Slides for Retention Workshop, 24 June 2004

1
Mortgage Retention Holding onto profitable
mortgage business
Mungo Dunnett Managing Director, Mungo Dunnett
Associates
2
Background

• I run a business that operates across a range of
  professional service sectors
• We are also the main sales and marketing
  consultancy operating in the UK mortgage market
• And have dealt with significant number of
  Building Societies and Banks, on issues of
• Cross-selling
• Retention
• Databases
• Profitability

3
Purpose of today

• To explore
• 1) How the retention problem has arisen
• 2) The changes that have occurred in customer
  behaviour
• 3) Current levels of concern
• 4) Typical lender responses
• 5) Approaches that work
• To position you more strongly to protect yourself
  from the changing market dynamics

4
My approach

• What interests me are issues of strategic clarity
  and commercial efficiency
• The questions I ask are
• How can you operate more efficiently?
• How can you function more profitably?
• How can you generate more profitable revenue?
• Right now the greatest period of consumer change
  in the history of lender/consumer relationships
• Your ability to attract and keep the right
  customers is key

5
The agenda (1) The problem, and typical responses

• The remortgage phenomenon
• Changes in customer behaviour
• The economic effect
• Current levels of concern
• Typical lender responses and the harsh lessons
  learned
• The mortgage customers experience

6
The agenda (2) Mobilising the right activities

• Underlying customer motivations
• Management information
• Contact strategy
• Sales targets (and corporate strategy)
• Key personnel required
• Internal communication and motivation
• Measurement evaluation

7
Your intention for this workshop

• What would you like to get out of today?

8
The problem, and typical responses
9
The remortgage phenomenon

• Dominates the lending market
• And its here to stay (25 year fixes? I dont
  think so)
• Systematic educating of customers youre crazy
  to stay on SVR
• The lenders have created the phenomenon
  themselves, through their marketing
• But the message is fundamentally price
• Save some money now dont be daft
• Our mortgage rates dont get much lower
• Mortgages are largely a commodity price counts
• Highly questionable power of branding

10
Relentless growth of remortgaging (loyal or not)
of total profitability
Deciles most profitable to least profitable 10
11
And of switching lender (moving home or not)
of total profitability
Deciles most profitable to least profitable 10
12
The change to customer behaviour

• There is no meaningful benefit in remaining
  loyal
• Why stay on SVR?
• No amount of soft benefits will compensate
• Remortgage customers no longer simply the most
  astute (or the Money Mail obsessives)
• Its becoming everybody and once the knowledge
  is out there, it wont be forgotten
• Proportion of mortgage book on SVR is
  systematically eroding
• Some lenders facing real solvency issues

13
Dont trust what you hear

• Believe half of what you see, and none of
  what you hear Lou Reed
• Retention produces significant misinformation
• Sometimes inadvertent (benchmarking study where
  companies are asked to evaluate themselves)
• Sometimes deliberate (motivation for conference
  appearances..?)
• Success is anecdotal
• And rarely measured robustly in any case

14
Even the metrics are changing

• The key measurement used to be Average Mortgage
  Life
• It was seen as a driver of profit the longer the
  life, the greater the profit (Customer Lifetime
  Value)
• But this is now heavily corrupted
• Lenders have lengthened mortgage life by churning
  their own SVR book
• And spinning customer back onto low-margin
  products
• This is increasing mortgage life but
  sacrificing profit
• Plus its another entirely generic measurement
• The message watch what you measure!

15
Typical retention profile

• Distinct pattern across nearly all lenders
• Attrition increases with increased remoteness
  from traditional sales channel
• Retention strongest on branch business
• But worse on Call Centre business
• And internet business
• And noticeably worse in introduced business

16
Lessons from elsewhere

• There are two mistakes the unsuccessful lenders
  are repeatedly making in dealing with retention
• 1) Not knowing who to focus retention efforts on
• You must do the analysis to answer the key
  questions
• Without this, the retention efforts will be based
  on guesswork and impossible to assess robustly
  for ROI
• 2) Not engaging properly with customers
• Dont just rely on marketing
• You must also use the sales and customer service
  channels, and focus on clever implementation

17
Current status of UK mortgage lenders

• UK lenders are in one of four categories
• 1) Analysis, but no implementation
• Analysis flawed, or gross sales culture too
  engrained
• 2) Implementation, but no analysis
• Generic, and mainly in response to Nationwide
  move
• 3) Analysis, implementation and established KPIs
• Very few and not necessarily the big names
• 4) Unstructured discussion
• Organisational resistance, and lacking analytical
  skills

18
Distribution strategy (1) Volume Chasers

• The fundamental drivers of distribution strategy
  can vary
• Some are essentially driven by market share
• Or by sales targets (gross lending)
• While FTBs are disappearing
• And branch footfall is dropping
• Volume is key
• Out of Area / high balances are ideal
• But with untracked profit impact
• Tends to be more volatile / inconsistent approach

19
Distribution strategy (2) Margin Chasers

• Alternative approach
• Tends to be more consistently applied
• And based on sound analysis of underlying
  economics
• And/or on firm decision to specialise in certain
  key markets/geographies, and not in others
• Distribution strategy will radically change your
  customer profile, business volumes and profit
• Do all lenders understand the dynamics?

20
The main activities undertaken in the last 2 years
21
1) Follow the Nationwide

• Either (a)
• Cut a substantial amount off SVR for all
  borrowers
• Or for all borrowers who have been with the
  organisation for a certain length of time
• Or for all borrowers but only if they ask
• Or (b)
• Make new borrower rates available to SVR
  customers
• Or offer new borrower rates to those SVR
  customers who shout loudest
• Or offer some in-between product to SVR customers

22
Problems with the follow the Nationwide strategy

• Generic
• Gives away margin across the board not only
  where it is needed to save the customer
• Unevaluated incremental benefit completely
  unproven
• Very difficult to unwind sets a major precedent
• Comes straight off the bottom line of the
  organisation
• Does not address the underlying issue
• Customers taught to expect cheap deals ad
  infinitum
• Nothing is done to add value in any other way
• Some loyal customers are woken up by the
  contact
• And the others are made even more price-conscious

23
2) Maturity management

• Address the immediate burning bridge run-offs
• By generic pricing (as above)
• Unevaluated
• Or poorly evaluated at best, simply in terms of
  balances retained or customers retained
• Communicated too late (typically 4-6 weeks
  pre-maturity)
• By letter
• And increasingly by call centre (sometimes by
  branches sometimes by outsourced 3rd party call
  centre)
• Without consistency of approach
• Or linkage into other organisational activities

24
3) Review the acquisition policy

• Realisation that the volume-led acquisition
  strategy is not commercially sustainable
• It will only lead to declining solvency
• But getting off the treadmill is too tough to
  do
• The sales force will never accept it
• The introduced business will dry up
• It would be an unacceptable reversal of the
  established growth strategy
• We will never be seen again as a national
  player
• and nothing is done

25
4) Wait for the market leaders to change
direction

• Assumes that other, bigger organisations will
  realise the error of their ways, and step back
  from the price wars
• Based on the presumption that the market leaders
  are subject to the same pressures
• But they are not analysts (until the present,
  anyway) value gross lending, book growth and
  market share
• Market share must be protected at all costs
• And the more complex balance sheet will conceal
  the ills of the narrowing average margin

26
5) Demonstrate mutual status

• A variant on the Nationwide policy
• Allows all customers access to all rates
• In order to demonstrate how customer friendly
  they are
• Generic because anything that is not generic
  exposes them to claims that we are not a proper
  mutual
• These policies sometimes articulated overtly to
  customers and staff
• And used by sales staff to churn mortgages onto
  new borrower rates
• Severe difficulty unwinding this combination of
  stated product policy and corporate citizenship

27
Lenders responses summary

• Some are wedded to the old sales model
• Best Buy tables
• National business (augmenting regional retail
  base)
• Record lending
• Issues of sales culture if they change (or more?)
• Others have allowed access to new borrower rates
• Or to an in-between product
• Some are offering it to all customers
• And others are selecting the most valuable /
  highest risk
• Some are debating it without resolution

28
Question

• Has your organisation been motivated mainly by
  volume or by margin?
• Do you feel your organisation is in control of
  these factors?

29
The threat from the intermediary channel

• The intermediary channel is becoming increasingly
  powerful
• A means of increasing national reach and lending
• But at a heavy (and usually unevaluated) cost
• Usually given secondary importance in operational
  and servicing terms
• And all but ignored in terms of communication and
  other revenue-generating customer contact
  activities
• There is a high correlation between introduced
  business and attrition
• The introduced business must not be outside scope

30
Combination of customer type contact strategy

• Introduced business is generally physically
  distinct from the lenders brand and operations
• Never used the branch
• Or far distant from the heartland (regionals)
• Tends to be bigger ticket loans which
  correlates with financial astuteness
• But introduced customers are not brought into
  the fold

31
Financial impact

• Introduced business is already low-margin
• It needs to be, to attract best-buy status
• And to compensate for falling branch footfall by
  allowing the sales machine to fill its order book
  
• It also offers low cross-sale income
• And attracts high acquisition costs (proc fees)
• However, the unseen damage is in the churn
• It is not staying on the book

32
Customer behaviour the customers perspective

• How does the buying process operate for Direct?
• By having a local brand presence shops, and a
  strong name that is distinctive
• First thought how many can genuinely say this?
• By advertising
• Do customers trust what they see?
• Can they even understand it?
• Through Best Buys
• Which they can ill afford to do see earlier
• Where is the trust? Is this how a sustainable
  service business should operate?

33
The marketing message vs. reality

• Lenders have tended to use all the right-sounding
  slogans to market themselves
• Customer first
• Customer centric
• Customer relationships
• Working for you
• TLC not PLC
• CRM and all the rest
• But what is the actual customer experience of
  going direct to a typical lender?

34
The branch customer

• Typical scenario
• Significant effort by (usually) a single key
  individual, from enquiry to application
• But from application to offer, communication
  drops
• And between offer and completion, it drops
  further
• Perception are the branch staff really experts
  at all?
• By the time of completion, many branches have
  handed over entirely to head office
• And thereafter?
• Nothing from most branches Annual statement
  (thanks!)
• Clunky cross-selling mailings
• And suddenly maturity contact

35
The call centre customer

• Typical scenario
• Good and swift response from Direct team
• Named individual during enquiry process
• New person often takes over at application
• Now service levels drop call waiting, new
  people, missing documents lost history
• And post-completion same as branch customers
• How do customers feel about this..?

36
Customer feedback (various lenders)

• Sense that the person they formed an initial
  relationship with has disappeared
• Which undermines the whole relationship
• Primary allegiance for branch customers the
  person in the branch
• Then the local branch itself
• And only lastly the lender as an organisation
• Sense that they were conned once the sale is in
  the bag, service levels drop, proactive effort
  falls and they are ultimately ignored
• Confirms worst suspicions about marketing puffery

37
By contrast typical intermediary customer

• Typical scenario (face to face transaction)
• Customers almost always handled by the same
  advisor throughout the sales process
• An old fashioned type of personal service
• Seen as providing objective advice
• Willingness to go the extra mile
• Proactive and also efficient in returning calls
• Personal chasing of the lender sparing the
  customer
• On the customers side battling the lenders
  rules and inefficiencies on the customers behalf
• Reduces worry, hassle, personal time and effort
• Post-sale continuing contact, continuing loyalty

38
What customers respond to

• Signs of increasing customer resistance to the
  notion that lenders should be the first port of
  call
• It is part of the modern consumers increasing
  scepticism of spin, advertising and salesmanship
• This plays to the intermediaries if they come
  up to the mark
• Your reputation is everything
• It is founded not on puffery and over-promises
  but on good practice and careful attention to
  customer needs
• Which is the key to any long-term service business

39
And its worse common lender prioritisation

• Great majority of lenders devote less post-sale
  attention to the introduced customer than Direct
• Typically not included in main activities across
• Servicing
• Marketing communications
• Profitability analysis
• Trend / segmentation analysis
• Consumer research
• The message this is a low-value part of our
  customer base
• Theyre not really our customers

40
Key tools brand and service

• You cant afford to continue to have one half of
  your customers arriving with no meaningful idea
  of what your brand stands for
• What are your values?
• What is special about you?
• What have they joined?
• Why should they transfer allegiance to you?
• The local service values of the broker are far
  outperforming many lenders marketing promises
• You must get substance into the customer
  relationship

41
Summary the classic mistakes

• Implementation that is not based on analysis
• Approaches to the customer base that are generic,
  and therefore offered to everyone
• Excluding certain channel customers from
  consideration
• Dangerously unstructured reactive deals, struck
  with pushy customers
• Initiatives that are fundamentally based on price
  discounts (where the only certainty is a profit
  cut)
• Mismanaged and poorly evaluated pilots

42
Mobilising the right activities
43
Crucial protection for your profitability (1)

• Dont simply deal with customers on price
• If there is no other means of determining value,
  they will default to the simplest method (rate)
• It is vital that you do whatever you can to avoid
  taking margin straight off your bottom line
• For many customers including some of the most
  vociferous it will not be possible to avoid
  price
• For the remainder, there are other ways to make
  an impact
• And this is a game of inches just like the
  Cards market

44
Typical flaw in customer management

• Two critical components
• Lack of recognition
• You dont even know who I am. Im a valuable
  customer, but you dont treat me like one.
• Lack of communication
• You dont even bother to take the time to
  contact me properly. To you, Im just a number
  and youre only interested in me when you want to
  sell me something.

45
Establishing meaningful messages

• Not just an issue for introduced customers
• Most lenders largely ignore customers post-sale
• With exception of cross-sales lead lists, and
  direct mail
• Get to them early
• Must start to establish relationship pre-drawdown
• And heavily thereafter
• This is the substance lacking in the marketing
  promises and relationship messages

46
Relationship deterioration

• The relationship begins to deteriorate to a
  price-and-product proposition, and the scene is
  set for attrition
• This is a fundamental breakdown of a genuine
  retailing relationship
• The retention problem starts with acquisition
• Because of the way they were attracted
• And the way they were handled
• Should they even have been attracted at all?

47
Crucial protection for your profitability (2)

• It is fatal to attempt to manage attrition
  without being fully conversant with the facts
  about your own customer base
• Some of the most expensive failures in mortgage
  retention have been organisations going on hunch
  and ill-informed decisioning
• Do not treat customers the same
• Understand the differences between customer
  groups so that you can protect yourself

48
Some customers are more important than others
Success is getting the right customers and
keeping them
Frederick Reichheld
49
Typical profitability profile of customer bases
of total profitability
Deciles most profitable to least profitable 10

• Pareto efficiencies nearly always manifest
  themselves within a customer or product base.
  The top 20 produce 80 of profit.

50
The effect on the bottom line

• A 10 improvement in the retention of the top 10
  customers, together with a 10 reduction in the
  retention of the bottom 10, creates a 70
  increase in the long-term value of the entire
  customer base
• Whereas lifting all customers retention rate by
  10 only creates a 20 increase in value
  Advisory Board

51
You must understand your own profit dynamics

• Typical situation relatively poor understanding
  of actual profit drivers
• Pricing decisions based on broad Treasury
  assumptions
• Acquisition and servicing costs usually deemed
  too hard to determine or too political
• Basic costing to 80 robustness will quickly
  identify key margin issues
• Determine all basic costs
• This is not Activity Based Costing hell!
• Track customer behaviour retention levels are
  key
• Revenues balance x margin x longevity

52
Common misconception its too expensive

• It is often believed to be prohibitively
  expensive
• Figures of 200k or more for necessary IT
  platform
• Expensive modelling packages
• Impossibility of assembling robust data to feed
  in
• Ongoing dependence on consultant techies
• In order to assemble the information you need
• The data can be analysed on Microsoft Access!
• The issue is not size or technology its skill
  and experience
• A fully workable suite of management information
  costs 10-25,000 (depending on the size of
  customer base)

53
Typical result of mortgage book analysis
of New Closed Customers by Channel
Average Balances of New Closed accounts by
Channel
New Acs
Ave Bal New
Ave Bal Clsd
Clsd Acs
70
90,000
80,000
60
70,000
50
60,000
40
Percentage
50,000
30
40,000
of total profitability
20
30,000
10
20,000
0
10,000
Branch Direct
Introduced
Telesales
Unknown
0
Channel
Branch Direct
Introduced
Telesales
Unknown

• Your mortgage book will show substantial skews
• By channel
• By customer location
• By product type and price competitiveness

Deciles most profitable to least profitable 10
54
Typical result of mortgage book analysis
Where the mortgage profit is generated -
Profitability of Mortgages at Customer level
35
31
30
25
20
17
Percentage of profit
13
15
10
8
10
7
5
4
3
5
1
0
1
2
3
4
5
6
7
8
9
10
Profit Decile

• The pareto skew will be evident in your Book
• Primarily (of course) in the SVR / non-SVR split
• But also across your customer-level profitability

Deciles most profitable to least profitable 10
55
Typical result of mortgage book analysis
Account Profitability - New Vs Closed
1,200
1,000
800
600
Average Profit
400
200
0
Jul-03
Apr-03
Oct-03
Jan-04
May-03
Jun-03
Aug-03
Sep-03
Nov-03
Dec-03
Feb-04
Mar-04
Avg New Profit
Avg Clsd Profit
Month

• The trends will be there to see
• Relating to the changes in your acquisition
  strategy
• And also to your increasing exposure to high-risk
  customers

Deciles most profitable to least profitable 10
56
Typical result of mortgage book analysis
Percentage of Mortgage customers in each Mortgage
Customer Profit decile by
Area
14
12
10
8
Percentage
6
4
2
0
1
2
3
4
5
6
7
8
9
10
Profit Decile
Cust In Area
Cust out of area
Deciles most profitable to least profitable 10

• The commercial damage and the correct route to
  take will become quickly evident

57
The essential analytical information

• You must have the facts
• 1) Attrition propensity
• 2) Customer profitability (preferably across all
  products)
• 3) The attrition, cross-purchase and profit
  profile of recently acquired mortgage customers
• 4) The attrition profile of upcoming maturities
• This analytical process is usually the single
  most cost-effective exercise you can undertake
• Without it you are flying blind in an area with
  huge impact on your corporate profitability

58
Essential customer research

• Can you be sure you know what your customers,
  prospects and lost customers think about your
  service from first enquiry to redemption?
• This is phone interview work
• Dont do it yourselves, or you will not hear the
  truth
• A small amount of customer research is guaranteed
  to reveal uncomfortable insights about your
  business
• Why people like your organisation and dont
  like it
• How you compare against other lenders
• And what you need to change to increase results

59
Question

• How well are the different customer types you
  have been attracting understood within your
  organisation?
• How well is the underlying profit understood?
• How well is the attrition propensity understood?

60
The message

• Focus!
• Focus!
• Focus!
• Both sales and retention must focus on the
  customers that count, and the activities that
  matter to them
• But its how you do it that makes the difference

61
How do we address this communications problem?

• Think of the analogy of relationships
• It is absolutely essential that you are seen to
  take the first step in building goodwill with
  your customers

62
The ideal customer experience?

• You know who I am, and value me as a customer
• Everyone in the organisation knows about me, and
  I dont have to explain what I want or how I want
  it every time
• You encourage me to make comments you listen,
  and value what I say
• You dont send me junk mail or offer me things
  you should know I dont want instead, you make
  proactive offers which are timely and relevant to
  me
• We work together in a valuable partnership to
  define the right thing for me

63
Ongoing customer contact

• Sorry, butyour customer contact strategy has
  exacerbated the retention problem in the first
  place
• Addressing customers arriving at the stress point
  will do nothing to stem the underlying problem
• You must be more proactive with these customers
  during the life of their relationship
• This is a classic failing of service industries
• Build an ongoing customer contact programme

64
The customers daily experience is your brand

• The ability to retain customers and grow their
  business depends on the reality of their daily
  experience of their lender
• It depends on whether they think their lender
  appears to recognise them, and to value them
• This perception is only as strong as the weakest
  link this is a fragile relationship
• Customers will respond to what the company does
  in customer interactions, not what it says about
  itself

65
Using the full communication toolkit

• Retention is inextricably bound up with
  communication
• Requires a properly controlled series of
  communications
• Based on a close understanding of what customers
  respond to
• Communication means all major contact points
• Automated messages
• Inbound customer calls
• Outbound and courtesy calls
• Direct mail
• Branch enquiries

66
Combination of communication and data

• Cross-selling, allegiance and profit are all
  connected to a sense of mutual benefit
• That the organisation cares
• That I know what it can do for me
• That it listens to me
• That it is worth my while imparting personal
  information to them
• It is vital to establish this mechanism early
• And show customers that it is worth their while
• They will not take the first step

67
Customers are savvy do it like you mean it

• Remember the analogy of relationships
• and taking the first step in building goodwill
  with your customers..?
• Dont fake it!

68
Instead of which typical data communications

• Its not the systems, its the people
• Watch out expensive database systems will not
  make things better theyll only make them
  quicker
• A simple system used by clever people is better
  than a clever system used by idiots
• Think what do you really need?
• The information the customer has told you about
  themselves (with permission)
• Their product details
• And their diarised future contacts

69
Vital ingredient establish goodwill

• Inbound contact is important but depends on the
  customer contacting you
• The real opportunities lie in contacting the
  customer in order to trigger customer goodwill
  and lay a foundation for a proper dialogue
• But outbound contact needs care, to ensure it is
• Accepted by the customer
• Relevant to the customer
• Likely to create a worthwhile outcome
• And be careful customers are initially wary, and
  quickly bored

70
Link your knowledge of the customer

• Use everything
• Analytical information
• Transaction reports
• Front-line sales and service staff feedback
• The best customer contact achieves impact through
  the sheer timeliness and relevance of the
  personalised contact with customers
• Linking call centres and branches (the basic
  contact points) can create massive impact

71
Building dialogue through goodwill gestures

• Unexpected offers can be exceptionally powerful
• They present real opportunities to create
  goodwill
• They can be used as a means of conveying the
  companys sense of that customers personal
  importance
• They can lock in allegiance especially when
  followed by a personal contact
• Their effectiveness requires monitoring (as with
  any direct marketing activity) for
  cost-effectiveness and for decay of effect over
  time
• Watch out for price plays! Be careful!

72
Affinity groups

• Affinity groups tap the customers own sense of
  personality and uniqueness
• They also guarantee customer interest
• Allying with major niche interest areas can be
  enormously lucrative
• Can you segment the base by interest area?
• What does your organisation stand for? What
  could it..?

73
The approach enhanced contact

• The ongoing work is aimed at establishing a
  meaningful, personal contact with customers
• The sense that we know them
• The sense that we value them
• The sense that we pay attention to them
• By linking the Marketing materials more closely
  with the existing sales and service contact with
  customers

74
Outmarket the intermediary

• You need to match them or beat them on
  timely, relevant and personal communication
• Maintain meaningful local contacts where possible
  (think return on investment, not cost)
• Or, at least, maintain head office relationship
  (not just generic magazines)
• And use the information the customer has given
  you intelligently and sensitively
• Avoid the scramble at maturity time have a
  relationship established already
• Stay in touch with relevant messages

75
The hardest step of all integration, and
implementation

• Getting sales, marketing and service teams to
  work together is critical and desperately
  difficult
• All the tools can be there analytical work
  research salesforce marketing budget call
  centre multiple contact channels
• And yet the customer experience continues to be
  fragmented and unsatisfactory
• Because people work in silos!
• Has your organisation got the stomach for change?

76
Linking the three key functions

• It is essential to link all three activity areas
• Failure to do so is at the heart of CRM failure
• These are the key drivers of incremental revenue

77
What it all depends on the customer experience

• No amount of fancy marketing can conceal an
  unsatisfactory customer experience
• Its worth putting yourself in your clients
  shoes what would you think of the contact you
  have from your own organisation?
• How fragmented is it?
• Does it feel like one company, or many?

78
Creating common direction and common buy-in

• The best programmes work through
• Simplicity
• Intensive and sustained internal communications
  not just a corporate video
• Build it in steps, with steady success pilot
  programmes
• Corporate buy-in
• The measurement and learning opportunity
• Staff buy-in

This is where many lenders are failing the
bigger they are, the worse they tend to be
79
Keep it simple get it right

• The key is to mobilise do not get bogged down
  in unnecessary expense or complexity
• Keep it simple, but very focused
• Controlled a formal customer contact strategy
• The key customers
• With the key messages
• Delivered through the obvious channels
• Speed accuracy impact

80
Change staff behaviours

• Create a sense of urgency amongst the relevant
  staff right from the top
• Consider incentivising different behaviours
• You cant afford to have all salesforce efforts
  focused on selling
• Adjust performance metrics and expected
  activities
• Net lending targets
• Branch-specific retention figures
• Additional bonuses
• You must win hearts and minds

81
Evaluate

• It is vital that you dont reduce the existing
  margins
• If you are offering any improvement in the
  default rate, measure for incremental retention
• Measure staff performance
• Identify best practice and share it
• Identify weak performance
• Identify maverick staff behaviour
• Careful the effect on the bottom line is very
  significant

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Key measure return on investment

• Success is determined by
• Incremental profit over time
• Or incremental surplus to protect and grow
  solvency
• Generated by a combination of product holdings,
  margin and longevity
• Sales, marketing and servicing decisions ought to
  be driven by these factors
• But are they understood?
• Must track the responsiveness of customers to
  different activities
• Does it drive incremental profit? (not simply
  retention)

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The main action areas
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Most lenders first port of call maturities

• The issues
• Avoiding waking everybody up
• Having the information to hand
• Getting to them in good time
• Not offering more than you need to
• Testing and evaluating
• These are monthly chances to test and learn
• Dont treat them as one-offs plan for
  measurement
• Combination of selection, pricing communication

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The other common activity handling redemptions

• The issues
• Not acting on the information (the customer will
  usually give you the chance)
• Giving away too much
• Opening the floodgates (need a defensive strategy
  that protects you, by focusing on key customers)
• Negotiation training
• Do not put this in the hands of anyone other than
  your best staff
• And ensure that every eventuality is covered

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The long-term strategy building relationships

• The issues
• Involves big strategic decisions
• And budget looking after customers costs money!
• Integrating with marketing (esp. communications)
• And with Sales
• Measuring (and piloting)
• Keeping the contact fresh
• Training it could involve all customer-facing
  staff
• Start with selection, research and piloting

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You need to focus on three separate areas

• It is essential that you re-evaluate how you deal
  with your borrowers
• 1) Maturity management
• Test-and-learn activity based on analytical
  outputs
• 2) Improved relationship with borrowers from
  the beginning of their product life
• Move away from last-minute damage limitation
• 3) Create defensible new value product for
  loyal customers
• Deliver a new customer benefit while protecting
  margin

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The longer-term goal

• Most lenders are now active in maturity
  management though most still do very little to
  foster communication post-sale
• There is a huge gap between sale and maturity
• This is where the active broker will out-service
  you
• The combination of basic marketing science and
  localised sales management techniques can deliver
  substantial profit gains
• And leads directly to cross-sales
• This is the differentiator lenders seek

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Summary protecting against churn

• Understand the customer perspective
• Get the basic analytical work done
• Do the basic consumer research
• Get the facts
• Initiate proactive contact with customers early
• Separate the customer from total allegiance to
  the broker
• Create meaningful and data-driven
  communication programmes
• Based on people, and on obvious human effort
• Measure understand the gearing effect on profit
  and let it work for you, not against you

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Feedback

• Views on today?

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OXFORD AND EDINBURGH
Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
info_at_md-as.com Web www.md-as.com