Modelling cross-sales to promote customer retention in the financial services industry: the 'who-what-when framework'. Two case studies
Salazar, María Teresa
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Customer retention has been shown by academic researchers to be more profitable than customer acquisition. However, its implementation in the business environment has not been so successful. One of the reasons for this is that customer retention can be achieved in several ways (i.e. loyalty programs, affinity cards and switching costs) and that the translation from the concept of “retaining customers” to the actions and strategies to retain them is not always easy. One of the most attractive strategies to ensure that customers remain within the organisation is through cross-selling and up-selling. In short, the objective is to increase the number (or the value) of the products that a customer buys from a company to make it more difficult for him/her to leave. Whilst academic research has deeply investigated the concepts of loyalty, retention programs and trust, amongst others, cross-selling has not received the same level of attention. Moreover, existing research on cross-selling has been focused on products rather than on services. Finally, this research has mostly been conceptual in nature, with limited attempts to model or design practical cross-selling and up-selling strategies. In order for crossselling and up-selling to be effective retention strategies, they need to be tailored to the needs of the customer. The offer must be adequate in terms of the target (who is going to buy the product), the content (what is going to be purchased) and a time (when is the right moment to offer the new product). This thesis investigates customer retention and cross-selling and up-selling from a practical point of view in the financial services industry. Firstly, it assesses the importance of the concepts of customer retention and cross-selling and up-selling through several interviews conducted with financial services providers (insurance companies, building societies and independent financial industry bodies). Having established the relevance of these concepts in the industry, the next step developed and applied a framework to design cross-selling and up-selling strategies. This framework, named the “Who-What-When” framework, was applied to the transactional and customer data bases of two financial services providers (a Spanish insurance company and a UK building society). The “Who-What-When” method ii begins by segmenting the customer base in order to understand the characteristics and potential of each customer. It then, moves to modelling purchase propensity models, understanding the relationships between products in order to determine what product should be offered to each segment, according to their characteristics and their consumption history. Finally, it analyses the time sequence of the purchases in order to determine the right time (when the purchase is more likely to occur) to approach each customer, bearing in mind how they behave and the maturity of the products already held. The contribution of this thesis is twofold. From an academic point of view, the research demonstrates the importance of customer retention and cross-selling in the financial services industry, being both recognised as key strategic and tactical approaches for the future of the industry. Secondly, from a practical point of view, it contributes by developing an analytical framework to discover and design crossselling and up-selling strategies, aimed at retaining customers. This is achieved through the ‘Who-What-When’ framework which takes into account customer characteristics, consumption patterns and acquisition sequence to model cross-selling activities. Therefore, it refutes the traditional approach that ‘one size fits all’, advocating tailored strategies. Finally, this research highlights, from the empirical analysis, how repurchase decision is highly influenced by the length of the relationship with the provider and the type of products already purchased. Understanding these factors is key to successfully retaining customers via crossselling.