Data Analysis and Customer Relationship Management

BusinessContext
Businesstopics p addressedinthischapter p areroughly g y inascendingorderofcomplexityofthecustomer relationship,starting:
Communicationwithprospects(littleknowledgeofthem) Ongoingcustomerrelationshipsinvolvingmultiple:
Products Communicationchannels/methods Increasinglyindividualizedinteractions

Prospecting
Prospect p
Noun someone/somethingwithpossibilities Verb toexplore

>6Bpeopleworldwide
Relativelyfewareprospectsforacompany Exclusionbasedongeography,age,abilitytopay,needfor product/service, d / i etc.

Dataminingcanhelpinprospecting:
Identifying y gg goodp prospects p Choosingappropriatecommunicationchannels Pickingsuitablemessages

Choosingtherightplacetoadvertise
Oneway yoftargeting g gprospects p p islooking gforp people p who resemblecurrentcustomers.Throughsurveys,one nationwidepublicationdeterminedthatitsreadershavethe followingcharacteristics. characteristics 59%ofthereadersarecollegeeducated. 46%havep professionalorexecutiveoccupations. p 21%havehouseholdincomeinexcessof$75K/year. 7%havehouseholdincomeinexcessof$100K/year.

 Understandingthisprofilehelpsthe publicationin2ways Bytargetingprospectswhomatchtheprofile, itcanincreasetherateofresponsetoitsown promotionalefforts. Thiswelleducated,highincomereadership canbeusedtoselladvertisingspaceinthe publicationtocompanieswishingtoreach suchanaudience.

CampaignManagement
Anadvertisingcampaign

Whofitstheprofileforthisnationwide publication?
Readership College educated $ > $75k 58% YES Score 0.58 0 46 0.46 0.21 0.07 NO Score 0.42 0 54 0.54 0.79 0.93 Mike Yes Yes Yes No Nancy No No No No Mike Score 0.58 0 46 0.46 0.21 0.93 2.18 Nancy Score 0.42 0 54 0.54 0.79 0.93 2.68

Prof/Exec 46% 21%

$>$ $100k 7% % Total

Advertising
Butthatmightbeabitnave;comparereadershiptoUS population, l ti then th scoreMike Mik and dN Nancy
Readership BS or > 58% YES US Pop 20.3% 19.2% 9.5% 2.4% ReaderIndex ship 2.86* 2.86 2.40 2.21 2.92 42% 54% 79% 93% NO US Pop 79.7% 80.8% 90.5% 97.6%

Index 0.53* 0.53 0.67 0.87 0.95

*58%/20.3% 20 3% *42%/79.7%

Prof/Exec 46% $ > $75k 21%

$ > $100k 7%

Mikesscore:8.42(2.86+2.40+2.21+0.95) Nancys score:3.02(0.53 ( +0.67+0.87+0.95) )

TIP
Whencomparingcustomerprofiles(Mikeand Nancy),itisimportanttokeepinmindthe profileofthepopulationasawhole whole. Forthisreason,usingindexes(table#2)is oftenbetterthanusingrawvalues(table#1)

DirectMarketing gCampaigns p g
Directmarketingcampaignshaveresponseratesmeasuredin singledigits.Responsemodelsareusedtomeasureresponse ratesbyidentifyingprospectswhoaremorelikelytorespondin adirectsolicitation solicitation. Typicalmailingof100,000piecescostsabout$100,000 ($1/piece) Typicalresponserates<10% Anylistofprospects/customersthatcanberankedby likelihoodofresponseisgood Givenarankedlist,directmarketerscanincreasethe percentageofrespondersreachedbythecampaignsby targetingpeopleatthetopofthelist list.

Astheresponseratetoacquisitioncampaignsgoesdown, thecostofacquiring q gnewcustomersg goesup. p

Considerthefollowing
1,000,000 1 000 000prospects Budget=$300,000 Mailing ili to300,000 300 000prospects Rankorderlist(model)vsnorankorder:
100% Concentra tion(%age responder s) 66% 30% 0% 0% 30%
ListPenetration (%ageprospects) Benefit Model NoModel

100%

 Theupper pp curvedlineplots p theoncentration, ,the percentageofallresponderscapturedasmoreandmoreof theprospectsareincludedinthecampaign.Thestraight diagonallineisthereforcomparison. comparison Itrepresentswhat happenswithnomodel,sotheconcentrationdoesnotvaryas afunctionofpenetration. Mailingto30%oftheprospectschosenatrandomwouldfind 30%oftheresponders.Withthemodel,mailingtothetop 30%ofprospects, prospects finds65%ofresponders responders.

Considerthefollowing
Isthebenefitworththecost? Often,smaller,bettertargetedcampaigncanbe moreprofitablethanalargerandmoreexpensive one. Besuretoconsiderrealrevenue(forexample,10 peoplebuy=$100revenue;20peoplebuy=$200 revenue). p g p profitability ydepends p onmany yvariables Campaign thatcanonlybeestimated,hencetheneedforan actualmarkettest.

NumericWeightingTechnique It is a statistical adjustment to the data in which each case or respondent in the data base is assigned a weight to reflect its importance, relative to the other cases or respondents. The value 1.0 1 0 represents the unweighted case. case The effect of weighting is to increase or decrease the number of cases in the sample that possess certain characteristics. It is most widely used to make the sample data more representative of a target population on specific characteristics. For example, it may be used to g give g greater importance p to cases or respondents p with higher g quality data. Yet another use of weighting is to adjust the sample so that greater importance is attached to respondents with certain characteristics.

CampaignManagement
Thegoalofmarketingshouldbetoreachtheprospectswhoaremore likelytomakepurchasesbecauseofhavingbeencontacted. contacted Thisis knownasdifferentialresponseanalysis.
Goalistochangebehavior(tohelpdriverevenue)

Howdoweknowifwedid?
ControlGroup randomlyreceivesmailing TestGroup modelselectedtogetmailing HoldoutGroup modelselectednotgetmailing Compareresponsesofthegroups

Ifthe h treatmenthas h the h desired d i deffect, ff overall llresponsewill ill behigherinthetreatedgroupthanintheuntreated group.

ResponseModellingforCRM
A response p model is usually y the first type yp
of targeting model that a company seeks to p A response p model can p provide a develop. huge boost to the efficiency of a marketing p g by y increasing g responses p and/or campaign reducing campaign expenses.

DifferentialResponseAnalysis
Howdoweknowiftherespondersactuallyrespondedbecauseofour campaignorwouldhaveanyway? Answer:DifferentialResponseAnalysis(DRA) DRAstartswithControl&Treatedgroups Controlgro group p=nomailing Treatedgroup=receivemailing Compareresultsseeifthereisanyuplift

Control Group Young Women M Men 0.8% 2 8% 2.8% Old 0.4% 3 3% 3.3%

Treated Group Young 4.1% 6 2% 6.2% Old 4.6% 5 2% 5.2%

Objective:Tofindsegmentswherethedifferencein responsebetweenthetreatedanduntreatedgroupsis greatest.

Groupwiththehighestresponserateisyoungmenwhoreceived themailing. Doesthismeanthatacampaignforthisserviceshouldbeaimed primarily i il atmen? ? Notifthegoalistosignupmaximumno.ofnewcustomerswho wouldnothavesignedwithoutprompting. Menincludedinthecampaigndosignupfortheserviceingreater numbersthanwomen,butmenaremorelikelytopurchasethe serviceinanycase.

Differential response analysis tree

Thedifferentialresponsetreeclearlysaysthatthegroupmostaffected inthecaseisoldwomen.Thegroupisnotlikelytopurchasetheservice withoutprompting,butwithprompting,theyexperienceamorethan tenfoldincreaseinpurchasing

Uses
Matchingcampaignstocustomers Segmentingthecustomerbase Reducingexposuretocreditrisk Determiningcustomervalue CrosssellingandUpselling RetentionandChurn([in]voluntaryattrition) Differentkindsofchurnmodels predictingwhowill leave;predictinghowlongonewillstay
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