The recent spate of regulatory reform that is capped by Dodd-Frank will inhibit institutional profits by either expressly limiting or completely eliminating established sources of revenue. We believe that—as in the past—this kind of adversity will spark industry innovation. Indeed, many clients have told us that they are in research mode for new products, features or bundles of solutions that will be attractive to customers and create new revenue streams.
How can analytics help? First, the use of decision models—which I’ve discussed in earlier posts—can simulate the results of a new product or offer, including response, revenue, profitability and impact on existing products. As an example, a bank might wish to launch a new deposit product designed for a specific customer segment. The decision model can help the bank understand how pricing, minimum balances and channel distribution could improve sales of the new product into the desired segment while forestalling cannibalization. Importantly, you don’t need to wait for a perfect data set to study—in fact, you can’t. Banks will need to make and test assumptions, and the decision model is an ideal way to do this.
Second, modeling and testing customer preferences and sensitivities to different offer attributes can help the Marketing team identify opportunities for new products or product features. You can use this kind of modeling to also identify the likely prospect universe for a new product within your existing client base. This is quite different from using predictive models to qualify customers for an existing product. In fact, what you’re really doing is using predictive models to qualify products for release to your customers!