It's hardly news that customer satisfaction and customer loyalty are imperatives in the banking business.
The Charlotte, N.C.-based Wachovia Corp. has taken those concepts a bit further, however. The company already scores at the top of the annual Customer Satisfaction Index compiled by the University of Michigan, but it is now embarking on a new initiative to define and promote customer equity.
"Consulting companies are saying you should be interested in customer lifetime value, and they'll give you an average value for those customers," said Dan Thorpe, senior vice president, and statistics and modeling director of Wachovia's Customer Analysis Research and Targeting (CART) Group. "We are calculating individual estimates for each of our households. We really think households drive customer value."
That's no small task. Wachovia has more than 13 million customers and breaking them down into households requires understanding the relationships within a household, which may include more than just checking accounts and mortgages for a husband and wife, but a brother or sister and a business as well.
Thorpe's CART team plans to have the estimates for household customer equity complete by the end of the year, when the company can begin applying it to customer contact campaigns. @22129
"Rather than just the responses to a campaign or products a customer uses, we want to look at what it does for customer lifetime value," Thorpe said.
For example, a household may have a checking account and a credit card with Wachovia and may be a candidate for a home equity loan. But before making that loan offer and looking at just the value of the one loan, Wachovia will be able to see how that affects all the products the customer might be eligible for now and in the future. Also, the data will be used to optimize customer contacts, not just blasting out messages but showing whom to contact when, and what is the best value. Further down the line, Thorpe hopes to use the models to test advertising and sponsorship programs.
Thorpe has a 10-person statistics and modeling team working on the customer equity calculations. The team works within the CART Group, which acts in collaboration with Wachovia's marketing unit.
The calculations are done with sophisticated data mining, survival analysis, and multistage modeling with technology from the Cary, N.C.-based SAS Institute Inc., Wachovia's longtime technology vendor.
"SAS is the only language out there," Thorpe said. He maintains a strong relationship that he formed with the company's research and development team when he was with W.L. Gore and Associates, the makers of GORE-TEX, two years before coming to Wachovia. Wachovia uses SAS to provide customer analysis for each unique channel and banking group, including wholesale banking, Wachovia Direct, and the e-commerce division. "Banking data tends to have 30 deviations for spread. A lot of your simple statistics are not accurate. Having SAS's strength allows us to put the correct summary in place."
Back in 1999, Wachovia began placing an emphasis on customer satisfaction, and the focus on customer equity has evolved from that. In fact, customer loyalty is one of the company's top seven priorities over the next five years, according to a spokesperson. It's long been a priority at Wachovia, and CEO Ken Thompson continues to push for it.
"We recognize you just can't relax on this; that's why loyalty is the next step on satisfaction, and lifetime equity is the next step in profitability," Thorpe said. "When we do presentations to senior executives, I always include lifetime customer value equity calculations as I would with customer acquisition. We definitely understand and want to take a long-term view."