Chapter 14Data Mining Throughout the

Customer Life Cycle

2

So Far…

• Business Context for Data Mining (Ch 1-4)

• Technical Aspects of DM (Ch 5-13)

• Now…Applying DM Techniques in

business (Ch 14-18)

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Review…

• Business uses data mining to help it realize additional value from its most important asset – the customer!

• DM algorithms (software) and methodology are needed for successful use

• Focus in this course now more on business data and the systems environment necessary to exploit DM

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Customers…

• Customers are critical to success• Customers are elusive• Customer relationships are fluid/dynamic• Customer definitions are different• Customer management differences

– Focus on quality

– Focus on service

– Focus on convenience

– Focus on price

– Etc…

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Data Mining…

• Compliments customer strategies, not replace them

• Customer interaction channels – mail, phone, face-to-face, web, advertising, etc.

DataMining

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Levels of Customer Relationships

• Customers are not all created equal

• Some customers are more valuable

than others

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Levels of Customer Relationships – Mass Intimacy

• Companies that serve a “mass” market usually have 100k, or millions of customers– Examples:

• No dedicated staff to support individual customers (would require “armies”)

• Customer interactions occur via:– Staff – mostly phone, chat, face-to-face (retail)– Automated systems (web, phone, etc.)– Staff & Automated systems

• Privacy issues surface with mass intimacy

Exercise: Others like this?

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Levels of Customer Relationships – Deep Intimacy

• B2B – business to business• Usually large corporations (not always the case)• Dedicated resources (account managers…)• “One-off” (customized) products and services

– Example – branding triumvirate• McDonalds, Coca-Cola, Disney

• Hundreds of employees working together• Data mining very useful to further exploit these

business relationshipsExercise: Others like this?

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Levels of Customer Relationships –In-Between & Indirect Intimacy

• In-Between relationships– Perhaps the most challenging

• Not big enough to warrant account team(s)• But big enough to require customized products or

services

• Indirect relationships– Intermediaries (brokers) mediate the

relationship (food brokers, stock brokers, travel agents, independent insurance agents, etc.) Exercise: Others like this?

Exercise: Can you identify any like this?

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Customer Life Cycles

Business: size or maturity of the business

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Customer Life Stages

Business: size or maturity of the business

• Customers are dynamic, not static

• Various Life Stages

• No control over customer life stages

12

Customer Life Cycle• Five Major “Life” Phases

•Prospects•Responders•New Customers•Established Customers•Former Customers

13

Event-Based vs Subscription Customer Relationships

• Event-Based– Examples

• Payphone call• Prepaid phone card• Prepaid mobile phone

– One-time commitments

– May or may not return– Advertising tends to

reach this audience

• Subscription– Examples

• Choose LngDist carrier• Mobile phone w/no

contract• Mobile phone

w/contract

– Continuous service & billing cycle

– Opportunity for future cash flow

– Start/Stop events

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Typical Customer Experience

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Business Processes

• Organized around the Cust. Life Cycle

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Business Processes - Acquisition

• Acquisition is the process of attracting prospects & turning them into customers

• Who are the prospects?– Geographic expansion– Product, service, pricing changes– Competition changes

• Data Mining helps ID prospects

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Business Processes - Activation

• Filling out registration form (simple)

• Include credit check, reference checks, transcripts, notary service, etc. (more involved)

• Include physical exams (most involved)

• Next slide…

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Business Processes - Activation

• Activation steps (generalization)

– The Sale (Leads)

– The Order

– The Subscription

– The Paid Subscription

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Business Processes –Relationship Management

• Goal: Increase customer’s value to us

– Up-Selling – premium products & services

– Cross-Selling – other products & services

– Usage Stimulation – come back for more!!!

• Be careful with this

• Web-based communication (spam)

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Business Processes - Retention

• Survival Analysis (Ch. 12)• Churn Analysis Forcasting Engine

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Business Processes - Winback

• Understand why customers leave

• Bring back valuable customers

– Incentives

– Product promotions

– Pricing promotions

• Utilize “save” teams to focus on this

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Customer Relationship Management & Data Mining Examples

• IBM Presentation

• Chapter 14 - Example 1

• Student Presentation

• Chapter 14 - Example 2

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End of Chapter 14