The financial services department of a major electronics retailer found itself near extinction, and was tasked to find a way to create greater savings. One method was to offset some of the nearly $370 million in annual interchange fees--the transaction fee charged to merchants for using the cards-- related to arbitrary rates imposed by issuing banks and card brands. To accomplish this task, the company focused on increasing the issuance and utilization of its private label credit card (PLCC). The idea of “selling” credit to consumers was constructively criticized by the company’s executive teams and, most critically, retail management. Buy-in would require an entire corporate culture shift and a relationship reestablishment with its two issuing banks—all within an eight-month period.
Gaining buy-in would require clear data that showed that the strategy was likely to succeed. The company enlisted the services of Nighthawk Intelligence to examine inefficiencies in the PLCC application process and effectiveness of marketing campaigns geared toward PLCC holders. Drew Pulvermacher, founder and chief probability officer at Nighthawk Intelligence, utilized StatTools, @RISK and PrecisionTree – all part of Palisade’s DecisionTools Suite – to help the retailer with this process.
Intelligence Based in Madison, Wisconsin, Nighthawk Intelligence is a strategic advisory firm that specializes in the application of decision sciences to help clients integrate risk and uncertainty into their core processes. The firm offers simulation and optimization modelling for time-starved executives who are committed to breakthrough performance.
Increasing Credit Card Usage
In order to encourage customers to use their PLCC, the retailer conducted marketing campaigns in select stores, and compared results with stores in the same market that weren’t running the promotions. Using StatTools, transactional data from stores were compared against one another to see how impactful the marketing messaging was, which offered a more realistic picture of sales. Previously, performance was based on an “average” variance, but with StatTools, decision makers and other employees could see a “shape” of consumer activity and whether or not the movement in performance was indeed incremental.
“Raw numbers hide a lot of valuable information, while shapes bring those numbers out into the open,” said Pulvermacher. “No longer were all customers treated equally. With Palisade solutions you can see the tail ends of those who purchase more than, say, ten times a year, and conduct testing. It exposes the ‘flaw of averages,’ and gives a more accurate picture of customer frequencies.“
The team was able to identify purchase behavior such as spend, frequency, volume and types of items purchased, and profitability. It allowed the retailer to adjust the messaging and price appoints to achieve the greatest likelihood of success for each marketing campaign. Additionally, using @RISK and StatTools, Pulvermacher was able to build a distribution library, which the retailer could use to audit variable assumptions.
Streamlining Card Application
Increasing the use of the company’s PLCC required strategies to make the cards more accessible to customers. One strategy involved revamping the card application process to drastically shrink the typical approval time from nine minutes to just 90 seconds. The typical customer applying for a PLCC was looking to purchase a higher-priced item.
Should a customer opt to apply for credit, the sales associate would direct the customer to fill out a paper application at the customer service desk. This was a bottleneck in the credit card application process because the customer had to stand in line behind other customers trying to return items or ask questions. Making the process easier and faster would likely increase the number of customers who applied for the PLCC.
The solution was point-of-sale machines that allowed the customer to apply for PLCCs without leaving the sales area. This is where PrecisionTree came in. Pulvermacher mapped out a series of customer decisions that took place when making purchases and where their interest in making a purchase broke down. PrecisionTree helped identify the departments that would benefit most from a faster, more efficient application process.
A $250 Million Success
Armed with a streamlined PLCC process and data that provided insight into marketing messages that appealed to its PLCC holders, Pulvermacher had the statistical back-up he needed to convince decision-makers to move forward.
“Palisade provided an efficient and effective way of communicating complex quantitative information that was key for change management to occur, helped transform the way operational leaders formed decisions and measured results, and offered the resources necessary to quickly transform an entire organizational mind-set to embrace uncertainty and embed a systematic process of measuring performance,” said Pulvermacher.
Within a year of implementing the strategy towards expanded PLCC usage, the company realized nearly $250 million in related accrued benefits, which included interchange savings, financing income, and enhancement services. Instead of finding a way to justify its existence, the financial services department became a vital part of the organization’s fiscal success.