All posts in Collections

What in the world could flies in the urinals at Amsterdam's Schiphol airport have to do with improving the performance of your collections operation?

That's what a roomful of Varolii clients wondered when Dr. Mathew Isaac showed this picture during his presentation "The Message Effect: How Content and Channel Choice Influence Consumer Behavior" at our annual customer conference.

According to Dr. Isaac, a professor at Seattle University's Albers School of Business & Economics, the Dutch airport authorities have found that providing a target such as a fly (actually the image of a fly etched into the urinal porcelain) has reduced "spillage" in the men's restrooms by 80%. As he went on to explain, this gentle "nudge" is an example of how experiments in human psychology provide insights that can be applied to domains other than airport maintenance.

If you are designing messages to influence customer behavior, Dr. Isaac says there are three levers for motivating behavioral change: Words, Options and Channel.

Words, words, words

When it comes to words, how you say something is often as important as what you say. Consider "valence framing", which contrasts the impact of positively and negatively phrased statements. Research shows that sometimes its better to focus on the downside of not doing something rather than the upside of doing something. For example:

"If you don't quit smoking, you increase the risk of developing lung cancer" has proven a better smoking deterrent than "If you quit smoking, you reduce your risk of developing lung cancer"

Applying the same principal to a collections message suggests saying:

"If you don't make your payment today, you will incur a late charge" will cure more accounts than "If you make your payment today, you will avoid a late charge."

If one choice is good, three must be better?

The options we give to customers is another dimension of message design to consider. Specifically, limiting the number of options presented in a message can drive a higher response rate. Dr. Isaac cited a grocery store experiment where some shoppers were offered samples of six different flavors of organic fruit jams and other shoppers could choose from 24 different flavors. While both sample booths were equally busy with tasters, the booth that offered only six flavors resulted in 500% more product sales!

So even though you might offer your customers four different methods of payment (e.g. ACH, Credit Card, PIN-less Debit and Cash) through five different contact channels (e.g. Web, Smartphone Application, IVR, Kiosk and good old postal mail), its probably not a good idea to offer all of these in a collections message when a simple "to make your payment now, press 1" will do.

Switching channels

Picking the right channel for message delivery can not only affect your customer reach, but the channel by its very nature may be more conducive to collecting a payment from a past due account. Consider a phone call to a customer's workplace compared to a text message to their mobile phone. The customer may be very reluctant to converse with you in an open and honest fashion at their job about why they haven't paid their bill, let alone read off their bank account or credit card numbers to make a payment. But the same information delivered via a text message will let them take care of the problem in private, and it will often cost you less than the phone call.

The importance of testing

Dr. Isaac shared several other examples of how changes in content, options and channel have been shown to improve outcomes in healthcare, commerce and collections, but he made a point of closing his presentation with a call for experimentation. Only you can determine what works best for your company in the context of your products, services and the type of customer you serve and the best way to figure it out is to run randomly controlled tests that compare customer reaction to different strategies. Varolii can assist you in this effort, with everything from simple A vs. B testing to multi-variable experiments from which we derive predictive segmentation models.

We don't, however, offer stencils for your urinals. But you can order them online.

VantageScore, the three major credit bureus' scoring competitor to Fico, has announced they will no longer be including paid off bad debts in calculating consumer's credit score.

VantageScore says cold, hard numbers motivated it to make the change. The company was trying to build a model that offered the best possible predictions of consumer behavior, and its mathematicians determined paid collections accounts are a poor predictor of default.

"At the end of the day, the mathematics had to win out from an objective standpoint, and not from a subjective standpoint," says VantageScore President and Chief Executive Officer Barrett Burns, though he is well aware of the controversy over counting unpaid collection accounts.

While there will be a raging debate about the validity and propriety of the move, from a consumer's perspective, it represents hope that a temporary financial setback won't necessarily raise their cost of credit for the foreseeable future.

Collectors should also benefit, as they could truthfully inform debtors that paying off their bad debts would in certain circumstances, improve their credit scores.

It will be interesting to see if Fico follows suit, and if the move blunts efforts in Congress to make it illegal to consider paid off medical debts in credit scoring.