Driving Growth And Profitability By Adopting A 'Value' View Of Customers

Company Background

Inforte's client is a leading nonprime wholesale lender who has achieved significant growth during the last several years. The organization's success is founded on their sales force's effectiveness and aggressive marketing programs. Customer satisfaction and speed of service provide the mainstays of their competitive advantage and differentiation.

The mortgage industry has recently experienced weakening loan demand, industry consolidation and competitive pricing pressure. As the lending boom slows, 'traditional' prime lenders have turned their focus and substantial marketing spend toward the subprime sector's higher profit margins. In anticipation of these industry changes and greater need to search for growth opportunities, our client sought to develop a broker valuation model to provide deep customer insight as well as develop a more refined and integrated marketing and sales strategy.

Business Issue

As a wholesale lender, the client delivers its loan products through a national network of independent mortgage brokers. These brokers can vary significantly in size and scale. They are serviced by a sales force of more than 400 account executives who lead the industry in production per associate. Their salespeople were almost solely responsible for relationship management and development as well as product introduction and education. Although account executives spent a significant portion of their time analyzing and evaluating a customer's performance via sales reports and ad hoc methods, they lacked a contributed value view of their customers.

Marketing's activities were focused on traditional direct marketing efforts using direct mail, fax, voice, e-mail and web mediums as well as event promotion. Marketing's use of metrics to evaluate customers relied - as was common in the wholesale lending industry - on submission volume and funding efficiency. Lacking the tools to properly segment their customers, our client's messaging was delivered with the same frequency and content regardless of customer value.

The firm's rapid growth from segment niche player to industry leader combined with the increasingly competitive nature of the nonprime sector led the client to seek more sophisticated analytical competencies to drive its future performance. Our client sought to:

• Formulate a value-based customer 'view' at the corporate, geographic and account executive level; use a catalyst to bridge the sales and marketing organizations' day-to-day operating activities.
• Facilitate evolution toward a 'mature' marketing organization; develop tools, metrics and reporting necessary to effectively transition from general campaigns and promotions to targeted value-based messaging.
• Maximize marketing and sales' budget and resources.
• Complement traditional sales reports with value-based customer insight, allowing account executives to devote a greater percentage of their time maintaining sales levels and identifying future growth opportunities.
• 'Protect' its most valuable customers as competition in the nonprime sector increases.
• Maximize value creation from its current customer base; identify customer segments with the most likely growth prospects.
• Minimize the impact of inherent market volatility in marketing and sales planning and performance tracking activities.
• Shift customer information management workload from data gathering to data analysis.

Inforte's Solution

The client engaged Inforte to develop a broker valuation model that could provide its marketing and sales teams with actionable insights into its customers. Inforte mortgage lending and analytics experts worked with key members of the client's strategy, production, marketing and sales teams to define model attributes and a framework for customer value segmentation that could be used by both marketing and sales.

The solution? A single customer 'score' is now calculated based on customers' contributed value to the firm over a specified time period. This score, when combined with historical value insights into the customer, is used to develop value segments and to chart customers' value evolution over time. These capabilities effectively track a customer's performance and provide a yardstick to measure marketing and sales' effectiveness.

Key activities performed to develop the solution included:

• Defined and interpreted key business drivers relevant to the client's business at the loan and broker levels; focus included creating loyalty and management metrics as well as operational and financial performance indicators.
• Determined vital attributes to use as basis for broker value calculation. Narrowed pool from 42 initial variables to 16 core drivers for model inclusion. Assigned relative weights to model components based on client and industry business drivers.
• Analyzed, interpreted and segmented model output based on audience needs; determined appropriate timing and model sensitivity required to effectively respond and act on calculation results.
• Completed scenario analysis to highlight financial impact of positively migrating broker segments.
• Created actionable customer segments based on current and historic broker performance, loan history and contact frequency; conducted client marketing strategy workshops to determine model rollout strategy, craft initial campaign frameworks and ensure effective operational integration.
• Ensured future business relevance through flexible model design. Attribute inclusion and weighting as well as evaluative time frame can be easily modified as client's analytical capability matures.

Business Benefits Delivered

Our client now uses broker value as a key component of its marketing strategy, sales reporting and campaign planning processes. Broker value and segmentation has provided a clear and concise 'snapshot' of the client's customer basis at any given time. Marketing lacked the tools necessary to properly allocate resources and formulate targeted campaigns. They relied heavily on broad and general promotions. In addition, the marketing group was unable to accurately evaluate campaign effectiveness. Although highly aware of their broker base, the sales team lacked a means to confirm a customer's value contribution to the firm. In addition, sales needed a tool to identify the best opportunities for growth to help maintain the client's leadership position and penetrate new markets. Further benefits include:

• Collective corporate value-based focus between the sales and marketing organizations; provided foundation for cooperative campaigns and greater integration of day-today operating activities.
• Analytic capability for marketing to create value-specific campaigns and customer interaction.
• Customer scorecard to track broker performance over time and determine campaign effectiveness.
• Method to relatively score broker performance; minimization of market volatility impact in analysis.
• Reporting mechanism for sales and marketing to differentiate new and inactive customers.
• Provocative customer insight; utilizing non-traditional metrics to validate broker hypotheses and understanding.

Further modeling of the client's customer value segments revealed tantalizing opportunities. Working with the client, Inforte demonstrated an impact to the bottom line that would result from migrating 10% of the client's broker population to the next higher value customer segment. The possible impact? Annualized increase in gain-on-sale income of $102M and almost $5B in additional funded volume.

Words of Advice

As demand wanes and competition intensifies in the mortgage industry, particularly in the nonprime space, firms will realize a greater need for deeper and more accurate customer analytics and insight. Furthermore, in the wholesale lending space, customers understand their contributed value to the organization and expect to be recognized and serviced accordingly. Cooperative marketing and sales efforts founded on a common value-based viewpoint are the most effective means to maximizing sales growth and fostering customer loyalty.

Customer value is the analytic tool that can drive immediate short-term growth by highlighting resource priorities and identifying a firm's best growth opportunities. Value-based insight provides a solid foundation to better customer understanding as well as cultivating long-term symbiotic relationships focused on maximizing worth.