big data meets customer profitability analytics
TRANSCRIPT
Architects of Fact-Based Decisions™
Big Data Meets Customer Profitability Analytics
Jaime Fitzgerald, Founder and President,
Fitzgerald Analytics
April 17, 2012
2 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Introduction:
1. Big Data… Big Results?
2. Customer Profitability Analysis
3. Implications of Big Data
4. Conclusion and Questions
Table of Contents
3 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Nice to Meet You!
Jaime Fitzgerald @jfitzgerald
• Key Mission is to Find & unlock opportunities via data, technology, people, + processes.
Principles:
“Begin with the End in Mind” (Covey) “Quality is Free” (McGregor)
Data to Dollars™ specialist. To do this, created a structured methodology and toolkit to accomplish this. Will share at EDW12!
4 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
From to Data to Dollars
It’s a journey…
Really Big Data
Product of everywhere
Big Data Product of Alberta
Small Data
1
3
2
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My Perspective Towards “Big Data”
Skeptical (of the hype)…
….yet
Cautiously Optimistic!
Big Data Product of Alberta
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Big Data Hype – Does is Cause a Problem?
“Data is the New Oil” – World Economic Forum Report
7 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
The Potential is Real…It’s Just Not Easy to Get
8 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
And Something Old, Essential, & Profitable
“There is only one valid definition of a business purpose: to create a customer.” (The Practice of Management, ‘54).
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Introduction
1. Big Data… Big Results?
2. Customer Profitability Analysis
3. Implications of Big Data
4. Conclusion and Questions
Table of Contents
10 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Will Big Data Unlock Big Results?
It depends…
...on the principles you work by.
Stephen Covey
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The Word’s Most Successful Data Professionals…
#B W T E I M!
What is Covey was a data professional today?
Stephen Covey
12 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
2. Insight You Need
3. Analytic Methods
4. Data You Need
5. Tools, Platforms, Technology, People, and Processes
1. Your Goal
Beginning with the End in Mind
13 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Fitzgerald Analytics: Converting Data to Dollars™
Better Data Better Analysis Better Results
“A Journey of a Thousand Miles….”
Worth The Trip!
1
3
2
14 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Key Steps in the Journey to Results
Data Governance
Data Management
Data Quality
New Data Source Acquisition
Analysis
Insight
Better Decisions
Better Processes
More Customers
Happier Customers
3. Results 2. Analytics 1. Data
15 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Data Management: Especially Important in the Big Data Era
16 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Introduction
1. Big Data… Big Results?
2. Customer Profitability Analysis
3. Implications of Big Data
4. Conclusion and Questions
Table of Contents
17 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Definition
Customer Profitability Analysis is:
1) Measuring the contribution each customer makes to overall profits, and to the key drivers of those profits. In other words, a “customer-level version” of your corporations P&L statement.
2) Analysis that USES these customer-level metrics to improve results (there are a large number of applications)
18 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
History of Customer Profitability Analysis:
1. Around since at least the early 1980s.
2. Banks were early adopters
3. Massive results unlocked over the years
4. Some notable mishaps along the way…
5. Still considered “obscure” by many…
19 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
The Concept Illustrated
Your P&L Statement
Deconstructed into a P&L for each of your customers
20 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Customer Profitability Metrics Can Seem Simple…
Revenue
Expenses
Profit Direct
Expense
Allocated Expenses
+
21 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Yet in a complex organization
Example: A “Universal Bank”
Equities Stocks Derivatives Program Trading
Fixed Income
Corporate Bonds Municipal Bonds Derivatives
Interest Rate Credit
Commodities Futures Forwards
Foreign Exchange
Sales & Trading
Capital Markets (IPO)
Mergers & Acquisitions
Project Financing
Structured Financing
Investment Banking
Cash Management
Trade Finance
Corporate Trust
Custody
Transaction Banking
Mutual Funds
Separately Managed
Asset Management
Wealth Management
Consulting
Trust Services
Private Wealth Mgmt
22 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Single Product Area
By Region
By Company
And with the Impact of Mergers
Here come the data silos…
• One product, if booked into regional systems and sold by both companies, in a merger can feed from 6 separate systems.
• At the very least, numbering schemes from the two companies will be different.
• At worst, every system will have a unique number or name for a single client.
Bank 2 Bank 1 Bank 2 Bank 1 Bank 2 Bank 1
Europe Asia Americas
Equity Trading
23 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Data Management = Precondition of Customer Analytics
24 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Loss
pe
r C
ust
om
er
Customer Profitability Output: Classic 1st Step
Top (Most Profitable 10%)
2nd 3rd 4th 5th 6th 7th 8th 9th Bottom (Least
Profitable 10%)
Profitability Deciles (each bar = 10% of customers, ranked by profitability)
Average
Best Customers
Mid-Value
Losing Money
Pro
fit
pe
r C
ust
om
er
25 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Customer Segmentation and Lifetime Value (CLV)
Customer Retention
Cross-sell, Up-sell
Marketing Optimization & ROI
What do Customer Profitability Metrics Enable?
2
3
1
4
New Financial Product Design & Innovation 5
A Top 5 List…
26 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Integration: Connecting The Dots
New Product Design 5
Customer Lifetime Value + Segmentation
Customer Retention Cross-Sales /
Up-Sales
1
2 3
Marketing ROI 4
A few examples of how inter-related these processes are…
New
Info
rmat
ion
an
d In
sigh
ts
27 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 27
Example: Better Pricing of Risk vs. Reward
Using CLV metrics to predict profits over the customer lifetime, lenders make better decisions about lending to “riskier” customers
$-
$0.02
$0.04
$0.06
$0.08
$0.10
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Lif
eti
me P
rofi
t p
er
Do
llar
of
Sale
s
More Risk Less Risk Credit Score Band
The Riskier Half of The Card Company Customers
Generate 6 to 9 Cents per Dollar of Sales….
…while the “Safer Half” of The Card
Company Customers Produce only
1 to 3 Cents per Dollar of Sales….
28 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved 28
“Lifetime Performance Curves”: Finance + Late Fee Income
The divergence is even more striking when Late Fees are added to Finance Income.
Performance Curves by Credit Quartile:
Income from Finance and Late Fees
$0.00
$25.00
$50.00
$75.00
$100.00
$125.00
$150.00
$175.00
1 4 7 10 13 16 19 22 25 28 31
Months after 1st Purchase
Fin
an
ce F
ees +
Late
Fees
Quartile1
Quartile2
Quartile3
Quartile4
1st Quartile Accounts generate more than 6 times as much revenue from these sources as accounts from the 4th Quartile….
29 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Challenge: From Descriptive to Prescriptive.
I can’t deposit decile charts in the bank either…
And my analysts can only think up so many customer segments, A|B Tests, Etc….
30 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Known Pitfall: Not Looking Beyond the Data…
…
…
1995
2012
31 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Introduction
1. Big Data… Big Results?
2. Customer Profitability Analysis
3. Implications of Big Data
4. Conclusion and Questions
Table of Contents
32 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Defining Big Data: “Three Vs”
"Big Data“ is seen as data with: greater volume… greater variety… and/or greater velocity….
33 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Another Way to Define “Big Data” -
What are the optimal methods to accomplish your goal?
Traditional Methods? Big-Data Methods? or
•Centralized data storage •Centralized processing/analysis •Relational databases (tables) •SQL queries to access data •Standardized basic analytics •Typical tools:
•MS SQL Server •Oracle •Tableau •Excel pivot tables
•Distributed data storage •Distributed processing/analysis •Non-relational databases •Map-reduce (et al) to access data •Customized basic analytics •Typical tools:
•Hadoop •BigTable •Riak •Amazon S3
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Big Data Approaches and Tools Make Data Analysis
Possible, for very large data sets that cannot be handled at all with typical
relational databases.
Faster, for large data sets that can be handled with typical relational
databases, but doing so would take a long time. This is the situation in the
example above.
Cheaper, for large data sets that can be handled with typical relational
databases, but doing so would be very expensive.
35 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Big Data Allows Us To Work with Large Datasets
We can analyze datasets larger than ever before
Beyond a certain point, conventional methods just aren’t feasible – Google couldn’t run on a relational DB
For larger datasets, big-data methods make more sense
For smaller datasets, conventional methods are more cost-effective
Dataset size
IT C
ost
s
For a given desired speed of analysis…
Traditional methods
Big-data methods
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Big Data Allows Us To Get Results Faster
We can get results faster than ever before
Analysis speed
IT C
ost
s
For a given dataset size…
Conventional methods
Big-data methods
SLOW FAST
37 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Introduction
1. Big Data… Big Results?
2. Customer Profitability Analysis
3. Implications of Big Data
4. Conclusion and Questions
Table of Contents
38 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Build/Maintain Customer Profitability Models:
Identify costs & revenues
Build profiles
Integrate data from “new” sources
Profitability Management Improves through iteration, mainly because new info and insights are gained…
• Create consistent message
• Target action to individuals
• Optimize product / service
portfolio
Data Warehouse
New Customer Knowledge
Results of our actions
Assess accuracy of our predictive models
Refine segmentation schema
Define new goals, questions, data “wish lists” (big data? Or small…)
Take Smarter Actions w/ Customers
Target: Who?
Message or action: What?
Offering: Product design
Service: How delivered? (how experienced by customer?)
External Data
Sources
39 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Impact of Speed…
Instantly
Daily / weekly / monthly Small Data
(+ related tech)
Big Data (+ related tech
Our understanding Of customers:
Type of data and technology tools:
40 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
…as well as “resolution”
Instantly
Instantly
Instantly
Instantly
Father just started at Bank of America
His son’s favorite color is
blue
All his friends have
Chase
Big Data (+ related tech
Helping us Take Smarter Actions w/ Customers
Target: Is he one?
Message or action: What?
Offering: Product design
Service: How delivered? (how experienced by customer?)
41 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Customer Segmentation and Lifetime Value (CLV)
Customer Retention
Cross-sell, Up-sell
Marketing Optimization & ROI
So how does Big Data + Related Tools Help With…
2
3
1
4
New Financial Product Design & Innovation 5
42 Big Data Meets Customer Profitability Analytics | Copyright Fitzgerald Analytics 2012, all rights reserved
Q&A
…