Author: Chirag Soni
From time to time enterprises run various marketing campaigns. The objective of marketing campaign could vary. Some of the campaigns are targeted customers to bring in additional revenue from the existing customers.
Campaign Analytics involves various types of analytics to drive marketing effectiveness and customer experience.
For example, a bank design and execute campaigns for increasing their customer base, cross selling their products or increase the loyalty of their existing customers.
Some of the commonly used offer constructs are
• Cash rewards for enrolling into new services
• Reward or loyalty points for spending above a limit or increasing their balances
Credit Card segments and expected goal for each of the segments are illustrated below.
Based on business priorities, marketing budget availability and expected returns, the product portfolio and marketing managers will focus a few of the above campaigns.
After a campaign focus is agreed, one of the next steps will be to estimated campaign profitability or returns. One of the commonly used frameworks for assessing campaign profitability is Net Present Value (NPV)
A leading bank wanted to cross sell its products. The objective of the campaign was to increase enrollment of the newly acquired customers to multiple services (similar to a cross sell). Offer construct of the campaign was to reward customers who enroll to more than 3 new services in an offer period.
Cash back of $100 will be given to the customers who enrolled to more than 3 services.
For estimating NPV for the campaign, the analytics team of the bank has estimated
• Revenue increase due to higher enrollment
• Discounting rate
Using historical data, curves for deposit balances, product holdings, attrition, fee revenue, cross sell and others have been generated. These curves were used for estimating revenue across months.
Costs estimation related to expenses made by the bank for the campaign is drawn. Some of the components of the cost were account maintenance fees, reward costs, and campaign cost.
The cost and revenue curves created are used for estimating cost, revenue and profit at a month level. Then, month over month net margin is calculated by the help of curves and the month where profit value exceeds expenses value is taken as the break even month.
Using discounting rate future month profitability is converted to present value. The discount ratio for money is taken as 15%, meaning it will depreciate itself 15% every year. The formula used to calculate NPV is :
Using Net Present Value (NPV) based estimation the bank has decided to select campaign volume and also used for prioritization of the campaigns.