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    Customer Relationship Management

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    30 views26 pages

    Chapte 07 - eCRM

    Uploaded by

    Saavir Kuckreja
    Customer Relationship Management

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    © All Rights Reserved
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    of 26
    7 Components of eCRM Solutions pRODUCTION “Fechnological advancements in the recent times have enabled business organs qaomate their processes. This has resulted in greater profits through reduction in costs, yale time and workforce “Technology per se is a vast topic and each aspect of it can be the subject of many books. However, herein we will discuss the basic technologies ata more conceptual level, their ‘| pole in CRM solutions and as to how they have shaped the CRM solutions, We will ‘| iecfically look at the role of Interactive Technologies in CRM solutions such as Sales Force Automation, Customer Service and Support and Campaign Management. We will aio discuss the role of Data Mining as a backbone of CRM activity and Data Warehouse that supports it, | CRM technologies enable an organisation to present a single point of contact to its ‘astomers, ‘This ‘point of contact’ retains the previous interactions of the customer with the organisation and uses this information to tailor its future interactions. This is done jn such a way so as to deliver and derive maximum value from the transaction. At the | ‘ame time, the customer also feels delighted and satisfied. Better decisions are taken when | the main front-end marketing, sales and other processes are integrated with the supporting backend processes in the CRM. However, it is important to keep in mind that technology is just an enabler If an | oganisation has to reap the benefits of CRM, investments in technology alone do not | alice. The company should be customer focused with proper CRM processes in place: | Framework, | CRM is a broad term encompassing many strategies, processes and technologies all working | Avtandem to get as close to the customer as possible, CRM solutions are built to: 1. Aid in building profitable, mutually beneficial and long-term relationships with customers. Interact with the cusiomers so as to get closer to them at every point of contact 3. Maximise the company’s share of the customer's wallet | In order to make a customer's experience delightful with the company, the company Needs to monitor the customer’s behaviour to understand what they want and then provide it to them with minimum possible delay. This means dhat the company should gather | q the possible data about the customer from every customer contact point, ie. voice, yj fax, Internet or person-to-person. When this data is analysed after integrating with ety, demographic and environment related data, the company may get new insights aby customer behaviour. Finally, when the employees of the company use this knowledge, ae can provide a much better and personalised service to the customer : Initially, when CRM technology was in its infancy, narvow subsets of the gamut of CR operations were developed. These solutions adopted piece-meal strategies towards CR. and were usually operated stand alone without complete integration with the company. processes or databases. Some of these products included stand alone sales force automation campaign management software, etc. However, a holistic approach to CRM inevitabj, makes it essential to integrate the back office and the front office activities and provi information seamlessly across all tiers of the marketing effort. We will be using the ME group's CRM architectural framework to analyse where the different solutions fit in f a holistic perspective.* The META Group's view of the CRM architecture emphasises th importance of a balanced CRM approach that combines both the operational and th, analytical technologies. The CRM architectural framework has three primary componens 1. Operational CRM involving process management technologies 2. Analytical CRM involving business performance management technologies, and _ 3. Collaborative CRM involving business collaboration management technologies, : Operational CRM. Operational CRM involves the automation of horizontally integrated business process involving front office customer touch points, These technologies reside in those parts a company where ‘moments of truth’ occur, i.e. a customer makes direct contact with tht, employees of a company. This may be an enquiry by a customer regarding a product a service, an order placement, contacts while an order is being fulfilled (e.g. installation, ete], or after sales service and support. ‘Iypical CRM solutions that fit into the operation! category include customer sales and service, sales force automation, marketing automation. mobile sales and field service solutions. The back office side of the operational CRN: solutions should be able to plug into ERP systems (for order management) and Supph, Chain Management software (for order processing). Further traditional transacti processing and other legacy systems form important parts of the operational CRM effort ‘A company usually in the course of its day-to-day transactions collects large amount of data about its customers, competitors and det about its processes and tk environment in general, Such data contain hidden implicit knowledge, which could bi profitably used by the company. Extraction of this data requites data analysis usin statistical and other such techniques. Analytical CRM This component of the CRM ecosystem analyses the data created on the operation of the CRM effort for the purpose of business performance management and improvemest, * Adapted from The Customer Relationship Management Ecosystem, MEYA Group, 1999 Components of CRM Solutions 105 Jpediction of customer behaviour, identifying relevant customer segments, identifying ine, ie. vole eM gotential customers, etc, are some of the activities that could be performed from the ‘ - fnowledge arising out of analytic CRM efforts, Data mining applications perform this Hialysis and extract relevant and useful knowledge about customers. ‘The data required “for the Data Mining applications is stored in a central data warehouse. The data warehouse eo inains historical data collated from all parts of the company along with demographic gnd other environmental knowledge vy should gather 3} the garnat of CRy ies towards Cy, ive CRM* vith the compe eae s force automatig 0 CRM inevitay ivities and provig ve using the MEY) 1, to improve communication and coordination, lutions fit in fioy) 2. co aise customer switching costs, and ure emphasises th] 3,_to increase customer intimacy and retention perational and thy mary compona pis the third arm of this architectural framework, Collaborative CRM ‘facilitate interactions between customers and companies and between members of the compan ground customer information: ‘ome of the collaborative CRM technologies are voice, conferencing, email, web-based and other interactive technologies. echnologies, and | nt technologies + in those parts d 7 t contact with thy dling a product a} oe) . installation, ete)} al ‘ting automation! operational CRN} nent) and Suppl ional transactior| ional CRM effort cts Tange amount Figure 7.1. ‘The META Group CRM Architectural Framework t | business proces i o the opera rocesses and tht » Which could bi ta analysis using, Ik should be noted that there is a considerable overlap between the Operational and Collaborative CRM efforts with a single tool taking care of these functions. Collaborative CRM is primarily geared towards increasing the interactions between the customers and | companies, while Operational CRM is primarily geared towards capturing information | aboue the customer at the contact point and getting the main work done. The META | Group has described the combined CRM technologies as a CRM ecosystem. All the three » operational side, ~ dt tone, ent. CRM efforts are equally important for a balanced CRM solution. Adapted from The Rok of eAnteligence in Customer Relationship Management, SAS white paper, wi. ont 99, i at 108. Customer Relationship Managomon! A Salogie Perspective DATA WAREHOUSING We will now consider an important component of the Analytical CRM effort ~ the Data Warehouse. ‘the Data Warehouse is the infrastructure on which data mining applications resid and ran. Data Warehousing is a collection of deciiny support technologies, aimed at helping the decision-maker make better and faster decisions. A data warehouse is a subjec-orienied, integrated, time varying, non-volatile collation data that is primarily used in ireneainel deison-making (Cheasdhari and Dayal, 1997) Although physically not very Gifferent from traditional databases, they are mafnane) Primarily for the purpose of decision support ‘Typically, data warchouses are maintained Separately from the organisation's operational dlstabases, Operational databases are optimised for an cy ‘Banisation’s day-to-day transactions like order entry and banking transactions that are broctn \d-butter day-to-day operations Of an organisation, These tasks are repetitive, structured, and consist of short and atomic thee Ctions. For example, in case of a bank, many customer one simultaneously access theit accounts simultaneously from multiple. ATRs Therefore, they contain only the ‘elevant information at any particular poitt of time Second, redundancy is reduced so {hit these databases can be optimised for speed and alse a minimise concurrency conflicts, On the other hand, a data warehouse eontains hiaonoc all parts of the onganis in redundancy as they are [Plimised for decision support and not for speed They tend to be orders of magnitude laiger than the operational databases, hundreds of Bigabytes to terabytes in size, The decision-maker (typically a manager) can ask ad. hog queries which may require access of millions of records. Query throtighput_and Tesponse times are more important than transaction throughput Earlier various parts of an organisation were served by different databases that were Specifically designed for those purposes, For example, the marketing department and the finance department of the samme company may Hove very different databases. Decision dentine iluites data from such heterogencous sources to be consolidated into one large database so that analysis could be performed pcond, data from extemal sources that may Ty be found in an operational database may alvo ned 0 be provided for decision support. Different sources may contain data of vari is quality, or using inconsistent representations, codes and formats, which have to be reconciled. For ah the above reasons, data warehouses ANS Constructed separately from operational databares Data warchouses may be implemented on standaad oe extended relational database ROT nent systems called Relational OLAP (Online Analytical Processing) servers (ROLAP). If the data is stored in a nvulti-dimensionat form, they are called MOLAP (Multi. dimensional Online Analytical Processing) servers Building a data warehouse is « tong and complicated process that may take considerable mr, Dat ni, MOREY aad effort. Many organisations on the val hand settle for data Marts, Data Marts are smaller data warehouses, which no departmental subsets focused on selected subjects. For example, a marketing data 1 may include customer, product ane ales information. These data marts canbe rolled out faster, but inthe Tong-run pagtion of all these data marts into a data warehouse might prove to be a serious problem, ort ~ the Data °g applications ‘ologies, aimed varehouse is a imarily used in cally not very © purpose of operational y transactions ay operations and atomic ously access ain only the s reduced so ney conflicts. collated from as they are £ magnitude size. The ire access of ortant_ than s that were ent and the Decision © one large that may on support. nations, warehouses I database a) serv AP (Mi ti. nsiderable focused | (, product long-run & serious | ! | i | : Components of CRM Solutions 107 fypical Data Warchousing Architecture Figure 7.2 shows a typical data warchousing architecture Monitoring ana Reposiory) | SS tata E: ‘Sources J———__. + OATA i ———+1 and Report ale Barat, Load, Transform anes Retiesh Operational Databases Figure 7.2.4 (Adapted from ypical data warehouse includes tools for extracting data from multiple operational and external sources. ‘This data is then cleaned not made consistent. by Lransformation tools. They also integrate the data trom various sources, Further, there are Wools for loading the data into the data warehouse, periodically refreshing it and probably furging i€ to other slower archival medium. In addition, there might also he many departmental data marts. Data in the warchease te stored and managed by one Warehouse servers, which present multvdimensional daa to vatious f nelude query and reporting tools, Operational. Cieht tools or d: there is a repository for storing and managing META data Administering the warehousing” system and CRM The data warchouse is an import infrastructure on which tont-end tools. These ata mining tools. Finally, and tools for monitoring and Data Warehe ant constituent of the CRM ecosystem. It forms the Mata “nuining and other analytical applications are ro deny vantages to using an enterprise data warchones fe CRM. We below: basic There ane touch upon a few A castomerce nivic organisation uses a number of channels to en dialogue with its customers. However, as the becomes increasingly difficult w integrate gage in an effective number of channels proliferates, it information from all the customer touch 108 Customer Relationship Management ~ A Strategic Perspective ts. A data warehouse provides much better information integration to the decision-maker. + The increasing importance of the Internet as a channel of communication and interaction has bought along with it many difficulties, For one, the marketers had very little knowledge about the behaviour of their customers on the Internet. It is very easy to get information on who has bought what, but difficult to know the | behaviour of the other 75 per cent of online shoppers who abandon their shopping | midway after browsing through the site. Better understanding of the customers can be developed if the existing CRM systems could be plugged into the website database, However, they do not integrate well. A data warehouse can be implemented, so as to answer the CRM queries after integrating the data from the web servers. The data warehouse collects huge amount of click-stream data that enables the company to understand how customers access their web sites and what they do when they get there. * In CRM it is very important that a company treat each customer as an individual by catering to his/her personal tastes, preferences, likes and dislikes. Using the data from a data warehouse about the customer's interactions in near real time helps in personalisation of services. For example, a company may find that a customer hhad abandoned the purchase of a product after browsing about its details for sometime. The company knows that the customer is interested in that particular product. It can then get back to the customer and give hinvher a better offer after ascertaining his/her specific needs. + Data warchouses play an important support function in marketing campaigns. Campaign management is the process of planning, executing and assessing outbound campaigns. The data warehouse provides the empirical data that is needed to determine the ideal size of a campaign market, identifying customer prospects and evaluating the success of a campaign based on the responses. As a company undertakes many campaigns in various segments, it collects a lot of data about prospective customers, targeted people in the previous campaigns and as to how they had responded (o the various forms of communication utilised by the company. This historical data supplied by the data warehouse in conjunction with a campaign management tool makes it very easy for the company to identify prospects based on their previous behaviour. ‘Thus, the company can target the right customers and this increases the effectiveness of the marketing campaign. In short, we can say that a data warehouse is an important constituent of a balanced CRM ecosystem. It aids in critical decision support by consolidating and integrating crucial customer information along with other information (such as demographics, competitor information, etc.), from various sections of the company. A well-designed data warehouse goes a long way in building and aiding, successful CRM applications. DATA MINING AND CRM Recent advances in data gathering and data storage technologies, along with the steep fall prices has made it possible for companies 10 gather and store large amounts of data Components of €CRM Solutions 109 ‘gration tg companies generate gigabytes of data daily through their daily transactions, Analysing large quantities of data requires approaches ihat are very different from the traditional ta analysis approachies adopted in disciplines such as statistics, Artificial Intelligence (Al), ine learning and others. This has given birth to the field of Knowledge Discovery Databases (KDD) more popularly called as Data Mining. “Knowledge Discovery in t 0 know Databases (KDD) is the non-trivial process of identifying valid, novel, potentially rotfud their shoppi and sltimately understandable patterns in data’ (Fayyad et al, 1996). Others look at data ining in terms of a set of tools and techniques that operate ons sri extract implicit patterns from data. mented, $0 servers, Characteristics of Data Mining the compa wunication marketers Internet. jp Data Mining has many characteristics that are very different from traditional data analysis disciplines. Given below are a few of the more important ones + Data mining is an inter-disciplinary field taking its disciplines such as. statistics, databases, among others, * Pata mining tools and techniques operate on large and very large databases. Therefore, many techniques that were available to researchers earlier cannot be usedl without modification to suit large datasets, Data mining techniques give the search methods son inputs from diverse but related sing the a » artificial intelligence, machine learning and large time helps customer | + details fo articular "offer after e degree of search autonomy result automated or semi-automated nature of the discovery. apa * Data mining is usually done on data that has been collected while undertaking the Kiaeboot dlay-to-day transactions of a company. Such data usually has less bias than dats tec fecded has been specifically collected for the purpose of analysis. However, many a time, aspects and attributes might be insufficient to carry out some desired analysis 1 company. * Last, data mining aims to facilitate the involvement of the end user (e.g. manager, Hata abou cic.) in the discovery process without need for trained experts either for running the various techniq) 9 how they pany. This campaign ects based >mers and 's or for interpreting the results Matheus et al. (19933) have described the challenges facing data mining in as, The grand Gallene of knowledge discovery in databases isto automatically process lage quantities of raw data, identify the most significant and meaningful patterns, and present these es kuorsledge appropriate for achieving the user’s goals Data mining tools and techniques operate on large databases and extract pattems that ah umplictin them. The knowledge that is extracted from the databases by the data mining algorithms is primarily of two types: predictive and descriptive. Prediction incolras finding out the future state of a variable using its past values and the values of other tacy Yarables. For example, a manager of a bank might want to find out whether his eustener (say A) will default on a loan repayment or not. The chances of the customer's defau ny, Cart be found out using a classification algorithm, which would assign the customer te cither the defaulting set or the non-defaulting set. Description involves finding out the properties that describe the data under consideration. For example, a manager of a reta or her want 0 know how the profiles of his/her customers change with either age or their income. balanced i crucial ompetitor archouse teep fall of data, 110. Customer Relationship Management ~ A Strategic Perspoctive Data Mining Tasks Data mining, tasks she lange dacasets operations that extract predictive or de: hhe main tasks are as follows ptive knowledge from Classification: Classitieation is a process that maps a given data item into one of the several predefined classes (Weiss and Kulikowski, 1991; Fayyad, 1996; Yoon, 1999). In CRM, classification is used for a variety of purposes like behaviour prediction, product and customer categorisation. Classification is used in campaign management. to identify prospective customers for a new product from a database of old customers, Regression: Regression is the operation of learning a function that predicts the value of a veal valued dependant variable based on values of other independent variables (Fayyad etal, 1996). Suppose the effectiveness of an advertisement campaign is measured in terms of brand recall. If a marketing manager has a priori feeling that the ad effectiveness is dependent on the total advertisement budget and the media used, then he/she can estimate the effectiveness of the advertisement campaign in terms of the advertisement budget and other related variables that might be important. If a new campaign is proposed to be launched, the manager can estimate its effectiveness based on the above regression equation that he/she has estimated. The campaign budget and other parameters can then be fine tuned t achieve the required degree of effectiveness, Link analysis: Link analysis seeks to establish relationship between items or variables in a database record to expose patterns and trends (Simoudis, 1996; Yoon, 1999). Link analysis can also trace connections between items of records aver (ime. The most important Jink analysis application in CRM, called market basket analysis, is an operation that seeks relationships between product items characterising produ ities or buyer preferences. For example: A manager in a retail store will be very concerned about the display of goods. Helshe wail like to display only those products that are likely to be purchased. Optimising the shelf space with the products that are most likely to be sold would help the manager in improving the revenue from the store. If the marketing manager mines for association rules, rules thar details of items that self together, then using these rules the display space can be redesigned and better utilised. The display can thus be made to accommodate principally those items that sell together By rwconfiguring the display space, the store manager increases the amount of sales. Segmentation: Segmentation aims to idemify a finite set of naturally occurring clusters or categories to describe data (Anderberg, 1973). Segmentation is done in such’a way that cases belonging to @ segment or cluster are more similar with sespect to the clustering criterion while they differ significantly from the cases belonging to other segments. The knowledge about market segments is very important to a marketing manager or carrying, out higher day-to-day activities, Based upon this knowledge marketing campaigns are ran, advertisement budgets are allocated, store locations are decided, offers made and a host of other activities are carried out. But, before doing ay of this, segments are (o be identified and their characteristics determined. ‘This is done using chistering algorithms that segment the database based on the required criterion Components of eCRM Solutions 111 Deviation detection: Deviation detection (DD) focuses on discovering the most significant changes in the data from previously measured, expected or normative valucs, Many of the CRM and other packages routinely keep on checking critical parameters as they change with the market scenario. In case, the parameters change above a value as defined! by the user, then it is reported to the usermanager for appropriate action Mest of the data mining tasks are exploratory in nature. They give a pointer to the fact that possible relationships might exist between variables, but might notin most cases, ascertain the reason for the occurrence of the detected pattern. But their usefulness comes from the fact that they are able to point to the possibility of obscure and hie relationships existing beaween variables. The use of data mining tasks must be guided by the questions that need to be asked, ‘Iwo or more data mining tasks used proper conjunction on a large database would give a manager rich preliminary insights into the phenomenon taking place and probably ferret out hidden relationships otherwise impossible to recover. Data Mining Tools and ‘Techniques Data mining tools and techniques ate algorithms and methods used to catty out the above data mining tasks. They differ from each other in type of data handled, assumptions about the data, scope and interpretations of the output. It should be noted that single tool Gay meural networks) could be used to carry out many tasks (e.g segmentation, chssification, etc.). Similarly, a data-mining task could be performed using two on ‘many tools (eg, classification can be performed by decision trees, neural networks or cule induction.) We give below a brief introduction about some of the more important data mining tools, ‘which are a part of many of the currently available data mining. packages Decision trees: Decision trees are classification tools that classify examples into finite number of classes considering one variable at a time and dividing the cntite data set based na (oon, 1999). Decision trees can be used for inducing rules for classification and segmentation, Rule induction: Rule induction is the process of inducing general rules that apply to many cases from a database of specific examples, These rules may be of the classifation type, Predictive type or may be rules that perform link analysis Gise asad Reasoning: Case based reasoning (CBR) methods (Yoon, 1999) try to simulate the thinking process of human being. Typically, when an example is presented to » COR Solution, it tries to match the current example with other examples that it has in ite fepository and retrieves the case that is most similar to the current ease, Decision is then Ten based on extrapolation, jc. fitting the decision taken by the most appropriate vase The power of case based reasoning packages depends largely on the indexing method used (0 store eases and the matching method used to retrieve relevant cases Visualisation Techniques: Visualisation techniques allow the user to view data from various angles using graphic display techniques like charts, diagrams, displays for multi-dhimencloul dlata, ete. Used in conjunction with other data mining techniques, vis lisation techniques are ideal when users do not know what and where to look for in the data and to dieauee 112 Customer Relationship Management ~ A Strategic Perspective new knowledge. Managers without any technical knowledge can easily understand properties of a data set, if itis presented in a visual form. Most of the data mining packages include at least one visualisation tool, Nearest Neighbour Techniques: Nearest neighbour techniques (Yoon, 1999) use a set of examples to approximate a classification model. Suppose a case has to he classified into a predefined class. These techniques try to find the neighbours of this case. ‘The ‘neighbour’ js another case that has almost similar properties as the specific case under consideration, Asimilarity measure is used {or this purpose to find the ‘closest’ example in terms of certain parameters and then it assigns this new case to the class that has the maximum representation amongst its neighbours. Clustering Algorithms: Clustering algorithms divide the database into different groups called clusters such that inira-cluster similarity is the maximum and the inter-cluster similarity is the minimum (Anderberg, 1973; Jain et al., 1999). Research in clustering has occurred simultancously in many fields, resulting in diverse approaches each having its own advantages and disadvantages. Recent studies have looked at clustering very large data sets (Jain, A.K. et al, 1999), Market segmentation using a clustering algorithm is almost the first thing that every manager does to gain more knowledge about his market and its constituents, Usually analytics packages obtained from vendors come with many different kinds of tools. These might be used for varying tasks as discussed above. But it must be kept in mind that the choice of the algorithm to be ran on the data depends not only on the data that you have but also answers to the questions that you ask. If you want to know whether a customer will repay back loan or not, then i€ is mote appropriate to run a classification algorithm. On the other hand, if you want to know which items sell together in a retail outlet, it may be more appropriate to run an association rule finding algorithm, ‘As uansactions take place, new data constantly comes into the data warchouse sometimes adding to the new data while at other times updating the old data, Data mining solution for a particular CRM application must be capable of catering to such kind of dynamism. Running the same algorithm over the entire database repeatedly is an expensive proposition in terms of both time and resources, ‘Tools with incremental knowledge updating capabilities can help in dealing with such situations, Finally, tight integration beaween the front end CRM solution like a campaign management solution and the backend data mining solution helps to ensue consistency and timely information dissemination throughout the company. This could be leveraged (0 make more informed and better decisions, Some examples: We present below certain real life examples, where from data mining tools have m to retain and serve its customers (Berry, ORM aided by resulis de a difference to the company’s profitability and the ability 001). Churn Modelting in Telecommunications In the United States and other Western countries, mobile telecommunications market initially grew very rapidly, Soon it matured with a large number of players and competition increasing rapidly without a corresponding, increase in the number of usersielients, nderstand Ig packages © a set of ssified into neighbour’ sideration. s of certain maximum oups called c similarity is occurred g its own large data a is almost narket and it kinds of be kept in nly on the it to know ¢ to run a MW together algorithm. warehouse expensive knowledge n and the formation informed by results the ability, ns market mpetition srs/clients, Components of eCRM Solutions 113 Competitors started giving better offers to the customers. This on many occasions caused Glients to switch from one telecom company to another for their service needs. Customers vere lured away by better service offers and latest mobile handsets. This caused quite a drop in the customer base of different companies affecting bottom lines significantly. Therefore, if companies are able (o predict which of their customers were likely to leave in the near future, then they could possibly target these customers and seek to retain them with better and more lucrative offers. It should be kept in mind that the cost of acquiring a new customer is many (about five) times more than the cost of retaining an old one. Data mining helps in identifying the customers who are likely (@ leave a company. A churn model predicts which customers are likely to leave the company in the near future Most of the telecom companies around Ure world are engaged in building churn models that depict and predict their customer's actions Using the attributes of customers who left the company recently, decision tree models or other classificatory models could be built that help in extracting the attributes of the ‘chumners’ (i.e, customers who have or ate likely to switch companies). ‘These models are then applied to the existing customer base. It then identifies existing customers who have attributes similar to those who have already discarded the services of the company, The possibility of churn in this segment is extremely high as compared to the rest of the customer segments. These customers once identified could then be targeted and induced to stick to the services of the present telecom company with better offers. It should be noted that the characteristics of the churn segment keeps on changing with time. The decision tree algorithm should be constantly updated with new customers who leave to keep the model up-to-date, [t was seen that telecom companies were able to reduce churn significantly-using such ‘churn’ models, Understanding Buying Patterns in Supermarkets Supermarkets sell hundreds and thousands of items of diverse types, often at very competitive prices. Their profits are often tied up to the volume of sales they generate Initially, data scanners were used to speed up the process of checkout and payment However, these scanners by themselves generated huge amounts of data. The data, thus collected, was used very profitably by super markets to understand buying behaviour of their customers, Association rules are implication rules that use the co-occurrence of items in a Wansaction as the basis. They have the form: tem A implies [tem B with support x per cent and confidence y per cent ML means that item A and B oceur together in.x per cent of the total customer uansactions in the database and that y per cent of the transactions that contained A also contains itcat B. Algorithms mining such association rules have been developed. They help t find ‘tems and sets of items that sell togethes, This knowledge can be profitably used to: 1. Design discount coupons Design display space, Manage inventory: Separate item combinations that do not sell together, ee 5, Remind customers of items that they would like to buy together. 414 Customer Relationship Management ~ A Strategic Perspective One often-quoted example found in data mining literature is that of beer and diapers, One store running the association rule-generating algorithm found a rule, ‘Beer implies Diapers’. This was a surprise to the store manager because it was thought that beer and diapers ate such (wo diverse items (in term of their utilities) that customers, in general, do not buy them together, But then it was then found on further probing that this pattern, occurred most often on Friday nights, The possible reason might be related to young couples going out over weekends (for which they bought beer crates) while they left their young kids under the care of a babysitter (for which they needed diapers), [1 is very difficult to find such a causal relationship using normal data analysis methods. Phe store manager to increase sales volumes used this knowledge. When the store manager brought these ‘wo itcms together in the display on Friday nights, the sales rose dramatically. Thus the store was able to use the knowledge mined out of customer buying patterns profitably. Data Mining in Banks and Insurance Companies Banks and Insurance companies have many customers about whom much is already known, This is usually the case because of the demographic information that the customers fill in while availing of the services of the bank and also of the transactions that they rou carry out with these companies. These companies typically have many products, for example, a customer may have a savings account with the bank, a debit card, loans, etc., while with the insurance company he/she might have different kinds of policies, One of the things that these companies routinely try to do is to try and cross-sell or up-sell their products: They try to sell other products to their customers who already have purchased a different product, For example, an insurance company might try and sell a life insurance ora family insurance policy to a customer who has already purchased a health insurance (say). ‘The companies adopt such an approach because it is cheaper to sell more to a customer and retain him or her rather than search for new customers ‘One of the problems these companies face is a lot of wastage in communications. If the company routinely sends new product flyers to all of its customers, then, it is likely to incur a lot of cost as the response rates for these is usually very Tow (Say about 20 per cent) even among the existing customers, A better idea would be to identify those customers who would be likely to respond favourably to such off The favourable prospects are identified by segmenting the database (using class algorithms) into subjects who are likely to respond favourably to such marketing efforts and those who ate likely to respond unfavourably. By communicating only with the favourable segment, these companies are likely to increase their hit percentages considerably while bringing down the cost of campaigns substantially. ‘There are many more examples of how data mining helps in a CRM environment. Data mining provides the intelligence and the knowledge that is needed to understand customers and their behaviour from past interactions. Proper integration bewyeen the data mining, tools that ran on data (provided by a data warehouse) and frontend CRM. (ools substantially improves a company’s goal of providing better service to its customers by providing timely and relevant information 10 its employees. Now let us lok at the functionalities of the main components of any comprehensive CRM sohution, viz. camp cond need the ¢ inex coma and ai espe prod of mi and requi final and chang camps beer and diapers, le, “Beer implies ht that beer and mers, in general, that this pattern elated to youn, le they left their Lis very difficult store manager r brought these ically. Thus the ems profitably tlready known, customers fill they routinely Products, for rd, loans, etc, licies. One of © up-sell their 've purchased life insurance Ith insurance I more to a nications. If \ it is likely ty about 20 entify those lassification ting efforts y with the onsiderably nent, Data customers ita mining RM tools tomers by rrehensive Components of 6CRM Solutions 115 1. Campaign Management 2. Sales Foice Automation 3. Customer Service and Support CAMPAIGN MANAGEMENT: ‘ompare products and services has made Internet a channel 'me increased the complexity right from the comforts I of mass personalised and demands on the of their homes. The web revolution communication, but at the same ti + Increasing visibili CamPaigns targeted at specific segments

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