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Can audience segmentation enhance your credit risk management efforts?

Sep 21, 2016 Walt Wojciechowski

Can audience segmentation enhance your credit risk management efforts?

Professionals often regard audience segmentation as a resource for marketers alone, but credit risk management experts often find value in distinguishing customers' behaviors and values.

If analysts identify audiences that are more likely to present poor risk, they can inform salespeople, loan officers and other front-end personnel on which segments the business should target.

Do marketers collect the information risk analysts need?
Your organization already collects quite a bit of first-party data, which consists of internal information such as web traffic, product and service sales, contact details and insights within your company's customer relationship management (CRM) system. All of this data, combined with external market research, enable marketers to develop detailed audience segments.

"53% marketers said they don't have enough customer information."

But do marketers collect loan default information? Not necessarily. A loan officer, or even an automated debt tracking system, may record when a borrower misses a payment, but a business may not direct that transaction to a CRM solution through which marketers develop audience segments. In addition, there's no guarantee that a CRM is capable of automatically collecting risk data.

For example, your customer risk and demographic data may indicate people living in Boston, Massachusetts are more likely to pay back loans than those living in Worcester, Massachusetts. However, your sales team may not be aware of this and continue to target customers in Worcester.

The overarching problem is that sales and marketers do not have all the data they need to zero-in on individuals who present good risk to your business. Last year, Infogroup surveyed 600 marketing professionals, 53 percent of whom said they don't have enough information on their customers. Only 21 percent expressed confidence in the accuracy and comprehensiveness of their data.

How can marketers, sales, credit risk management personnel and other staff develop more accurate audience segments that reveal the risk of working with specific individuals?

A single platform for customer information
It's an old call to action, but organizations must remove departmental silos and implement a platform capable of collecting, validating and organizing customer information from human resources, sales and other departments.

Understanding your customer involves knowing the risk they pose as well.

This solution must log every missed payment, purchase, phone call and interaction to help the business better understand which people are presenting bad risk. In addition, third-party data from background screening systems, non traditional credit references and other risk assessment tools must contribute to the development of customer segments.

Achieving this level of operability is easier said than done. Even large organizations may find it difficult to build the infrastructure necessary to support constant data aggregation and validation efforts. One of the biggest boundaries to achieving data centricity is departmental segregation. Aberdeen Group noted best-in-class organizations are 40 percent less likely than other companies to contend with data silos. Basically, top performers have implemented processes and policies which promote data sharing.

The purpose of using credit risk data to develop audience segments is to enhance a business's ability to target the right customers. Marketing to financially responsible individuals will reduce the number of defaults the company has to sustain. This is all about promoting better business health, and enterprises would be remiss not to try such a tactic.