1.

Introduction

Customer relationship management (CRM) refers to the techniques and strategies companies use in
order to interact with their clients and look at data in order to improve or build on the relationship
that they have with their customers. Keramati (Keramati et al. (2010)) has shown that customer
relationships can greatly improve when having CRM systems in place.

Data mining involves analyzing raw data and making it useful. Data mining can be used with the aim
getting new customers, retaining existing customers and generating more revenue for their
business.

Given how important CRM and applying data mining in this field is, there is not a lot of literature
available on this topic. The aim of this paper is to investigate new developments with data mining
techniques applied to CRM.

2. Decision Trees - Pruning

RFM analysis is used to separate your most valuable customers from your least valuable ones.
Customers are divided using three aspects from their transaction history:

 Recency – How long ago did they make a purchase?

 Frequency – How often did they buy?
 Monetary – How much did they buy for?

The more they do any of the three aspects, the more points the customer scores. This information
can then be used to determine and RFM score. As a result of this score, the most valuable customers
are attained.

The traditional RFM model is usually what one uses to segment customers into their groups and
determine the customer lifetime value. In a new model proposed by Archana, Ajay and Jayanthi
(Singh et al. (2015)), the association rule, direct hasting and pruning is used in order to generate
rules and market patterns in order to segment customers.

The end result of this model, which prunes the non-significant variables, would be in the form of
rules which would allow them to see firstly, which variables used when grouping the customers,
contributed the most to the company’s marketing strategy.

Further to that, they were able to add business value by tailoring they’re marketing strategy using
these rules of this study to the four stages of CRM. The rules determined whether they strategy
focused on customer acquisition, retention and development.

Part of their strategy was to offer discounts to the already existing customers as a form of promotion
and rely on positive reviews from customers in order to attract potential customers. This gives
monetary value and therefore increases the lifetime value of a customer in the organization.
 3. Regression Splines

One of the issues that business have to deal with is the loss of existing customers. This is referred to
as customer churn in the CRM field. Customer churn results in the loss of revenue as the customer
has now stopped the relationship they have with a company.

In order to predict customers who might churn, and come up with a strategy to retain them, data
about the behavior of a customer as they are at that current moment is used. The traditional
methods used to model customer churn are logistic regression and other binary based techniques.

One aspect that could potentially help in increasing the accuracy of the predicted churners is the
reduction of the data being analyzed. Not only is this computationally efficient, but dimension has
reduction has the effect of filtering out irregular variation that is present in the data.

KERAMATI, A., MEHRABI, H. & MOJIR, N. 2010. A process-oriented perspective on customer

relationship management and organizational performance: An empirical investigation.
Industrial Marketing Management, 39, 1170-1185.
SINGH, A., RANA, A. & RANJAN, J. 2015. Proposed analytical customer centric model for an
automobile industry. International Journal of Data Mining Modelling and Management, 7,
314-330.