Analytics in Action

Prospect Acquisitions: Lowering Bad Debt by 32%

Client: A leading US-based Retailer to Small & Medium Enterprises

Business Situation:
The client, a B2B US-based retailer with presence in North America, Australia, Europe and Middle East noticed a significant increase in % Bad Debt for new prospect acquisitions; from 5.1% of total prospect sales in 2007 to 8.8% in 2011. Business wanted to manage this without compromising on lost sales.

The Task:
Design, develop and implement a robust predictive strategy that will help in quantifying the forward-looking risk at a Prospect-level. This will be a quantifiable and reliable benchmark for the business to leverage and decision whether to extend credit, go for credit card pre-payment, or completely avoid a particular prospect.

Analytical Framework:
Developed a Risk or Q-Score using firmographics and transaction information on prospects acquired between 2007 2011. Upon implementation, each Prospect had a risk score between 1 and 10; with 1 being the most risky prospects; and 10 being the least risky Prospects.

Model Results
% ProspectsProspects % Bad who defaulted

Defining Modelling universe

Prospects segments with limited data and low bad debts ignored (these segments were treated separately) Risk factors calculated for each prospect variable such as location, transacted value, organization size by prospect segment, etc Variables (factors) with high information value (IV) to risk identified; inter-correlated factors discarded to include most relevant factor in the model*

14.0%
12.0%

Model Random

10.0% 8.0%
6.0%

Risk Tables Variable selection and Model development

4.0%
2.0%

0.0% 1 2 3 4

Validation and Model refinement

Q-Score

10

Validation Results
14.0%

% ProspectsProspects % Bad who defaulted

12.0%

Model Random

10.0% 8.0%
6.0%

Build Model, assigning Qscores

Q-score calculated based on model and assigned to each prospect

4.0%
2.0%

0.0% 1 2 3 4

Q-Score

10

The Result:
Based on validation results; the predictive model was able to significantly separate prospects who paid and who defaulted Prospects with Q-score = 1, 2, 3 are high risk prospects. These prospects on average have 2.2X default rate as prospects with score = 4 to 10 Recommendations implemented by the business: Review of all orders > $100 for Q-score < 4 and Prepayment for all orders > $200 for Qscore < 4 Overall Bad debt decreased by 32% in the subsequent year

Y O U R PA R T N E R F O R D ATA A N A LY T I C S S E R V I C E S
ADVANCED ANALYTICAL SOLUTIONS
Industry
Consumer Finance Credit Cards Loans and Mortgages Retail Banking & Insurance Wealth Management Consumer Goods and Retail CPG & Retail Consumer Durables Manufacturing and Supply Chain High Tech OEMs Automotive Logistics & Distribution

Business Focus
Investment Optimization Revenue Maximization Cost and Process Efficiencies Forecasting Predictive Modeling Risk Management Pricing Optimization Customer Segmentation Supply Chain Management

Tools and Techniques

SAS, SPSS, R, VBA Cluster analysis Factor analysis Conjoint analysis Perceptual maps Neural Networks Chaid / CART Genetic Algorithms Support Vector Machines Sentiment Analysis

MANAGEMENT TEAM
Roy K. Cherian CEO Roy has over 20 years of rich experience in marketing, advertising and media in organizations like Nestle India, United Breweries, FCB and Feedback Ventures. He holds an MBA from IIM Ahmedabad.

GLOBAL EXPERIENCE. PROVEN RESULTS.

Anunay Gupta, PhD COO & Head of Analytics Anunay has over 15 years of experience, with a significant portion focused on Analytics in Consumer Finance. In his last assignment at Citigroup, he was responsible for all Decision Management functions for the US Cards portfolio of Citigroup, covering approx $150B in assets. Anunay holds an MBA in Finance from NYU Stern School of Business. Buck Chintamani EVP, Strategic Initiatives & Business Development Buck has extensive experience working with global clients across sectors. He was an early employee at Infosys, a founding team member at supplychain software startup - Yantra, and part of the management team at RFID sector startup - Reva. Most recently, he was the Vice-President for Service Partner Strategy and Programs at product lifecycle management software company, PTC. Buck has an MBA from IIM Ahmedabad. Kakul Paul Business Head, CPG Kakul has over 6 years of experience within the CPG industry. She was previously part of the Analytics practice as WNS, leading analytic initiatives for top Fortune 50 clients globally. She has extensive experience in what drives Consumer purchase behavior, market mix modeling, pricing & promotion analytics, etc. Kakul has an MBA from IIM Ahmedabad.

CONTACT
MARKETELLIGENT, INC.

www.marketelligent.com

80 Broad Street, 5th Floor, New York, NY 10004 1.212.837.7827 (o) 1.208.439.5551 (fax) info@marketelligent.com