The Nomis score is a newly available score that measures a borrower's relative price sensitivity. Built on readily available data sources, the score has been developed to allow lenders to accurately and quickly assess the price sensitivity of customers and prospects. Used in conjunction with other decisioning criteria, the Nomis score enables lenders to better understand what their customers value, and therefore create better targeted offers. The Nomis score ranges from 200 to 800, with a lower score indicating that a customer is relatively less sensitive to price than someone with a higher score.
Lenders have traditionally focused on risk as the primary driver of pricing decisions. Conventional wisdom assumes that individuals with very good credit are also very price sensitive and individuals with poor credit are less price sensitive. Nomis research however identified that risk and price sensitivity are not fully correlated. In fact, up to 25% of the population with good credit is not very price sensitive, as they value other elements such as service and brand. Alternately, up to 10% of the population with poor credit is very price sensitive. By giving lenders the ability to identify these distinct groups or segments (as shown in the example below), the Nomis score enables lenders to make more appropriate offers.
The innovation that the Nomis score brings to the table is that lenders are now able to quickly and accurately segment consumers based on their price sensitivity. This has become even more important during the recession as consumers' perceptions of banks, their use of financial services, and their price sensitivity has changed significantly.
Marketers often assume that response and price sensitivity are the same. Price certainly plays a part in driving response, but consumers can have high response to offers that aren't attractively priced and low response to aggressively priced offers. By incorporating the Nomis Score into the campaign design process, savvy marketers can make more accurate pricing decisions and improve overall campaign profitability.
The Nomis score has a wide range of applicability, including:
- Direct Marketing: Lenders can score prospects and customers for better targeting of credit offers, such as credit card solicitations, balance transfer offers, loan consolidation or refinance offers.
- Point-of-Sale Negotiations: Credit pricing is often negotiated at the point-of-sale, for example with the Finance and Insurance Manager in a car dealership in the case of an auto loan, with a branch employee in the case of a personal loan, or with a broker in the case of a mortgage. In these cases, the Nomis score provides the seller with the ability to quickly assess the price sensitivity of the customer and determine what the appropriate discount should be.
- Portfolio Management: Lenders can score existing loan customers to understand the relative likelihood of customers prepaying in case of a rate change as well as the relative price sensitivity to refinance offers.
If you have further questions contact us info@NomisSolutions.com or call 1-650-588-9800/+44 0207 8327.
