InsightIQ Blog

Customer Analytics > Optimizing Your Collection Efforts, Part1

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Aug 6 2010

Collections are tricky but if your collection strategies embed analytics, use the analytics to create proper collection treatments, and allow for ongoing test-and-learn adjustments you will optimize your collections efforts.   However, I do not want to focus on collection analytics at this time.  Why?  Because regardless of how well-oiled your collection efforts are, the single largest bad debt impact happens at the point of acquisition.

Setting up proper customer on-boarding treatments, based on predicted payment behavior and predicted customer value, will minimize bad debt on the back-end.  As an example, a top 5 direct broadcast company implemented pre-payment and auto-pay strategies during the sign-up process several years back, based on out-of-the-box and custom credit worthiness models as well as predicted subscriber profitability models.  The result: A significant decrease in bad debt and write-offs.

Their new on-boarding process essentially entices the subscriber to pay and stick around based on two dimensions:

  • Subscriber predicted future value and
  • Probability of payment over time

Those 2 dimensions, enabled by predictive models, are powerful if used within a proper treatment strategy.  For example, one of the first questions posed, once the analytics were available, was whether to not allow subscribers to activate who have a high probability of not paying.

Answer: Absolutely not!  You do not want to shut off the spigot altogether.  How about asking those potential customers to provide a pre-payment, which may be applied to the ongoing monthly bill for a certain period of time so they are not paying more than they need to but then showing them good will as well by providing a prize at the end of the pre-payment time period (ie. a free pay per view)?  Further, the pre-payment period should be determined by the level of creditworthiness and the prize at the end of the rainbow should be determined by future predicted value.  

The key to a proper customer on-boarding process is the strategic application of the resulting treatments.  The predictive models for the most part are straight forward … it’s how the analytics is converted into proper customer treatments and then tracked and optimized, that will provide a bottom line profit impact.  Just with collection efforts, the acquisition treatment strategy, and ongoing tracking, is a key that unlocks incremental profit.

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