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Customer Lifetime Value: Chickens lay more than one egg

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This isn’t a lot of contact considering the potential value of each customer, the cost of initial acquisition, and the vast array of sales and relationship building opportunities.

The benefits of right customer, right time

If insurers want to solve the multitude of major issues that nag them – such as underwriting profitable customers and reducing the loss of these to competitors in increasingly price-savage market conditions – then they need to maximise the potential that exists within their current customer base.

Insurers hold a great deal of information about their customers’ personal circumstances, which combined with external sources – credit profiles, social media and quotation data – can make a much simpler job of establishing a customer’s precise needs and the right product mix to serve them. And they need not wait until it’s time for a renewal to target those customers statistically likely to churn. If an insurer has something worthwhile for a customer, it’s logical that they should let them know whatever the time of year.

The key is to make sure that contact is at the right time, to the right customer, with the right offer.

Customer Lifetime Value: how and why

‘Customer Lifetime Value’ (CLV) and elasticity of demand are important concepts. A company that follows a CLV pathway will shift its focus from immediate profits to the long-term health of their customer relationships. And ultimately it’s all about the customer.

Healthy relationships with policyholders are likely to generate much higher, long-term premium incomes through renewals, repeat purchases, add-on sales, and reduced claims incidence. It’s a shame to think that customers, once converted, can be lost through indifference or overconfidence. CLV can be a vital ingredient in preventing this. Use it to help create a well-defined strategy to convert each customer into a permanent source of incremental revenue over a long period of time; focusing insurers on good quality customer engagements and delighting the customer in the process.

CLV enables companies to allocate limited resources for ongoing marketing activities in order to achieve a maximum return; encouraging marketers to focus on the long-term value of customers instead of investing resources in acquiring ‘cheap’ customers with low revenue values. It’s the management of the customer relationship as an asset.

Operationalising the data

This is why it isn’t just about having the data – it’s about what to do with the data (the value not the size). Analytics has to be ‘operationalised’ to be of use. In other words, the staff at the coalface have to have the right information, at the right time, to provide the right service to customers. Data insights are useless in a back office spreadsheet. Call centre staff and the marketers in head office should be equally aware of the behaviour and present circumstances of their customers – so they can send an email at the right time or offer the most relevant product on a renewal or customer service call.

This ‘customer relationship’ mindset is much more likely to prevent customer churn, and this method of income generation is far less expensive; delivering higher returns than the strategy of focussing only on new business. After all it’s a universally acknowledged fact that 20 per cent of customers contribute 80 per cent of total profits. All customers are not equal, and to treat them as such is wasteful.

Just this week CMO stated “marketers looking to generate a dialogue with consumers have to think like publishers and understand the whole customer experience, not just measure it, if they’re to be successful”.

To get CLV driving greater, sustainable profits, all the data that insurers hold needs to come out of storage, be converted into customer insights, and get into the call centres and marketing departments – in a way that the end user can benefit from it.

If a farmer built and stocked a chicken coop, and the chickens laid every day, he’d be foolish if he only collected the eggs one day a year.

Bart Patrick is VP at EXL: European Banking and Insurance service.

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