DATA MINING IN CRM

ANALYTICS-INTELLIGENT
MANAGEMENT OF PRODUCT LIFE
CYCLE

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 AN EFFECTIVE CRM

• companies need to match products &

campaigns to prospects & existing
customers.

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 OPERATIONAL CRM Vs DATA MINING
(ANALYTIC CRM)

• Operational CRM- Software that creates a

database which provides a consistent picture
of customer’s relationship with the
company, through specific applications. e. g.
Sales Force Automation, Customer Service
software etc.

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 OPERATIONAL CRM Vs DATA MINING
(ANALYTIC CRM)

• Whereas Data Mining is a process that uses

variety of Data Analysis &
modeling techniques to discover patterns &
Relations in a Database that may be
used to make accurate predictions.

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 STEPS IN DATA MINING

• Describe the data- summarize its statistical

attributes (e.g. means & standard deviations),
visually review it using charts & graphs & look
at distribution of values.

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 STEPS IN DATA MINING
• Build a predictive model- Using patterns from
a known set of results & then test that model
on your original sample. E.g. in Classification-
one predicts in what category an element of
data might fall. In Regression one predicts a
number such as probability of that element of
data to respond to your action.

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 STEPS IN DATA MINING

• Determine propensity or create a profile- a

score to give a measure to the propensity of
customer behavior & create a set of
characteristics that could segment the
customer into groups with similar behavior.

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 DATA MINING THROUGH CUSTOMER LIFE
CYCLES
• Data mining could improve your profitability
in the following stages of life cycle either by
integration with Operational CRM or
independently.
– Acquiring customers.
– Increasing the value to the customer.
– Retaining good customers.

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 AQUIRING NEW CUSTOMERS THROUGH
DATA MINING
• A company normally could win new customers either
through change in the method of solicitation by
reaching customers through different media or
offering attractive ‘freebies’.
– Or through data mining techniques to build a
predictive model of who is likely to respond
favorably or use the method of scoring the
existing customers.

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 INCREASING THE VALUE TO THE EXISTING
CUSTOMERS

Technique of Cross Selling- The Company may offer

more features to its product or facilitate better
choosing & buying facilities by
• The technique of “Clustering” to see which
products & add-ons grouped more naturally

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INCREASING THE VALUE TO THE EXISTING
CUSTOMERS

– The technique of “profiling” the customers to see

which group of clients readily tried new variants
or which ones stayed loyal to old brands.
– Use the “personalization” to proactively announce
new products to a select group chosen by data
mining.

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 RETAINING LOYAL CUSTOMERS
• The cost of winning over a new customer
grossly exceeds that of retaining a customer
(Sometimes as high as 7 times).
– The company at first will use data mining to
identify repeat buyers.
– Next it would study the attrition pattern of once
good customers (who left them & why?).

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RETAINING LOYAL CUSTOMERS

– Next they would design programs to identify signs

of discontent in time & offer new
products/feature to retain.
– Eventually they would build data mining programs
that would predict which offer works the best for
customer retention.

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 APPLYING DATA MINING TO CRM

– Define business problem.

– Build marketing database.
– Explore data.
– Prepare data for modeling.
– Build model.
– Evaluate model.
– Deploy model & research on results.

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 DEFINE BUSINESS PROBLEM

• Each CRM application has an end goal or objective.

Depending on the end goal appropriate models need to
be built. A clear statement of the objective would
therefore also include the way of measuring
effectiveness of your CRM project.
• The next four steps take the maximum time as a lot of
iterations of data building & model building are done
as you go along & learn from the model.

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 BUILD MARKETING DATA BASE

• Independent of operational & corporate

database. Multiple databases from customer
database, product database & transaction
database needs to be standardized,
integrated & consolidated.

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 EXPLORE THE DATA

• To understand the data better, various

summaries such as averages, standard
deviations & pivot tables for
multidimensional comparison are made.
Graphing & visualization like histograms,
scatter plots give multi-dimensional views.

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 PREPARE DATA FOR MODELLING

• There are 4 steps -

– Select the variables on which to build the model.
– Construct new predictors derived from new
data.
– Select a sub-set or sample of the entire data on
which to build models.
– Transform variables in accordance with the
requirements of the algorithm.

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 MODEL BUILDING
• It is an iterative process where alternative models are
tried to get the one most suitable.
• Most CRM applications are based on a protocol called
supervised learning. One starts with a customer
information on which desired outcome is already
known. This you try on a test basis on the new data,
first on a smaller group & then on the whole of data.

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 EVALUATING THE RESULTS
• Some methods are,
– Lift- measures the improvement achieved by the
predictive model.
– Rise-Other measure is relative rise in profits.
– ROI-Third measure which is most acceptable is
ROI (Return on Investment).

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 INCORPORATING DATA MINING IN CRM
SOLUTION

• The data mining is most of the times

combined with the knowledge of domain
experts. The data mining is built into the
system depending on the type of customer
interaction ‘Outbound’ or ‘Inbound’.

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 OUT-BOUND INTERACTIONS & IN-BOUND
TRANSACTIONS

• Out-Bound-In this case the company reaches

out to the customer by a desired action using
any one of mode of contact.
• In-Bound-In this case the customers contact
the company with a need for action.

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 PRODUCTIVITY IN DATA MINING

• Intelligent transformations done in the

individual elements of data to include multi-
elemental features, decide the productivity
of any data mining exercise.

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 THE ROUTE TO A SUCCESSFUL BUSINESS

• Depends on how effectively you can use

information about customer needs to
transmit into more profits for you. For this it
is necessary that ‘The Operational CRM ‘is
aptly supported by ‘Analytical CRM’, with
accurate predictive capabilities.

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 TECHNIQUES USED IN DATA MINING

• DECISION TREES
• NEURAL NETWORKS
• CLUSTERING

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 DECISION TREES

Decision Trees are a way of representing a series of rules that

lead to a class or value.
The basic components of a decision tree are,
• The Root node- This is the top decision node by which a
common test is applied.
• The branch node- There could be several branch nodes,
starting at root node & fanning out in various branches.
• The leaf node- Through this, one finally reaches the end of
the tree.

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 NEURAL NETWORKS
• Neural Networks offer a means of effectively
modeling large and complex problems
involving several hundred predictor variables.
• Neural nets are commonly used for
Regressions.
• Neural nets start with Input layer, where each
node corresponds to a predictor variable.

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 NEURAL NETWORKS
• Input layer is connected to a number of nodes in hidden
layer. Each node in this layer takes a set of inputs &
multiplies them by a connection weight age, adds them
together, applies a function (called activation or
squashing) & passes the output to next layer.
• Finally on to Output layer which consists of one or more
response variables.

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 NEURAL NETS
• Input Layer- e.g. take sales in the sets of 1000.
• Hidden Layer-applies connection weight age
of seasonal variation to each reading , adds
them & applies function of change in GDP,
sends to Final layer.
• Final layer- applies various variables like a)
competitive presence, ineffectiveness of the
dealer etc.

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 NEURAL NETWORKS
• A typical example of neural network is the
‘Back propagation’ in training, where
parameters like speed of conversion are
applied.
• Successful implementation of Neural
Networks involves very careful data cleansing,
selection, preparation & pre-processing.

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 CLUSTERING
• Classification is a way to segregate data into already
known groups & Segmentation refers to identifying
groups that have common characteristics, Clustering is a
way to segment data into groups that are not precisely
defined.
• Clustering divides a database into different groups.
Clustering helps to identify different groups, whose
members have common features.

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 CLASSIFICATION, SEGMENTATION &
CLUSTERING
• CLASSIFICATION- Segregate into known groups, e.g. type
of ovens sold i.e. Microwave +convection+ grill.
• SEGMENTATION-Identify sales made to groups that have
common characteristics e.g. households, hotels,
industrial canteens etc.
• CLUSTERING-Identify groups whose members have
common features, e.g. locality wise, income group wise.

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