Data Mining Application in Customer Relationship Management
Of Credit Card Business
Ruey-Shun Chen, Ruey-Chyi Wu and J. Y. Chen
Institute of Information Management,
National Chiao Tung University, Taiwan.
rschen@iim.nctu.edu.tw
Abstract
First, we classify the selected customers into clusters using
RFM model to identify high-profit, gold customers. Subsequently,
we carry out data mining using association rules algorithm. We
measure the similarity, difference and modified difference of
mined association rules based on three rules, i.e. Emerging
Patten Rule, Unexpected Change Rule, and Added/Perished
Rule. In the meantime, we use rule matching threshold to derive
all types of rules and explore the rules with significant change
based on the degree of change measured. In this paper, we
employ data mining tools and effectively discover the current
spending pattern of customers and trends of behavioral change,
which will allow management to detect in a large database
potential changes of customer preference, and provide as early
as possible products and services desired by the customers to
expand the clientele base and prevent customer attrition.
Keywords: Data mining, Customer relationship management,
Credit card.
1. Introduction
Customer relationship management, through which, banks
hope to identify the preference of different customer groups,
products and services tailored to their liking to enhance the
cohesion between credit card customers and the bank, has
become a topic of great interest.
Shaw et al. [9] mainly describes how to incorporate data
mining into the framework of marketing knowledge
management. The systemic application of data mining
techniques reinforces the knowledge management process and
allows marketing personnel to know their customers well to
provide better services. Differing from Berry and Linoff [10],
Shaw proposes the view of data visualization, believing that
data visualization software allows marketers to see complex
data depicted in three dimensions or colors and to slice, rotate
or zoom the data to obtain different levels of details.
Song [8] depicts a method to detect changes of customer
behavior at different time snapshots from customer profiles and
sales data. The common approach is to discover changes from
two datasets and generate rules from each dataset to carry out
rule matching. In this study, we propose three types of
behavioral change rules—Emerging Pattern Rule, Unexpected
Change Rule, and Added/Perished Rule.
2. Literature review
2.1. Customer relationship management
Kalakota & Robinson [1] defines CRM as the strategy
integrating sales, marketing and service, which unites operating
procedures and technology to better understand customers from
different perspectives. Kandell [2] views CRM as a customer
centric initiative that regards customer lifecycle as an important
Proceedings of the 29th Annual International Computer Software and Applications Conference (COMPSAC’05)
0730-3157/05 $20.00 © 2005 IEEE
business asset and aims to retain customers and enhance
customer satisfaction. According to Caldwell [3], CRM is not a
new concept. Many businesses have practiced it for a long time,
for instance, by memorizing customer’s background and
spending habits and introducing promotions targeting certain
customers based on the information obtained.
2.2. Experimental Model
Bult and Wansbeek [4] point out that RFM (recency,
frequency and monetary value) is most commonly used for
selection or segmentation analysis in direct marketing; through
RFM, marketer can sort out target customers from a huge list of
customers for its marketing activity. Sung and Sang [5] use
non-transformed RFM values directly as input variable for
model building and then categorize customers into groups
using cluster analysis where different marketing strategies may
be formulated for different customer clusters. Goddman [6]
holds that RFM analysis helps avoid waste of time and energy
on cultivating low-profit customers and generate better return
on capital by investing more marketing resources on higher
profit customer segments.
The customer value matrix proposed by Marcus [7] is a
method suitable for small and med-sized enterprises to analyze
customer value. Customer value matrix uses two variables-
frequency and money to explain customer value, while the third
variable “recency” provides the time of customer contact to
combine with frequency and average monetary value of
purchase. Figure 1 depicts the customer value matrix.
Figure 1 Customer value
Figure 2 System Framework
Matrix
Data mining helps users to identify valuable patterns
contained in diverse data and their relations so as to help the
major decisions. Currently businesses apply data mining in
many fields, i.e finance, banking, and manufacturing. Generally
speaking, data mining can create the following models: (1)
classification; (2) cluster analysis; and (3) association analysis.
3. Problem description
Using the association rules in data mining techniques to
analyze in detail customer transactions can learn which
products might be purchased by customers at the same time,
and based on the rules for combining popular products,
 marketing personnel or corporate decision makers can
formulate more appealing marketing plan or operational rules
and actively offer products that might interest the customers.
Thus clusters may be used as basis for segmenting marketing
targets. In consideration that customer’s spending behavior
might change with time, we will also explore such time-varying
and dynamically adjusted spending patterns.
4. System analysis and design
4.1. System framework
As shown in Figure 2, the system framework for the study
contains customer clustering, creation of association rules, and
mining change of rules at different time.
4.2. Relationship between rules at different time
periods
We identify higher profit customers using clustering
algorithm, select datasets of two different time periods, and
generate the association rules in those two periods using
association rules algorithm. We first measure the similarity and
difference between the rules, then use rule matching threshold
to decide the type of the rule, and finally evaluate the degree of
change to identify a significant trend of spending behavioral
change. We use the term “similar” and “different” to depict the
disparity between rules. Here we use a rule matching threshold
(RMT) [8] to decide the measure of difference between rules,
shown in Figure 3.
Figure 3 Different Types of Changes
5. System implementation
5.1. Data description
The data for the empirical study are credit card customer
data and spending records in 2003 and 2004 from banks. In
light that the study focuses on the spending behavior of
customers, all purchases of the same customer using more than
one credit card were combined under said customer. There were
altogether 10304500 and 1146200 pieces of purchase data for
2003 and 2004 respectively, which were matched using a
program, and data of the same customer were kept. Finally,
1063000 pieces of data for each year were used as dataset for
the study.
5.2. Weka data mining tool
Weka (Waikato Environment for Knowledge Analysis) is
a Java-based data mining tool developed by Waikato
University. After loading the dataset into it, the preprocess
function of Weka allows the user to input undesired attributes
to prevent them from affecting the quality of extracted
knowledge. Next, the user can use one of the three algorithms
to mine the data: Classification, Clustering, and Association
Rule.
6. Results
In this section, we used Weka to run the model. First, we
clustered the 2003 customers to identify the most influential
group in term of business profit and find their behavioral
pattern. The 2004 dataset was used to observe change of rules
in different time periods. These steps can help decision makers
Proceedings of the 29th Annual International Computer Software and Applications Conference (COMPSAC’05)
0730-3157/05 $20.00 © 2005 IEEE
understand customer needs and adjust their marketing strategy
accordingly to seek maximum return under limited resources.
6.1. Classification analysis
We clustered the 2003 customers using the RFM model.
Given that “most recent purchase date (Recent)” bears no
significant influence in the analysis of customer value in credit
card transactions, we considered only two factors -frequency
and monetary value (M) in clustering analysis. Cluster 0 and
Cluster 2, which collectively accounted for 80% of bank
customers, but had brought little profit to the bank (spending
less than $4500,000 per person each year), banks are advised
against spending too much energy and costs on these types of
customers. Cluster 3 and Cluster 4 were more loyal, but did not
generate high profit for the bank. How to enhance their value to
the bank should be the focus of marketing efforts. Cluster 1
accounted for 3.3% of credit card customers and they were the
gold customers with high loyalty and high profit, and hence one
of the bank’s most important assets. Losing such customers
will result in substantial loss to the bank. Thus the bank should
endeavor to provide better services and greater added value to
retain them. A business only stands to win if it is able to use
information and professional knowledge effectively to create
value for its customers and solidify its relationship with them.
At 5.5% support and 75% confidence level, we identified
641 association rules in 2003 dataset and 578 association rules
in 2004 dataset using the Apriori algorithm provided in Weka.
7. Conclusion
We used association rules algorithm to mine the data to
detect the association rules in each time period. We measured
the similarity, difference and modified difference of the mined
association rules based on three definitions and used the self-set
rule matching threshold (RMT) to find all types of rules.
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