Chapter 14 Data 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)

3 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

4 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…

5 Data Mining… Compliments customer strategies, not replace them Customer interaction channels – mail, phone, face-to-face, web, advertising, etc. Data Mining

6 Levels of Customer Relationships Customers are not all created equal Some customers are more valuable than others

7 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?

8 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 relationships Exercise: Others like this?

9 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?

10 Customer Life Cycles Business: size or maturity of the business

11 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

14 Typical Customer Experience

15 Business Processes Organized around the Cust. Life Cycle

16 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

17 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…

18 Business Processes - Activation Activation steps (generalization) –The Sale (Leads) –The Order –The Subscription –The Paid Subscription

19 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)

20 Business Processes - Retention Survival Analysis (Ch. 12) Churn Analysis Forcasting Engine

21 Business Processes - Winback Understand why customers leave Bring back valuable customers –Incentives –Product promotions –Pricing promotions Utilize “save” teams to focus on this

22 Customer Relationship Management & Data Mining Examples IBM Presentation Chapter 14 - Example 1 Student Presentation Chapter 14 - Example 2

23 End of Chapter 14