Customer retention: a behavioural model

One of the main problems currently facing CTedit-card issuersis the increasing number of cardholders who are using theircards less often (i.e. attrition) and/or returning their cards(closures). This problem is of particular concern as the totalnumber of credit cards held by consumers is declining (by approximately0.6 per cent per month in 1992) and the number of new applicantsis also running at an all time-low (less than 1 per cent permonth in 1992). Most of the published literature in the broad area of creditcards looks at credit scoring, rather than the need for cardissuers to identify and retain a profitable portfolio of cardcustomers. The overall objective of our research is ‘segmentationfor customer retention’, and this paper aims to identifythe characteristics of card customers who initiate the closureof their accounts Linear discriminant analysis is applied toa sample of approximately 17,000 UK holders of bank credit cards,using various behavioural and sociodemographic variables, andtested on a holdout sample of 10,000 cases.