Enterprising Developments

When Data Goes Against the Grain

Joe McKendrick
Insurance Experts' Forum, April 20, 2012

Customer lifetime profitability is one of the holy grails of analytics, and companies are often surprised when they see data that goes against what they assumed was gospel for their business. Like when a bank discovers that its high-income customers aren’t the most profitable. Or the insurance company that extends discount rates to hang on to marginal customers that end up defecting to a low-cost Internet provider anyway.

The question is, how do you know when a customer costs more to keep than to simply let go? There's conventional wisdom, or a sacrosanct rule of business, that the name of the game is expanding and acquiring as many new customers as possible. Analytics is seen as the way forward to cracking open new markets, but analytic tools can also show you where you may be better off closing markets.

Tibco's Brett Stupakevich recently posted an interesting perspective on this role of analytics that goes against the grain. He points out that new analytics technology—embedded within customer relationship management solutions—can scale down your reach to certain customer segments as much as it helps to scale up sales.

Brett provides three key metrics that help determine whether a customer is worth chasing:

- Cost to acquire: “Does a customer’s buying patterns justify the cost to acquire him?” CRM analytics can quickly provide actionable insight from disparate data sources to answer this question.

- Cost to retain: “It might be time to fire one of your customers if the cost to maintain his business—through excessive use of your call center or a record of paying late—exceeds the money he spends on your goods or services.”

- Cost to woo: “CRM analytics can show a marketing department if its campaigns are paying off.”

The bottom line is that by using analytics to unearth unprofitable customers, energy and resources can be spent on segments that are generating most of the revenue. It sounds like sales and marketing 101, but until now, the gut reaction has been to try to keep every customer as long as possible. Data analytics has changed the game.

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.

Readers are encouraged to respond to Joe using the “Add Your Comments” box below. He can also be reached at joe@mckendrickresearch.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Insurance Networking News, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Blog Archive

Google and Insurance: One Year Later

Google is getting the approval for selling insurance on their compare site in a large number of states via a number of different insurance partners.

How IT Managers Can Get Close to Policyholders

Four steps CIOs need to take to lead insurance organizations to greater “customer obsession.”

Strategic Initiatives for 2015: Making Sense of the Shifts

Insurers must choose between embracing innovation or just continuing with business as usual and run the risk of becoming a casualty in the new competitive battle.

To Stay in the Game, Insurers Must Aggressively Embrace New Consumer Technologies

Emerging technologies displayed at the CES could be some of the greatest change agents since the introduction of the Internet, offering breakthroughs that could challenge many businesses.

Marketing: The Insurer’s Shadow IT Department

Marketing executives continue their march into the insurance data center.

The Usage-Based Insurance (UBI) Short Cut

Developing a usage-based insurance program has now gotten easier.