Lifecycle management task is to influence customers’ behavior depending on which user journey stage they are in currently. The cycle is typically a period from product acquisition to closure.
Everything that is between these 2 events is called “lifecycle” of a product. Let’s look at credit card lifecycle as an example here:
Figure: Illustration of credit card lifecycle
We can identify at least 4 major stages in credit card lifecycle: acquisition, usage build up, loyalty build up and retention. This is the most basic approach. Each stage can be divided into more detailed substages depending on the business need.
The actual performance of each stage should be viewed performance specific at every stage as well as proportionally of the entire portfolio.
- Acquisition – the major metric we track here is Cost Per Acquisition (CPA). As this stage can be characterized by profitability going below zero, we advise that CPA is key to potential return in the future. Topics related to CPA is future performance of portfolio depending on the channel used to acquire cardholder. As general rule we recommend that pull channels result in better performing portfolio compared to push channels. However, we work with issuers to build technical possibility to track the performance. This is commonly aimed at creating a
- Usage build up – as a rule of thumb we accept that this is first 6 months on books (MOBs) of the card. Each project we deliver takes different circumstances into account in order to select the period more precisely. Based on our experience, this is the most critical period when final behavior of the credit cardholder is established. With the data collected , already after first 6 MOBs we can, with high probability, identify customers who will be paying interests (“revolvers”) and those who will have a tendency to repay the card balance in full (“transactors”). On top of typical analysis, we advise you to put an emphasis on speed of activating customers compared to previous periods. Therefore, daily MIS tool should be a “vintage analysis”, which a special kind of cohort analysis limited to cards acquired in the same period, typically a month.
- Loyalty build up – the core and in majority of cases the biggest chunk of the credit card portfolio. Usage is at the close to final level. There are no “low hanging fruits” that can radically change the portfolio performance by influencing cardholder’s behavior. We work with our clients at this stage to extend it as much as possible. We spend time here to do more detailed break down of the card users depending on their approach to proportion of balance repaid. On top of above-mentioned revolvers and transactors, we are identifying cardholders who mix different types of behavior e.g., occasional users who mix periods when they use the card with inactive, zero balance periods or customers in pay down who do not use their card neither at POS nor in ATM but hold a revolving balance, which they try to repay. This is also the perfect timing to installment product cross-sell, which should help in gaining additional revenue as well as lock cardholders with the issuer for longer time. In projects related to this part of portfolio, an installments strategy is considered a priority.
- Retention – each cycle comes to an end. There is such time when customer proactively contacts us to close the product or at least we see that probability of card closure increases (how to see it is a separate topic called “proactive retention”). Our initial advise to clients is to know if the attrition is “regrettable” or “not-regrettable”. We know it requires automated scoring tools, which shares the immediate insight.
The topic of lifecycle management is broad. In this short blog entry, I only touched a surface by indicating selected MIS components that may be helpful in your portfolio management and are key in our discussions on portfolio performance improvement projects.
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