Expert Systems with Applications 36 (2009) 80718075

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Expert Systems with Applications

journal homepage: www.elsevier.com/locate/eswa

A recommender system to avoid customer churn: A case study

Yi-Fan Wang a, Ding-An Chiang b, Mei-Hua Hsu c,*, Cheng-Jung Lin b, I-Long Lin d
a
Department of Information Management, Chang Gung Institute of Technology, Taiwan
b
Department of Information Engineering, Tamkang University, Taiwan
c
Center for General Education, Chang Gung Institute of Technology, 261, Wen-Hwa 1st Road, Kwei-Shan, Taoyuan, Taiwan
d
Department of Information Management, National Central Police University, Taiwan

a r t i c l e i n f o a b s t r a c t

Keywords: A major concern for modern enterprises is to promote customer value, loyalty and contribution through
CRM services such as can help establish a long-term, honest relationship with customers. For purposes of bet-
Data mining ter customer relationship management, data mining technology is commonly used to analyze large quan-
Decision tree tities of data about customer bargains, purchase preferences, customer churn, etc. This paper aims to
Recommender system
propose a recommender system for wireless network companies to understand and avoid customer
churn. To ensure the accuracy of the analysis, we use the decision tree algorithm to analyze data of over
60,000 transactions and of more than 4000 members, over a period of three months. The data of the rst
nine weeks is used as the training data, and that of the last month as the testing data. The results of the
experiment are found to be very useful for making strategy recommendations to avoid customer churn.
2008 Elsevier Ltd. All rights reserved.

1. Introduction vent customer loss. In fact, a regular trading system accumulated

With wireless formats becoming more and more mature, wire-
less equipment, such as Access Point (AP), wireless network cards,
etc., are getting less expensive, and mobile computing devices,
such as notebooks and PDAs, becoming more popular. According
to the DellOro Marketing Survey Report, the market of the wireless
local area network (WLAN) grew steadily about 40% year by year,
from 2003 to 2006. In 2006, the net value of the global wireless
networking already broke 100B dollars. The WLAN, as an extension
and supplement to wired networking, will continue to be in great
demand for the next generation.
When a wireless network company changes the strategy from
product-based to customer-based, the customer relationship man-
agement (CRM) becomes very important. As the 80/20 rule goes,
eighty percent of benet comes from twenty percent of customers,
so it is essential that companies understand customer need and de-
velop suitable CRM strategies in order to ensure customer reten-
tion, loyalty, and satisfaction. For this purpose, companies have
to collect information about customers and analyze their behavior
patterns, and the ability to integrate and utilize such information
effectively, therefore, is crucial to their CRM performance.
However, we have to realize customers behavior before we can
do an excellent CRM job. To understand customers behavior, we
need to collect all kinds of information about customers and ana-
lyze the behavior patterns of the customers to realize customers
behavior. That would help us to adopt appropriate strategy to pre-
* Corresponding author. Tel.: +886 3 2118999; fax: +886 3 2118866.
E-mail address: mhsu@mail.cgit.edu.tw (M.-H. Hsu).
enormous amount of valuable data. Therefore, how to integrate
and utilize those data would be a critical task. Data mart was the
solution created especially for this issue (Demarest, 1994). Data
mart is the subject to store all kinds of internal and external data
for future analysis.
A recommender system is one that recommends useful infor-
mation or suggests strategies that users might apply to achieve
their goals. The system gives suggestions based on a given event,
such as an error, or on observations of the users overall behavior.
A simple example is a research engine that, when no results found
for a query, suggests alternate keywords or queries that may
achieve better results (Diamond Bullet, 2004). Recommender sys-
tems are widely used in the elds of E-commence, movies, music,
books, and Web pages successfully.
Mooney and Roy (2000) suggest a content-based book recom-
mending system that utilizes information extraction and a ma-
chine-learning algorithm for text categorization. Miller, Albert,
Lam, Konstan, and Riedl (2003) propose the recommender system
Movie Lens, which builds on and extends a movie recommendation
(http://movielens.umn.edu) that provides movie, DVD, and VHS vi-
deo recommendations, along with a search capability. Chen and
Chen (2001) design the Music Recommender System (MRS), which
enables a website to provide personalized music recommendation
service based on music data grouping and user interest. The Group
Lens recommender system helps users browse among articles in
Usenet news (Konstan et al., 1997; Resnick, Iacovou, Suchak, Berg-
strom, & Riedl, 1994). Ringo allows users to get music recommen-
dations online and connect with other music fans (Shardanand &
Maes, 1995). Again, more successful applications can be mentioned

0957-4174/$ - see front matter 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.eswa.2008.10.089
8072 Y.-F. Wang et al. / Expert Systems with Applications 36 (2009) 80718075

at online food stores (Svensson, Laaksolahti, Hk, & Waern, 2000), the proposed system, users can gain recommendations from the
online book stores such as Amazon.com (Linden, Smith, & York, system. Since the process is application-oriented, different applica-
2003), etc. tions may need different classication approaches as appropriate.
For present purposes, the Decision Tree is employed as our classi-
2. Preliminary cation function.

Decision tree is a Data Mining technology used for classication
and prediction. The tree graph represents the decision tree. First,
one data enters root node of the tree, and then it is decided where
child node will go. The process as above will repeat until the data
reach to the leaf node.
The famous algorithms of decision tree are C4.5 (Interactive
Dichotometer 3, Quinlan, 1983), CART (Classication and Regres-
sion Tree, Breiman, Friedman, Olshen, & Stone, 1984), and CHAID
(Chi-square Automatic Interaction Detector, Kass, 1980). Although
the algorithms are different, the purposes of them are alike. There
are many advantages of the decision tree such that the rules re-
sulted from the decision tree are readily understandable, the data
can be classied with less calculation, and it can analyze the nu-
meric or categorical data.
Many researchers target customers by the segmentation meth-
od. Pons (2006) uses biometric technology to bridge the gap be-
tween consumer need and the marketers perception. Lee and
Park (2005) put forward a protable customer segmentation sys-
tem based on a customer satisfaction survey. Tsai and Chiu
(2004) propose a combination of methodologies that include pur-
chased-based similarity measuring, the clustering algorithm, and
the clustering quality function. Kim, Jung, Suh, and Hwang
(2006) segment customers and develop strategies based on the
customer lifetime value. Hwang, Jung, and Suh (2004) present a
case study of the wireless telecommunication industry that catego-
rizes customers according to different customer values. Chalmeta
(2006) offers a formal methodology of developing and implement-
ing a CRM System that considers and integrates various aspects,
including the dening of a customer strategy, the re-engineering
of a customer-oriented business process, the management of hu-
man resources and computer systems, as well as the management
of change and continuous improvement. Chen, Chiu, and Chang
(2005) establish a method of mining changes in customer behavior
by integrating customer behavior variables, demographic vari-
ables, and the transaction database. Van Raaij, Vernooij, and Van
Triest (2003) help a rm determine the prot contribution of cus-
tomers, using customer protability analysis. Yuan and Chang
(2001) suggest a mixed-initiative synthesized learning approach
to better understanding of customers. Bae, Ha, and Park (2005) de-
velop a web-based system for a life insurance company to analyze
the voices of customers.
Other researchers attempt to predict customer behavior. Suh,
Lim, Hwang, and Kim (2004) propose a methodology that supports
web marketing by predicting the purchase probability of anony-
mous customers. Van den Poel and Buckinx (2005) use a logic
modeling and forward and backward variable-selection technique
to predict a purchase during the next visit to the website. Lariviere
and Van den Poel (2005) predict customer retention and protabil-
ity, using random-tree and regression-tree techniques. Verhoef and
Donkers (2001) predict customer potential values for an insurance
industry. Lu and Lin (2002) determine customer loyalty levels and
predict customer behavior in the market-space by examining the
3.1. Data mart
Since some unneeded elds exist in the raw data, a data mart
(Demarest, 1994), or a relational database, is required to store
those cleaned data. That is, only useful data is downloaded and
reformatted into the data mart (Liu & Setiono, 1996).
3.2. Field selection
Field selection is a step that comes before classication. Many
eld selection algorithms have been proposed, some of which have
reported remarkable accuracy improvement (Liu & Motoda, 1998).
In this part, we use consistency measurement to nd some impor-
tant elds. The concept of consistency measurement is using min-
imum elds to describe raw data. For example, given the data in
Table 1, we can determine by consistency measurement which
eld Income or Age is more important to the eld Degree.
First, the number of inconsistency between Income and
Degree is computed: I(Income, Degree) = I(Income(1), De-
gree) + I(Income(2), Degree) + I(Income(3), Degree) = 1 + 0 + 0 = 1.
So the number of inconsistency between Income and Degree
is one. In the same way, the number of inconsistency between
Age and Degree is computed: I(Age, Degree) = I(Age(1), De-
gree) + I(Age(2), Degree) = 0 + 2 = 2. So the number of inconsis-
tency between Age and Degree is two. Obviously, the eld
Income is more important to the eld Degree.
Our System
Raw Data Mart
Data
Field Selection
Classification
Recommendation
Users
Fig. 1. A simplied architecture of the system.
Table 1
Description of members.

signicance of the content, context, and infrastructure. No. Income Age Degree
1 1 2 Low
2 1 1 High
3. Proposing a recommender system 3 2 1 High
4 1 2 Low
Our system uses Visual BASIC on an IBM PC and includes four 5 3 2 Low
6 2 2 High
major modules: data mart, eld selection, classication, and rec-
7 2 2 High
ommendation. Fig. 1 is a simplied architecture of the system. In
 Y.-F. Wang et al. / Expert Systems with Applications 36 (2009) 80718075 8073

Table 2 elds. To ensure the accuracy of the analysis, we use the decision
Descriptions of input data. tree algorithm to analyze data of over 60,000 transactions and of
Variable Description more than 4000 members, over a period of three months. The data
name of the rst nine weeks is used as the training data, and that of the
Last_con_Day Interval (days) since the last use of the companys wireless last month the testing data.
network
USER_COUNT Times of logging in 4.1. Field selection
OUT_Flag Customer loss or retention ag:
YES: customer loss
NO: customer retention The task is to select data properties, reduce the data size, and
Result Loss or extend contract clean the data; the step prepares the data for analysis. It is the data
elds thus derived that will be used to analyze because some of the
raw data, such as amounts and times of commerce, may have lin-
ear correlations, and to enter such linearly related elds would
3.3. Classication lead to an undesirable result.
The raw data indicates that the most popular program is the
Scholars (Quinlan, 1983; Kass, 1980; Chiang, Chen, Wang, & pre-paid card category, which accounts for 77% of all sold pro-
Hwang 2001) have very well addressed the Decision Tree algo- grams, and that the second popular is the monthly rental program,
rithms. In this part, we shall borrow from Chiang et al. (2001) to accounting for 11%. In terms of age, the customers are mainly be-
nd useful rules. tween ages 10 and 49, mostly in the twenties, and there are more
male users at all levels of age. Most users have full-time jobs.
3.4. Recommendation Through eld selection, as introduced in Section 3.2, we gain
these four elds: including interval days since last use, total con-
The conditional rules produced by our decision tree algorithm nection times of the user, and a predicted ag. Descriptions of
will show the characteristics of customer behavior that can lead the elds are shown in Table 2.
to customer loss. Such ndings will serve as the basis for marketing
strategy recommendations to prevent future customer loss. 4.2. Customer churn analysis using the decision tree

4. Experimental result
The experiment begins with an understanding the goals and
needs of the business, transforms the knowledge obtained to ques-
tions, and then designs a preliminary plan for the goals. Our con-
cern at this step is to get a deep understanding of the subject of
our experiment, which is a wireless networking company. Speci-
cally, the purpose is to learn about its source of operational in-
come, methods of metering and collecting fees, the wiring areas,
density and coverage rates in different areas, properties of each
installation point, etc.
A basic understanding of the data is thus gained, including user
data and other useful elds, in terms of data characteristics and
properties as well as mutual relationships among different data
In Fig. 2, Last_con_Day is used as the input eld of the decision
tree algorithm. When Last_con_Day is shorter than 3.5 days, the
saturation for contract extension is 77.7%, which means the use
will most likely continue the program.
In Fig. 3, USER_COUNT is used as the input led of the decision
tree algorithm. When USER_COUNT is longer than, or equal to, 10.5
days, the saturation of contract extension achieves 70.8%, meaning
that the user will very likely continue the program.
As shown in Fig. 4, when Last_con_Day is shorter than 3.5 days,
as shown in Fig. 4, the possibility of contract extension decreases. It
is recommended that the company promote programs to such
users.
By contrast, as shown in Fig. 5, when USER_COUNT is longer
than, or equal to, 10.5 days, the possibility of contract extension in-

Fig. 2. Results of Last_con_Day used as the input led of the decision tree algorithm.

Fig. 3. Results of USER_COUNT used as the input led of the decision trees algorithm.
8074 Y.-F. Wang et al. / Expert Systems with Applications 36 (2009) 80718075
Fig. 4. Last interval days and possibilities of contract extension.
Fig. 5. Frequencies of use and possibilities of contract extension.
3.5
Fig. 6. Potential and actual contract extensions by percentage.
creases with frequency of use. It is here recommended that promo-
tion programs be offered to those customers whose use rates are
smaller than 10.5 days.
4.3. Evaluation
The data of the last month, as previously mentioned, is used as
the testing data. The forecasted results are found to be very close to
the actual percentages of contract extension, and this means the
results obtained by the decision trees algorithm are highly useful
and applicable (Fig. 6).
5. Conclusion
We have used data mining to dig out useful information from
the huge data about a wireless network company. The information
so obtained has been analyzed, using the decision tree algorithm,
so that we are able to come out with new marketing and promo-
tion strategies. When we take actions, we will have to interact with
customers and record all related feedbacks. Such information can
help us reevaluate and improve our model. So there exists a con-
stant need to understand and study the various reasons for cus-
tomer churn. For instance, the behavior patterns of lost and
existing customers must be analyzed and compared in order to
nd out potential lost customers and adopt appropriate preventive
measures. With our proposed recommender system, different
strategies can be made readily available that at once help maintain
congenial customer relationships and suit new marketing condi-
tions and circumstances. To avoid customer churn, it is essential
that the customers whether existing or lost get the message
that we do care.
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