Halt Customer Defection
You can determine the accuracy of your models by conducting in-market testing of all risk groups, with special focus on marketing to a statistically representative group of consumers in the higher deciles—those who are least risky. Normally, these are consumers you would not need to market to if you are using attrition models, but it’s necessary to market to some to calculate save rates.
In the lower deciles, develop smaller test cells to measure both defection and save rates. From these test results, you can determine if the model still is valid by measuring defection and save rates to ensure they are rank-ordering the way the model was designed. If the results stop behaving as expected in terms of rank-ordering and size of deciles, it is time to re-evaluate. The ultimate measure of model validity is that the cost savings far out-strip the lost revenue due to more restrictive customer promotional campaigns and programs.
Use Models to Target Investment
A key part of the evaluation process is looking at the ROI taking place across the model deciles. If you use the same marketing approach and select the same spending in each retention decile, the ROI in the higher deciles will be much greater than the ROI in the lower deciles. If you currently are spending money to market to everyone in your customer base, you likely are wasting money by targeting the lower-performing deciles. You will be better off using the money to reinvest in top-quality marketing materials or loyalty programs aimed at your upper-decile customers.
You can use the information gleaned from your models to determine the best use of your marketing dollars and to proactively focus your efforts on consistently active and loyal customers. Modeling also can give you better insight into developing messages, creative, new offers or prices to more effectively engage these key deciles.