CUSTOMER RELATIONSHIP MANAGEMENT

CONCEPTS AND TECHNOLOGIES

Chapter 12
Using Customer-related Data
Analytical CRM

 Analytical CRM is the process through which organizations

transform customer-related data into actionable insight for
either strategic or tactical purposes.
How analytics support Strategic CRM

 Strategic CRM focuses on the development of a customer-

centric business dedicated to winning and keeping
(potentially) profitable customers by creating and delivering
value better than competitors cost effectively.
 Analysis of customer-related data can help answer crucial
strategic CRM questions such as:
● which customers should we serve? What is our share of customer
spending on our category? What do our customers think and feel
about their experience of doing business with us?  
How analytics support Operational CRM

 Operational CRM involves deployment of automated

solutions in the sales, marketing and service areas.
 Analysis of customer-related data can help answer crucial
operational CRM questions such as:
● which channels should we use to communicate with our
customers? What offers should we make, and when should we
make them? How does our sales performance differ across
territories and product ranges, and how can we fix any problems?
How well do we manage our opportunity pipeline? How satisfied are
customers with the service we provide and what can be done to
improve it?
Basic data configuration for CRM analytics

Figure 12.1
Analytics for CRM strategy and tactics

Enhance
Build revenues Reduce costs
loyalty/satisfaction
Automate selling Enhance complaints
Cross-sell campaigns
processes resolution
Up-sell campaigns Service customers online Improve customer service
Protect valued Improve customer self- Improve fulfilment
relationships service process
Sack unprofitable Improve online
Generate sales leads
customers experience
Improve sales rep
Acquire new customers Improve value proposition
productivity
Close more opportunities Improve data quality Introduce CSat measures

Table 12.1
How analytics are used during the customer lifecycle

 Customer acquisition
● Lead scoring might take account of a wide range of market,
organisational, personal, relational and behavioural attributes.
 Customer retention
● Identify which customers have highest future potential CLV.
 Customer development
● Identify the next best offer to make the customer.
Criteria used in prospect scoring

Market Organisational Personal Relational Behavioural

Market size Revenues Seniority Ex-customer Website visitor?
Market growth Profits Decision role Lost Registrations?
opportunity
Market Spending on Budget Lead source – Contracted to
segmentation category owner website or ad current
supplier?
New entrants Certifications Influence Referral? Video viewed?
Number of Social network Years of New to Research
competitors participation experience database? participant?

Table 12.2
NBA

 Next best action (NBA) merges customer insight

(predictive analytics particularly) and context to
deliver recommendations for action.
● Company desired actions include up-sell or cross-sell
 Context determines whether or not an offer should be
made, what that offer should be, and even when it
should be made.
● A customer with an unresolved complaint should receive an
outbound customer service call to establish what the
customer expects by way of complaint resolution, not an
offer.
NBO

 ‘Next best offer’ (NBO) is a subset of NBA.

 Early groundwork for NBO was laid by Amazon.com
 Today’s modelling is based on more complex, context-
sensitive, predictive analytics that enable the right offer to be
made at the right time and in the right channel.
 The tools that support NBO are known as recommendation
engines.
 Dynamic NBOs are made to customers in real time as they
interact at a business’s touch points.
Analytics for structured data: introduction

 CRM analytics for structured data are well developed.

 As questions become more complex and shift from
description to explanation or prediction, the analytical
procedures required to generate answers also become
more complex.
 OLAP queries allow CRM users to drill down into the
reasons why a particular piece of data is as it is
 Data mining tools draw on a well established array of
statistical procedures, such as correlation, regression,
decision-tree and clustering routines.
Analytics for unstructured data

 Unstructured data do not fit a predefined data model

 Includes textual and non-textual files such as:
● spread-sheets, documents, PDF’s, hand-written notes, and image,
audio, video and multi-media data.
 Unstructured data often reside outside the business in
social media data repositories, which can be huge, hence
the term ‘Big Data’.
 Analytics for these types of data are still evolving.
Text analytics

 Text analytics extracts relevant information from

unstructured text files, and transforms it into structured
information that can then be leveraged in various ways.
 Unstructured textual data is found in:
● call centre agent notes, emails, documents on the web, instant
messages, blogs, tweets, customer comments, customer reviews,
questionnaire free-response boxes, social media posts, transcripts of
telephone calls and interviews and so on.
Social media sentiment analysis

Figure 12.2
How text analytics supports CRM

 Improving the accuracy of the predictive models

 Automatic routing
 Root cause analysis
 Trend analysis
 Sentiment analysis
3V’s of Big data

Figure 12.3
Technology essentials for analysing Big Data

1. Hadoop, an open source framework or computing

environment, distributes data across a large number of
computers, each of which processes a portion of the data
2. Open source analytics applications.
3. Commercial software-solution vendors add further
management and decision support tools, frameworks and
solutions.
Types of structured data kept in relational databases

 Categorical data, also known as discrete data, are data

about entities that can be sorted into groups or categories.
● Unordered categorical data are nominal data
● Ordered categorical data are ordinal data.
 Continuous data are data that can take on any value within
a finite or infinite range.
● Interval data are measured along a continuum that has no fixed and
non-arbitrary zero point.
● Ratio data are also interval data but with the added attributes of a
fixed data point 0 (zero).
Why is this important?

 Analytical procedures differ according to the type of data.

● Categorical data use nonparametric procedures such as logistic
regression. Continuous data use parametric procedures such as
linear regression.
● Methods that are used to correlate sets of ordinal data differ from
those used to correlate interval data.
Three ways to generate analytical insight

 Standard reports
 Online analytical processing (OLAP)
 Data mining
Standard reports

 Can be either pre-defined, or query-based (ad-hoc).

 Standardised reports are typically integrated into CRM
software applications, but often need customization.
● Some customization of the report can be done when it is run, for
example in selecting options or filtering criteria, but the end result is
limited to what the report designers envisaged.
 Visualization tools include tables, charts, graphs, plots,
maps, dashboards, hierarchies, and networks.
Standard report: active accounts of a sales rep

Figure 12.4
Online Analytical Processing (OLAP)

 OLAP technologies allow data stored in a data mart to be

subjected to analysis using processes such as
● slice-and-dice, drill-down and roll-up.
 OLAP data are stored in one or more star schema
 A star schema separates data into facts and dimensions.
● Facts are quantitative data such as sales revenues and sales
volumes.
● These facts have related dimensions. Dimensions are the ways in
which facts can disaggregated and analysed.
Star Schema example

Figure 12.5
Data mining

 Data mining is the application of descriptive and predictive

analytics to large data sets to support the marketing, sales
and service functions.
What data mining analytics do

 Classification
 Estimation
 Prediction
 Affinity grouping
 Clustering
 Description and visualisation
Directed v undirected data mining
Directed
Directed data mining (also
called supervised, predictive or
targeted data mining) has the
goal of predicting some future
event or value. The analyst
uses input data to predict a
specified output. Directed data
mining stresses classification,
prediction and estimation.
Undirected
Undirected (or unsupervised)
data mining is simply
exploration of a dataset to see
what can be learned. It is
about discovering new
patterns in the data. The
analyst isn’t trying to predict or
estimate some output.
Undirected data mining uses
clustering and affinity-grouping
techniques.
Data mining procedures
Directed data mining techniques
Decision trees
Logistic regression
Multiple regression
Discriminant analysis
Neural networks
Table 12.3
Undirected data mining techniques
Hierarchical clustering
K-means clustering
Two-step clustering
Factor analysis
 
Decision trees

 The graphical model output of decision tree analysis has the

appearance of an inverted root and branch structure.
 Decision trees work through a process called recursive
partitioning.
 The decision tree algorithm progressively partitions the
dataset into groups according to a decision rule that aims to
maximise homogeneity or purity of the response variable in
each of the obtained groups.
Logistic regression

 Logistic regression measures the influence of one or more

independent variables that are usually continuous (interval
or ratio data) on a categorical dependent variable (nominal
or ordinal data).
Multiple regression

 Multiple regression uses two or more predictor variables to

predict a dependent variable. The dependent variable must
be a continuous (interval or ratio) variable.
Discriminant analysis

 Discriminant analysis (DA) clusters observations into two

or more classes.
 DA can be used to find out which variables contribute most
to explaining the difference between groups.
Neural networks

 Neural networks fit a model to existing data for

classification, estimation and prediction purposes.
 Neural networks’ foundations are machine learning and
artificial intelligence.
 Neural networks can produce excellent predictions from
large, complex and imperfect datasets containing hundreds
of potentially interactive predictor variables.
Hierarchical clustering

 Hierarchical clustering is the ‘mother of all clustering

models’.
 It works by assuming each record is a cluster of one and
gradually groups records together until there is one super-
cluster comprising all records.
Dendrogram output from hierarchical clustering routine

Figure 12.6
K-Means clustering

 K-Means clustering is the most widely used form of

clustering routine.
 It works by clustering the records into a predetermined
number of clusters. The predetermined number is ‘k’.
 The reference to ‘means’ refers to the use of averages in
the computation.
● In this case it refers to the average location of the members of a
particular cluster in n-dimensional space, where n is the number of
fields that are considered in the clustering routine.
K-Means clustering output

Figure 12.7
Two-step clustering

 Two-step clustering combines predetermined and

hierarchical clustering processes.
 At step one, records are assigned to a pre-determined
number of clusters (alternatively you can allow the algorithm
to determine the number of clusters).
 At step two, each of these clusters is treated as a single
case and the records within each cluster subjected to
hierarchical clustering.
 Works well with large datasets.
Factor analysis

 Factor analysis is a data reduction procedure.

 It does this by identifying underlying unobservable (latent)
variables that are reflected in the observed variables
(manifest variables). 
SERVQUAL’s latent variables

Reliability Communication
Responsiveness Credibility
Competence Security
Access Understanding/knowing the customer
Courtesy Tangibles

Table 12.4
OECD privacy principles

1. Collection Limitation Principle

2. Data Quality Principle
3. Purpose Specification Principle
4. Use Limitation Principle
5. Security Safeguards Principle
6. Openness Principle
7. Individual Participation Principle
8. Accountability Principle
Safe Harbor Principles

1. Notice
2. Choice
3. Onward Transfer (Transfers to Third Parties)
4. Access
5. Security
6. Data integrity
7. Enforcement
W3C

 The World Wide Web Consortium (W3C) Privacy Interest

Group charter is to “improve the support of privacy in Web
standards by monitoring ongoing privacy issues that affect
the Web, investigating potential areas for new privacy
work, and providing guidelines and advice for addressing
privacy in standards development.”
 The group notes that the evolution of Web technologies
has increased collection, processing and publication of
personal data.