1,350 ($843) (2,000) (1,500) (1,000) (500) 0 500 1,000 1,500 profit per customer (1991 dollars) years of customer life since longer-term customers are more profitable than shorter-tenure ones, insure can improve profitability by retaining customers. net profit ($663) net profit ($144) net pro

9、fit $137 net profit $507 bc 50loyalty customer loyalty insure inc. - profit per customer by tenure steps determine number of customers by tenure calculate the value of each profit driver per customer by tenure determine the net profit per customer by tenure there are three steps in determining the p

10、rofit per customer by tenure. step 1: step 2: step 3: bc 51loyalty customer loyalty insure inc. - profit per customer by tenure step 1: number of customers by tenure insures 15mm customers were broken down by tenure as follows: years of tenure percent of customers number of customers 1 2 3 4 5 6 7 8

11、 9 10 11+ 22% 18% 16% 12% 8% 6% 5% 4% 3% 3% 3% 100% 2.3mm 2.7mm 2.4mm 1.8mm 1.2mm 0.9mm 0.75mm 0.6mm 0.45mm 0.45mm 0.45mm 15mm bc 52loyalty customer loyalty insure inc. - profit per customer by tenure step 2 (p.1): auto premium per customer by tenure auto premiums were calculated for each customer t

12、enure group. customer tenure revenue from auto premiums auto premium per customer 1 2 3 4 5 6 7 8 9 10 $2,907mm $2,616mm $2,434mm $1,967mm $1,404mm $1,101mm $984mm $805mm $590mm $584mm $881 = ( ) $969 $1,014 $1,093 $1.170 $1,223 $1,312 $1,341 $1,311 $1,298 *numbers are not exact due to rounding numb

13、er of customers 3.3mm 2.7mm 2.4mm 1.8mm 1.2mm 0.9mm 0.75mm 0.6mm 0.45mm 0.45mm $2,907mm 3.3mm bc 53loyalty customer loyalty insure inc. - profit per customer by tenure step 2 (p.2): investment income per customer investment income was attributed to each customer tenure group. customer tenure percent

14、 of premium invested interest earned per customer 1 2 3 4 5 6 7 8 9 10 14% 28% 35% 38% 42% 42% 46% 48% 56% 56% $8.8 = ( $881*14%*7.1%) $19.3 $25.2 $29.5 $35.1 $36.5 $42.8 $45.7 $52.1 $51.6 auto premium per customer $881 $969 $1,014 $1,093 $1.170 $1,223 $1,312 $1,341 $1,311 $1,298 average interest ra

15、te 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% bc 54loyalty customer loyalty insure inc. - profit per customer by tenure steps step 2 (p.3): acquisition cost per customer the customer acquisition cost - consisting largely of advertising, part of agents salary, and merchandising support - was c

16、alculated. amount percent of costs to acquire new customers amount spent on acquisition merchandising support:$42.3mm100%$42.6mm other:$1.8mm100%$1.8mm national advertising:$96mm62%*$59.5mm part of agents salary:$17.0mm100%$17.0mm local advertising:$42.2mm59%*$24.3mm total = $145.2mm $44 per new pol

17、icy = ( ) $145.2mm 3.3mm *advertising spending for existing customers is a part of overall expenses. bc 55loyalty customer loyalty insure inc. - profit per customer by tenure step 2 (p.4): commission rate per customer by tenure the commission rate per customer tenure group was determined. customer t

18、enure average commission rate commission per customer 1 2 3 4 5 6 7 8 9 10 17.00% 6.47% 6.47% 6.47% 6.47% 6.47% 6.47% 6.47% 6.47% 6.47% $150 ( = $881 x 17%) $63 $66 $71 $76 $79 $85 $87 $85 $84 auto premium per customer $881 $969 $1,014 $1,093 $1.170 $1,223 $1,312 $1,341 $1,311 $1,298 bc 56loyalty cu

19、stomer loyalty insure inc. - profit per customer by tenure step 2 (p.5): operating expense per customer by tenure operating expenses - consisting of expenses plus losses - were calculated for each customer tenure group. customer tenure percent of losses driven by customer group total loss for custom

20、er group 1 2 3 4 5 6 7 8 9 10 23% 20% 18% 13% 8% 6% 5% 3% 2% 2% 100% $2,544mm $2,217mm $1,946mm $1,377mm $842mm $606mm $492mm $362mm $236mm $204mm $10,826mm total expense for customer group $1,940mm $670mm $618mm $496mm $348mm $269mm $238mm $192mm $140mm $137mm $5,048mm percent of expenses driven by

21、 customer group 38% 13% 12% 10% 7% 5% 5% 4% 3% 3% 100% expense per customer $588 ( ) $248 $258 $276 $290 $298 $317 $321 $312 $305 loss per customer $771( ) $821 $811 $765 $702 $673 $656 $604 $524 $454 operating expense (expense+ loss) per customer $1,359 $1,069 $1,069 $1,041 $992 $971 $973 $924 $836

22、 $759 number of customers 3.3mm 2.7mm 2.4mm 1.8mm 1.2mm 0.9mm 0.75mm 0.6mm 0.45mm 0.45mm $1940mm 3.3mm $2,544mm 3.3mm bc 57loyalty customer loyalty insure inc. - profit per customer by tenure step 3: net profit per customer by tenure the final step was to determine the net profit for each customer t

23、enure group. customer tenure 1 2 3 4 5 6 7 8 9 10 net profit per customer -$663 -144 -95 11 137 209 297 376 442 507 = $881 + $8.8 - $44 - $150 - $1359 net profit = auto premium + investment income - acquisition cost - commission expense - operating expense bc 58cu7021398rsa 1 2-5 6-10 11-1516-2020 0

24、 5 10 15 20 25% voluntary defection rate no longer need other claims billing and endorsements customer service price customer loyalty insure inc. - root causes of defection by far the biggest contributor to defection is price, followed by customer service and billing and endorsements. insure should

25、target customers whose price elasticity is low, and improve its customer service and billing and endorsement. tenure (number of years) bc 59cu7021398rsa customer loyalty insure inc. - target customers the bain team determined that insure should target the 45-74 year old age group. these customers ar

26、e willing to pay higher premium for quality service, and it costs less to serve them. cost price under 2020-2425-3435-4445-5455-6465-74over 74 0.0 0.5 1.0 1.5 2.0 2.5 3.0 cost and price index customer age target customers bc 60cu7021398rsa customer loyalty insure inc. - retention program the retenti

27、on program is focused on delivering a value proposition for target customers. target customers: key value proposition elements: 45-74 year olds service: superior customer service fast and error-free billing and endorsements pricing: premium pricing retain target customers recover target customers wh

28、o have recently defected acquire target customers bc 61cu7021398rsa fewer acquisitions billing and customer service targeted acquisition 19911992199319941995 $358m $740m $1,153m $1,577m $2,002m 0 500 1,000 1,500 2,000 2,500 net income impact (millions of dollars) customer loyalty insure inc. - reten

29、tions impact on profitability by implementing the retention program, insure could increase customer retention by 10.3% by 1995 and improve profitability by approximately $2b. 1.2% 2.5% 4.2% 6.5% 10.3% retention rates improvements: bc 62cu7021398rsa customer loyalty insure inc. - retentions impact on

30、 profitability steps step 1:estimate retention rate improvement step 2:calculate profit improvement due to fewer acquisitions step 3:determine profit improvement due to improved billing and customer service. as a result of its improved services, insure not only retains customers, but also reduces co

31、sts to serve all customers step 4:calculate profit improvement due to improved customer targeting there are four steps in determining the effect of improved targeting and increased retention on profitability. bc 63cu7021398rsa customer loyalty insure inc. - retentions impact on profitability step 1:

32、 retention rate improvement total number of customers: number of existing customers: number of new customers: retention rate: retention improvement (from 1990): 1990 15mm 11.70 3.30 78.0% - 1991 15mm 11.88 3.12 79.2% 1.2% 1992 15mm 12.08 2.93 80.5% 2.5% 1993 15mm 12.33 2.67 82.2% 4.2% 1994 15mm 12.6

33、8 2.33 84.5% 6.5% 1995 15mm 13.25 1.76 88.3% 10.3% insures goal was to increase retention by 10.3% by 1995. 11.7mm 15mm (=) bc 64cu7021398rsa customer loyalty insure inc. - retentions impact on profitability step 2 (p.1): profit improvement due to fewer acquisitions number of new customers: decrease

34、 in number of acquisitions by tenure: 1 year tenure 2 year tenure 3 year tenure 4 year tenure 5 year tenure 1990 1991 0.180mm (=3.30-3.12mm) 1992 0.195mm (=3.12-2.93mm) 1993 0.255mm 1994 0.345mm 1995 0.570mm profit improvement due to reduced number of acquisitions were estimated to result in $402mm

35、in savings by 1995. 3.30mm3.12mm2.93mm2.67mm2.33mm1.76mm 0.180mm (=1991 customers) 0.195mm 0.255mm 0.345mm 0.180mm (=1991 customers) 0.195mm 0.255mm 0.180mm (=1991 customers) 0.195mm 0.180mm (=1991 customers) bc 65cu7021398rsa customer loyalty insure inc. - retentions impact on profitability step 2

36、(p.2): profit improvement due to fewer acquisitions improved profitability due to decreased acquisitions: 1 year tenure 2 year tenure 3 year tenure 4 year tenure 5 year tenure total improvement profitability per customer by tenure 1991 $119.34mm (=0.180mmx$663) 1992 $129.29mm 1993 $169.07mm 1994 $22

37、8.74mm 1995 $377.91mm 25.92 (=0.180mmx$144) 28.08 36.72 49.68 0.72 (=0.180mmx$95) 0.78 1.02 -1.98 (=0.180mmx-$11) -2.15 -24.66 (=0.180mmx-$137) -$663 -$144 -$95 $11 $137 $119.34mm $155.21mm$197.87mm$264.26mm$401.81mm bc 66cu7021398rsa customer loyalty insure inc. - retentions impact on profitability

38、 step 3 (p.1): profit improvement from better service average profit improvement from better service across all customers: number of customers: customers retained due to improved billing (45% of total): profit improvement from improved billing: $13.50mm (=6.75mm x $2.00) 1991 $2.00 15mm 6.75mm (=15m

39、mx45%) $22.95mm 1992 $3.40 15mm 6.75mm $35.10mm 1993 $5.20 15mm 6.75mm $41.18mm 1994 $6.10 15mm 6.75mm $47.25mm 1995 $7.00 15mm 6.75mm profit improvement from improved billing would total $47mm by 1995. bc 67cu7021398rsa customer loyalty insure inc. - retentions impact on profitability step 3 (p.2):

40、 profit improvement from better service customers retained due to better relocation support (32% of total): profit improvement from improved customer relocation: customers retained due to better customer recovery (23% of total): profit improvement from improved customer recovery: $6.90mm (=3.45mm x

41、$2.00) 1991 4.80mm (=15mm x 32%) $9.60mm (=4.80mm x $2.00) 3.45mm (=15mm x 23%) $11.73mm 1992 4.80mm $16.32mm 3.45mm $17.94mm 1993 4.80mm $24.96mm 3.45mm $21.05mm 1994 4.80mm $29.28mm 3.45mm $24.15mm 1995 4.80mm $33.60mm 3.45mm profit improvement from improved customer relocation and recovery were e

42、stimated at $34mm and $24mm, respectively, by 1995. bc 68cu7021398rsa customer loyalty insure inc. - retentions impact on profitability step 4: profit improvement due to better targeting average improvement in profit per new customer: total number of customers acquired due to better targeting: total

43、 profit increase: 1991 $67 3.12mm $209mm (=$67x3.12mm) 1992 $99 5.40mm $534mm 1993 $125 7.01mm $877mm 1994 $151 8.09mm $1,222mm 1995 $174 8.59mm $1,495mm profits would improve by $1,495mm in 1995 due to better targeting. 3.12mm2.93mm2.67mm2.33mm1.76mm number of new customers: (=3.12mmx79.2%* +2.93mm

44、) *1991 retention rate bc 69cu7021398rsa customer loyalty insure inc. - total retention impact on profitability profit improvement due to fewer acquisitions: profit improvement due to better targeting: profit improvement from higher retention due to - billing: - customer relocation: - customer recov

45、ery: 1991 $119.34mm $13.50mm $9.60mm $6.90mm 1992 $115.21mm 1993 $197.87mm 1994 $264.26mm 1995 $401.81mm there would be a total increase of $2b in profitability by 1995. total $209.0mm$534.2mm$876.7mm$1,221.6mm $1,494.9mm $22.95mm $16.32mm $11.73mm $35.10mm $24.96mm $17.94mm $41.18mm $29.28mm $21.05

46、mm $47.25mm $33.60mm $24.15mm $358mm$740mm$1,153mm$1,577mm$2,002mm bc 70cu7021398rsa customer loyalty insure inc. - summary by pursuing the following activities insure can achieve its target retention rate thereby improving profitability. insure inc. sought to improve its growth rate and profitabili

47、ty in the slow growth auto insurance industry the bain team demonstrated the value of retention customers do not turn profitable until year 4 the profitability of a 10-year customers is almost four times that of a 5-year customer the root causes of defection included price, customer service, and bil

48、ling and endorsements the bain team recommended that insure target the 45-74 year old segment because it was the least price sensitive by implementing a retention program whereby target customers were provided with superior customer service and fast and error-free billing and endorsements, insure co

49、uld increase customer retention by 10.3% and profitability by approximately $2b in 5 years bc 71cu7021398rsa 85% 88% 91% 94% 97% 100% 103% 106%106% 70%73%76%79%82%85%88%91%94%97%100%100% farmers insure inc.uswide mututal liberal firm state gekko amica combined ratio customer retention rate (percent)

50、 customer loyalty insure inc. - profitability improvement notes: by improving its customer retention rate, insure could decrease its combined ratio, to match that of firm state, the largest insurance company in the country. bc 72loyalty customer loyalty agenda what is loyalty? evolution of the loyal

51、ty practice loyalty economics how bain helps clients maximize the value of their customer base example loyalty tools bc 73loyalty loyalty tools (methodologies) retention rate customer definition retention definition retention rate methodology customer value (npv) typical methodology 80/20 suggestion

52、s share of wallet methodology example frameworks share of wallet customer corridor customer sieve root cause analysis qualitative and quantitative root cause analysis sample interview discussions tips and suggestions the next section describes the methodologies for completing loyalty analysis. custo

53、mer loyalty bc 74loyalty customer definition (retail bank example) accountindividualhousehold single account multiple accounts/ individual multiple accounts/ household easy to trackpossible to trackdifficult to track customer definition: physical measure: to calculate retention we first work with th

54、e client to define a customer. customer loyalty bc 75loyalty customer definition next, we work with the client to define retention. suggested definition of retained customers car servicingcustomers returns for annual service vending machine supplier customer continues to use machine/pays monthly or

55、annual fee household contents insurance customer renews policy annually airline over a certain proportion of annual air travel expenditure retained supermarketover a certain proportion of weekly spend retained bank current accountaccount open and experiencing similar volume and value of transaction

56、activity mortgagecustomer redeems mortgage without taking out a new one or merely paying it off customer loyalty bc 76loyalty new customers 1st january31st december 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% percent of customers customer retention rate methodology note: if given customer start date or cust

57、omer tenure you calculate average retention rate 1-( ) customer retention rate (85%) retention rate calculation = no. of customers at year end who were customers at the beginning of the year no. of customers at the beginning of the year x100 next, we calculate retention rate. tenure 1 customer loyal

58、ty bc 77loyalty loyalty tools (methodologies) retention rate customer definition retention definition retention rate methodology customer value (npv) typical methodology 80/20 suggestions share of wallet methodology example frameworks share of wallet customer corridor customer sieve root cause analy

59、sis qualitative and quantitative root cause analysis sample interview discussions tips and suggestions the next section describes the methodologies for completing loyalty analysis. customer loyalty bc 78loyalty 01234567 (1) 0 1 2 3 4 5 6 7 company profit year calculating customer npv when calculatin

60、g customer npv we are building these stacked bars for our client. typical evolution of profit by customer acquisition volume cost improvement referrals price premium acquisition costs base customer loyalty bc 79loyalty calculating customer npv (typical methodology) component acquisition cost increas