classes to which each pattern belongs. When a similar pattern is encountered in the future, thenetwork should correctly classify it.4. Recognizing patterns. In this case there is no training. The system develops its own set of classes that best classifies the input patterns, This is very similar to statistical techniques such ascluster and discriminant analysis.
NEURAL NETWORKS SUPPORTING
Marketing companies use their knowledge of consumer behavior to segment markets, to designmarketing strategies, and to measure marketing performance (Schiffman and Kanuk 1991).Today effective marketing practice requires companies to adopt the marketing concept andeffective marketing segmentation, which encompasses accurate assessment of the needs and preferences of the segment of the market to be reached by the given product, is an essentialelement thereof.Such problems, especially those within the purview of marketing executives, are too complex for formulation as mathematical models. Input data may be fuzzy, trends may be unextrapolablefrom past experience, or crucial factors may be difficult or impossible to quantify.In fact, neural networks have been successfully used to analyze bankruptcy prediction (Odomand Sharda 1990), bond rating (Surkan and Singleton 1990), and going-concern problem analysis(Hansen and Messier 1991). Several firms are exploring the commercial use of neural networksfor predicting detecting credit card fraud (Rathbum 1993), and verifying signatures (Francett,1989). Many firms are beginning to use neural networks to improve accuracy, reduce cost, or both. Most neural network applications address problems described by one of the following threecategories: (1) pattern classification, (2) market forecasting, and (3) marketing analysis.Examples from each category follow:
1 . Pattern Classification
Classification has emerged as an important decision making tool, and has been applied to avariety of problems in marketing, including customer classification (Sharma 1994), creditscoring (Capon 1982). Many of these studies have applied the neural network approach to predict the classification of a certain case. Spiegel Inc., a leading direct-mail catalog operation,used a neural network to fine-tune its marketing decisions (Schwartz 1992). Software created by NeuralWare Inc. examined the list of people who had made just one catalog purchase, as well aswhatever demographic information (such as age, income, home ownership, etc.) that Spiegel hadabout the customer in its database. It then compared them to customers who had purchased morethan one.The neural network identified a number of patterns that could be used to single out thosecustomers who were most likely to be repeat purchasers, allowing Spiegel to focus their marketing efforts.
2. Market Forecasting
Time-series forecasting in demand describes the processes or phenomena by which a statistical
Page 3 of 8A:\95sma180.htm5/24/04file://C:\WINDOWS\Desktop\1995\SWMA\95sma180.htm