Customer Loyalty(英文版)(ppt 90页).ppt

1、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 is more difficu

2、lt to bring in new customers than to retain existing ones,Following are the drivers of profitability in the auto insurance business:,46,CU7021398RSA,Customer Loyalty,Insure Inc. - Profitability Drivers (p.2),Expense Ratio - The ratio of operating expenses (e.g., underwriting, claims expenses) to pre

3、miums 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 of customers hi

4、stories 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 premiums go up and th

5、ey 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,47,CU7021398RSA,Customer Loyalty,Insure Inc. - Revenue Growth and Combined Ratio Trend,From 1989 to 1991, Insures revenue growth rat

6、e declined, while its combined ratio increased.,9%,4%,3%,89%,96%,103%,48,CU7021398RSA,Customer Loyalty,Insure Inc. - Profitability Trend,As a result, Insures profitability declined.,5%,(2%),(10%),49,CU7021398RSA,Customer Loyalty,Insure Inc. - Profit per Customer by Tenure,Since longer-term customers

7、 are more profitable than shorter-tenure ones, Insure can improve profitability by retaining customers.,Net Profit ($663),Net Profit ($144),Net Profit $137,Net Profit $507,50,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by Tenure Steps,Determine number of customers by tenure Calculate

8、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 profit per customer by tenure.,Step 1:,Step 2:,Step 3:,51,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by TenureStep 1: Number of Customers by

9、 Tenure,Insures 15MM customers were broken down by tenure as follows:,Years ofTenure,Percent ofCustomers,Number ofCustomers,1 2 3 4 5 6 7 8 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,52,Loyalty,Customer Loyalty,Insure

10、 Inc. - Profit per Customer by TenureStep 2 (p.1): Auto Premium per Customer by Tenure,Auto premiums were calculated for each customer tenure group.,CustomerTenure,Revenue fromAuto Premiums,Auto Premiumper Customer,1 2 3 4 5 6 7 8 9 10,$2,907MM $2,616MM $2,434MM $1,967MM $1,404MM $1,101MM $984MM $80

11、5MM $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,Number ofCustomers,3.3MM 2.7MM 2.4MM 1.8MM 1.2MM 0.9MM 0.75MM 0.6MM 0.45MM 0.45MM,53,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by TenureStep 2 (p.2): Inve

12、stment Income per Customer,Investment income was attributed to each customer tenure group.,CustomerTenure,Percent ofPremiumInvested,Interest Earned perCustomer,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,A

13、uto Premium per Customer,$881 $969 $1,014 $1,093 $1.170 $1,223 $1,312 $1,341 $1,311 $1,298,AverageInterest Rate,7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1%,54,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by Tenure StepsStep 2 (p.3): Acquisition Cost per Customer,The customer acqu

14、isition cost - consisting largely of advertising, part of agents salary, and merchandising support - was calculated.,Amount,Percent of Costs to Acquire New Customers,Amount Spent on Acquisition,Nationaladvertising:,$96MM,62%*,$59.5MM,Localadvertising:,$42.2MM,59%*,$24.3MM,Total = $145.2MM,$44 per ne

15、w policy = ( ),*Advertising spending for existing customers is a part of overall expenses.,55,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by TenureStep 2 (p.4): Commission Rate per Customer by Tenure,The commission rate per customer tenure group was determined.,CustomerTenure,Average

16、CommissionRate,Commission perCustomer,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 $1,298,56,Loyalty,Customer Loyalty,Ins

17、ure Inc. - Profit per Customer by TenureStep 2 (p.5): Operating Expense per Customer by Tenure,Operating expenses - consisting of expenses plus losses - were calculated for each customer tenure group.,CustomerTenure,Percent of Losses driven by Customer Group,Total Loss for Customer Group,1 2 3 4 5 6

18、 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 Customer Group,38%

19、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 $759,Number of Custo

20、mers,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,57,Loyalty,Customer Loyalty,Insure Inc. - Profit per Customer by TenureStep 3: Net Profit per Customer by Tenure,The final step was to determine the net profit for each customer tenure group.,CustomerTen

21、ure,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,58,CU7021398RSA,Customer Loyalty,Insure Inc. - Root Causes of Defect

22、ion,By far the biggest contributor to defection is price, followed by customer service and billing and endorsements.,Insure should target customers whose price elasticity is low, and improve its customer service and billing and endorsement.,Tenure (number of years),59,CU7021398RSA,Customer Loyalty,I

23、nsure Inc. - Target Customers,The Bain team determined that Insure should target the 45-74 year old age group. These customers are willing to pay higher premium for quality service, and it costs less to serve them.,Target customers,60,CU7021398RSA,Customer Loyalty,Insure Inc. - Retention Program,The

24、 retention 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 cust

25、omers who have recently defected Acquire target customers,61,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions 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%

26、6.5% 10.3%,Retention rates improvements:,62,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on 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

27、 customer service. As a result of its improved services, Insure not only retains customers, but also reduces costs 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 retenti

28、on on profitability.,63,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on Profitability Step 1: 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%,-,

29、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,12.68,2.33,84.5%,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,(=,),64,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact

30、on Profitability Step 2 (p.1): Profit Improvement Due to Fewer Acquisitions,Number of new customers:,Decrease 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,1994,0.34

31、5MM,1995,0.570MM,Profit improvement due to reduced number of acquisitions were estimated to result in $402MM in savings by 1995.,3.30MM,3.12MM,2.93MM,2.67MM,2.33MM,1.76MM,0.180MM (=1991 customers),0.195MM,0.255MM,0.345MM,0.180MM (=1991 customers),0.195MM,0.255MM,0.180MM (=1991 customers),0.195MM,0.1

32、80MM (=1991 customers),65,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on Profitability Step 2 (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 Improv

33、ement,Profitability per customer by tenure,1991,$119.34MM (=0.180MMX$663),1992,$129.29MM,1993,$169.07MM,1994,$228.74MM,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,$155.21M

34、M,$197.87MM,$264.26MM,$401.81MM,66,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on Profitability 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

35、(45% of total):,Profit improvement from improved billing:,$13.50MM (=6.75MM x $2.00),1991,$2.00,15MM,6.75MM (=15MMx45%),$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

36、 $47MM by 1995.,67,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on Profitability Step 3 (p.2): 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 b

37、etter customer recovery (23% of total):,Profit improvement from improved customer recovery:,$6.90MM (=3.45MM x $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,3.45M

38、M,$24.15MM,1995,4.80MM,$33.60MM,3.45MM,Profit improvement from improved customer relocation and recovery were estimated at $34MM and $24MM, respectively, by 1995.,68,CU7021398RSA,Customer Loyalty,Insure Inc. - Retentions Impact on Profitability Step 4: Profit Improvement due to Better Targeting,Aver

39、age improvement in profit per new customer:,Total number of customers acquired due to better targeting:,Total 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

40、1995 due to better targeting.,3.12MM,2.93MM,2.67MM,2.33MM,1.76MM,Number of new customers:,(=3.12MMX79.2%* +2.93MM),*1991 retention rate,69,CU7021398RSA,Customer Loyalty,Insure Inc. - Total Retention Impact on Profitability,Profit improvement due to fewer acquisitions:,Profit improvement due to bette

41、r targeting:,Profit improvement from Higher Retention due to - Billing: - Customer Relocation: - Customer Recovery:,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

42、.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 $21.05MM,$47.25MM $33.60MM $24.15MM,$358MM,$740MM,$1,153MM,$1,577MM,$2,002MM,70,CU7021398RSA,Customer Loyalty,Insure Inc. - Summary,By pursuing the following activities Insure can achieve its

43、target retention rate thereby improving profitability.,Insure Inc. sought to improve its growth rate and profitability 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 i

44、s almost four times that of a 5-year customer The root causes of defection included price, customer service, and billing 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 targe

45、t customers were provided with superior customer service and fast and error-free billing and endorsements, Insure could increase customer retention by 10.3% and profitability by approximately $2B in 5 years,71,CU7021398RSA,Customer Loyalty,Insure Inc. - Profitability Improvement,Notes:,By improving

46、its customer retention rate, Insure could decrease its combined ratio, to match that of Firm State, the largest insurance company in the country.,72,Loyalty,Customer Loyalty,Agenda,What is Loyalty? Evolution of the Loyalty Practice Loyalty Economics How Bain Helps Clients Maximize the Value of their

47、 Customer Base Example Loyalty Tools,73,Loyalty,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

48、 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.,Customer Loyalty,74,Loyalty,Customer Definition (Retail Bank Example),Account,Individua

49、l,Household,Single Account,Multiple Accounts/ Individual,Multiple Accounts/ Household,Easy to Track,Possible to Track,Difficult to Track,Customer Definition:,Physical Measure:,To calculate retention we first work with the client to define a customer.,Customer Loyalty,75,Loyalty,Customer Definition,N

50、ext, we work with the client to define retention.,Suggested definition of retained customers,Car Servicing,Customers returns for annual service,Vending Machine Supplier,Customer continues to use machine/pays monthly or annual fee,Household Contents Insurance,Customer renews policy annually,Airline,O

51、ver a certain proportion of annual air travel expenditure retained,Supermarket,Over a certain proportion of weekly spend retained,Bank Current Account,Account open and experiencing similar volume and value of transaction activity,Mortgage,Customer redeems mortgage without taking out a new one or mer

52、ely paying it off,Customer Loyalty,76,Loyalty,Customer Retention Rate Methodology,Note: If given customer start date or customer tenure you calculate average retention rate 1-( ),Customer Retention Rate (85%),Next, we calculate retention rate.,tenure,1,Customer Loyalty,77,Loyalty,Loyalty Tools (Meth

53、odologies),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 Analysis,Qualitative and quantitative Ro

54、ot cause analysis Sample interview discussions Tips and suggestions,The next section describes the methodologies for completing loyalty analysis.,Customer Loyalty,78,Loyalty,Calculating Customer NPV,When calculating customer NPV we are building these stacked bars for our client.,Typical evolution of

55、 profit by customer,Acquisition,Volume,Cost Improvement,Referrals,Price Premium,Acquisition Costs,Base,Customer Loyalty,79,Loyalty,Calculating Customer NPV (Typical Methodology),Customer Loyalty,80,Loyalty,Calculating Customer NPV,Vending Machine Supplier,Supermarket,Airline,Acquisition Cost,High,Lo

56、w-Medium,Medium,Increased Spend,Medium,High,Medium,Other Product Purchase,Medium,Low,High,Reduced Operating Costs,Medium,Low,Low,Referrals,Low- Medium,High,High,Premium Pricing,Medium,Low,High,Avoided Closure Costs,High,Low,Low,To 80/20 analysis, focus on the economic drivers that will have the most

57、 impact.,Customer Loyalty,81,Loyalty,Loyalty Tools (Methodologies),Retention Rate,Customer Value (NPV),Share of Wallet customer corridor customer sieve,Root Cause Analysis,The next section describes the methodologies for completing loyalty analysis.,Customer Loyalty,Customer definition Retention def

58、inition Retention rate methodology,Typical methodology 80/20 suggestions,Share of wallet methodology Example frameworks,Qualitative and quantitative Root cause analysis Sample interview discussions Tips and suggestions,82,Loyalty,Customer Loyalty,Share of Wallet Calculation (Banking Example),Note: C

59、lient proprietary market research is usually required for calculating share of wallet for a particular customer or segment,Share of Wallet =,Customers spend on clients product,total relevant pool of spend (e.g., lifecycle spend),Overall,Components,Bank Y Share,83,Loyalty,Share of Wallet Frameworks,Customer Corridor (automobile example),Customer Entry,Shopping,Purchase,Delivery,Service,Trade-In,Repurchase,Service Retention,Trade-In,Points Where Value is Captured,P