Marketing to and serving the right customers is critical for every business. Customers who aren’t profitable split your focus, taking time and energy away from ensuring your best customers remain loyal to your business. Scorecards can help you identify and focus on your ideal customers by ranking them based on common criteria historically shown to be shared by your best customers.
Learning from the Financial services industry
Scorecards have a long-established tradition in the financial industry, helping loan officers determine whom to lend to and how much, using a points system based on analysing customer data to identify the ideal borrower. Different sectors have different criteria for the optimal customer. For the financial industry, these include a high likelihood of repaying a loan within a specified period. Credit risk managers consider factors such as demographics, credit scores, homeownership, employment status, and income, all derived from data collected from credit bureaus on reliable borrowers.
The fundamental principles here can be applied to other industries and the relationships businesses have with their customers. Many companies have adopted the “good borrower” concept and used it to develop a scorecard that identifies their most loyal customers and those they most want to keep loyal to their business.
How can you know which customers are good customers?
In today’s digital and social networking world, customer loyalty is not only about how often a customer purchases from your business, but also how frequently they engage with your brand. This includes leaving comments, writing online reviews, attending brand launches, or recommending your business to friends.
Traditionally, marketers used scoring systems such as the Net Promoter Score (NPS), Customer Satisfaction Score (CSAT) and the Customer Effort Score (CES), which measures how likely a customer is to recommend a brand to others. However, this method has been criticised for not providing an accurate gauge of customer loyalty. Just because your customer is satisfied and is willing to tell a friend how satisfied they are with your service, it doesn’t mean they are loyal.
Using a scorecard as a segmentation and measuring tool could yield better results because it incorporates more Key Performance Indicators (KPIs) than traditional methods. If done correctly, it could provide a deeper understanding of your customer, their needs, and behaviours.
What are Key Performance Indicators?
Key Performance Indicators (KPI) are the characteristics that guide the in-depth analysis of a customer’s loyalty to your brand. Best practice KPIs for measuring Customer loyalty are:
- Acquisition rate
- Attrition rate
- Retention rate
- Wallet share
- Customer participation
- Customer price elasticity
- Sales increase due to customers
- Funnel drop-off
For example, analysing the first four characteristics over time will give you a clear idea of whether you attract enough new customers and whether you are losing too many existing ones. As the saying goes, it is cheaper to retain customers than to acquire new ones.
The last four indicators demonstrate increasing loyalty among individual customers. These indicators might be more difficult to measure than the first four, but there are methods to do so. For example, you can track the number of positive reviews on your website or the percentage of loyal customers leaving positive feedback. By asking the right questions on your site, you can identify which new customers were referred by other loyal customers. Surveys can also be used to gather customer information.
Customer price elasticity is a strong indicator that your customers value your product and services to the point that they don’t mind if prices increase.
Measuring Customer Loyalty
Veritude (now known as Fidelity TalentSource) is one company that implemented customer loyalty scorecards. Veritude offers outsourced staffing and recruitment services. The company created an online customer survey asking clients how likely they would be to recommend Veritude’s services to others. Respondents rated their loyalty on a scale of 1-10 based on that question. Additional questions explored what Veritude does to earn customer recommendations and what it needs to do to secure them. Customers who scored 9 or 10 were labelled as ‘promoters’, while those who scored 7 or 8 were classified as ‘passive’, and those scoring less than seven were labelled as ‘detractors’. The tracking system provided individual customer scores as well as an overall company score, which was calculated by subtracting the number of detractors from the number of promoters.
Veritude paired this survey with other customer email surveys and follow-up interviews. Each customer who made a negative comment received a follow-up phone call. After the follow-up interviews, the company analysed the feedback to determine the reasons for dissatisfaction and develop responses. As a result of the scorecard-built system for measuring customer loyalty, Veritude was able to provide its staff with tools to turn detractors into passives and ultimately into promoters. By understanding the frustrations and needs of their customers, they were able to communicate with and serve them better, proving the usefulness of a loyalty scorecard.
Measuring attrition rates in South Africa
In South Africa, a major retailer has used scoring to predict loyalty and attrition, or the likelihood of a store card account holder closing their account. They identified the rate and size of debt payments as key criteria for distinguishing those likely to remain good account holders long-term from those likely to close their accounts. The larger the payments above the minimum balance and the more frequently these higher-than-necessary payments were made, the more probable it was that the account holder had used credit for a one-off large purchase to pay off quickly. These were classified as less loyal to the brand. Conversely, those making frequent purchases and small, regular payments to cover their minimum balance were identified as loyal customers who enjoyed purchasing and relied on credit to do so. By using scoring to segment their customer base into these two groups, this retailer was able to focus on maintaining loyalty with the first and building loyalty with the second through targeted campaigns.
More and more companies are seeking new ways to build and sustain loyalty to increase their share of wallet during a period when economic conditions are reducing overall consumer spending. Scorecards are an innovation adopted from the financial services industry that retailers can use data science to enhance customer loyalty and profitability.
Read more on 4 Types of Data Analytics to learn more about descriptive, diagnostic, predictive and prescriptive analytics as other innovative ways to segment customers to improve acquisition and retention.
Why Principa
For over twenty-five years, Principa has been at the forefront of using data science and machine learning to drive smart business decisions across financial services, retail, and telecommunications. Renowned for delivering bespoke scorecards and predictive models, we’ve helped clients transform raw data into strategic insights that boost customer acquisition, loyalty, and profitability. Our proven methodologies enable businesses to:
- Predict customer churn and prevent it.
- Identify high-value customers early in the lifecycle.
- Maximise marketing ROI through precision targeting.
- Build behavioural scorecards aligned with your business goals.
With economic pressure tightening consumer wallets, building and maintaining loyalty is essential. Scorecards, once exclusive to the credit world, are now being used by innovative companies to unlock deeper customer insights. By combining behavioural data with predictive analytics, businesses can ensure their best customers stay engaged and become brand advocates.
To learn more and to discuss the development of scorecards that support your customer loyalty and retention strategies, contact us.