a case for analytical customer relationship management

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A Case for Analytical Customer A Case for Analytical Customer Relationship ManagementRelationship Management

李逢嘉、黃翊軒、侯建如、吳誌恭李逢嘉、黃翊軒、侯建如、吳誌恭

指導老師指導老師 :: 張瑞芬教張瑞芬教授授

2005/05/23

-- Proc. of the 6'th Pacific-Asia Conference on Knowledge Discovery and Data Mining

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Agenda

Introduction Analytical CRM Data Analytics Support for Analytical

CRM Organizational Issues in Analytical

CRM Adoption Conclusion

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1.Introduction1.Introduction

Virtuous circle of CRM

Challenges to be overcome

Goal

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Challenges to be overcomeChallenges to be overcome

Much of customer data is collected for operational purposes

Cover all channels and customer touch points

Organizational thinking must be changed from products to both customers and products

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GoalGoal

Introduce the data mining community to the data analytics opportunities

Introduce the concept of analytical CRM

Describes organizational issues that are critical to successful deployment of CRM

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2. Analytical CRM2. Analytical CRM

Company not pay sufficient attention Company not pay sufficient attention to analyzing customer data to target to analyzing customer data to target the CRM efforts.the CRM efforts.

ACRM can make the customer ACRM can make the customer interaction functions of a company interaction functions of a company much more effective than they are much more effective than they are presently.presently.

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2.1 Customer Segmentation2.1 Customer Segmentation Customer segmentation is the division of Customer segmentation is the division of

the entire customer population into the entire customer population into smaller groups.smaller groups.

The customer base is first segmented by The customer base is first segmented by the value they represent to an the value they represent to an organization.organization.

The purpose is to identify groups of The purpose is to identify groups of customers with similar needs and behavior customers with similar needs and behavior patterns.patterns.

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2.1 Customer Segmentation (cont.)2.1 Customer Segmentation (cont.)

They can be offered more tightly They can be offered more tightly focused products, services, and focused products, services, and communications. communications.

Segments should be identifiable, Segments should be identifiable, quantifiable, addressable, and of quantifiable, addressable, and of sufficient size to be worth sufficient size to be worth addressing.addressing.

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2.1 Customer Segmentation (cont.)2.1 Customer Segmentation (cont.)

A customer’s profile consists of three A customer’s profile consists of three categories of data, namely (i) categories of data, namely (i) identity, (ii) characteristics, and (iii) identity, (ii) characteristics, and (iii) behavior.behavior.

Two types of segmentation can be Two types of segmentation can be performed.performed.

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2.2 Customer Communication2.2 Customer Communication

A key element of customer A key element of customer relationship management is relationship management is communicating with the customer.communicating with the customer.

One is deciding what message to send One is deciding what message to send to each customer segment. to each customer segment.

The other is selecting the channel The other is selecting the channel through which the message must be through which the message must be sent.sent.

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2.2 Customer 2.2 Customer CommunicationCommunication (cont.) (cont.)

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The goal of communication strategy The goal of communication strategy optimization is to determine the optimization is to determine the communication channel(s) for each communication channel(s) for each customer that minimizes sale, profit, customer that minimizes sale, profit, etc.etc.

It is not enough by sending the It is not enough by sending the message to each customer through message to each customer through the chosen communication channel.the chosen communication channel.

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These are analyzed to These are analyzed to (i) determine how effective the overall (i) determine how effective the overall

customer communication campaigncustomer communication campaign (ii) validate the goodness of customer (ii) validate the goodness of customer

segmentation, and segmentation, and (iii) calibrate and refine the models of (iii) calibrate and refine the models of

the various communication channels the various communication channels used.used.

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2.3 Customer Retention2.3 Customer Retention

Customer retention is the effort Customer retention is the effort carried out by a company to ensure carried out by a company to ensure that its customers do not switch over that its customers do not switch over to the competition’s products and to the competition’s products and services.services.

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2.4 Customer Loyalty2.4 Customer Loyalty

Loyalty can range from having a mild Loyalty can range from having a mild preference all the way to being a preference all the way to being a strong advocate for the company.strong advocate for the company.

An average customer who feels An average customer who feels closer to a company (closer to a company (high loyaltyhigh loyalty) is ) is significantly more profitable than one significantly more profitable than one who feels less close (who feels less close (low loyaltylow loyalty).).

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2.4 Customer Loyalty (cont.)2.4 Customer Loyalty (cont.)

For exampleFor example ：：Sending a greeting card on aSending a greeting card on a

customer’s birthday is a valuablecustomer’s birthday is a valuable

relationship building actionrelationship building action

-with low cost and high effectiveness.-with low cost and high effectiveness.

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3. Data Analytics Support for 3. Data Analytics Support for Analytical CRMAnalytical CRM

We first outline a generic We first outline a generic architecture, and then focus on the architecture, and then focus on the two key components, namely data two key components, namely data warehousing and data mining.warehousing and data mining.

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3.1 Data Analytics Architecture3.1 Data Analytics Architecture

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3.2 Data Warehouse3.2 Data Warehouse

Data source for the warehouse are Data source for the warehouse are often the operational system, often the operational system, providing the lowest level of data.providing the lowest level of data.

Refreshing a warehouse requires Refreshing a warehouse requires propagating updates on source data propagating updates on source data to the data stored in the warehouse.to the data stored in the warehouse.

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3.3 Data Mining3.3 Data Mining

Data mining is now viewed today as Data mining is now viewed today as an analytical necessity.an analytical necessity.

The primary focus of data mining is The primary focus of data mining is to discover knowledge , previously to discover knowledge , previously unknown, predict future events and unknown, predict future events and automate the analysis of very large automate the analysis of very large data sets.data sets.

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3.3 Data Mining (cont.)3.3 Data Mining (cont.)

There are two kinds of purposes to There are two kinds of purposes to use data mininguse data mining ：：

First is to gain an understanding of First is to gain an understanding of the present behavior of the the present behavior of the customers (customers (descriptive modeldescriptive model).).

Second is to use the model to make Second is to use the model to make

predictions about future behavior of predictions about future behavior of the customers (the customers (predictive modelpredictive model).).

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4.Organizational Issues in 4.Organizational Issues in AnalyticalAnalytical CRM CRM AdoptionAdoption

Customer First’ OrientationCustomer First’ Orientation Attention to Data Aspects of Attention to Data Aspects of

Analytical CRMAnalytical CRM Organizational “Buy In”Organizational “Buy In” Incremental Introduction of CRMIncremental Introduction of CRM

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Customer First’ OrientationCustomer First’ Orientation Companies have traditionally organized their customer facing Companies have traditionally organized their customer facing

teams along product lines, called “Lines of Business” (LOB).teams along product lines, called “Lines of Business” (LOB).• To build the next product in this line To build the next product in this line • To identify the customers who would be likely to buy this productTo identify the customers who would be likely to buy this product• This product line focus causes customer needs to be treated as This product line focus causes customer needs to be treated as

secondary.secondary. The customer focusing teams of an organization must be re-The customer focusing teams of an organization must be re-

oriented to make them focus on customers in addition to oriented to make them focus on customers in addition to product lines. product lines. • These teams can be organized around well-defined customer segmentsThese teams can be organized around well-defined customer segments• each given the charter of mapping our product design, marketing, sales, each given the charter of mapping our product design, marketing, sales,

and service strategies that are geared to satisfying the needs of their and service strategies that are geared to satisfying the needs of their customer segment. customer segment.

• As part of this, some of the activities might be targeted to individual As part of this, some of the activities might be targeted to individual customerscustomers..

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Attention to Data Aspects of Analytical Attention to Data Aspects of Analytical CRMCRM

The most sophisticated analytical tool can be rendered The most sophisticated analytical tool can be rendered ineffective if the appropriate data is not available. ineffective if the appropriate data is not available.

To truly excel at CRM, To truly excel at CRM, • an organization needs detailed information about the needs, an organization needs detailed information about the needs,

values, and wants of its customers.values, and wants of its customers.• Leading organizations gather data from many customer touch Leading organizations gather data from many customer touch

points and external sources points and external sources 1.1. bring it together in a common, centralized repositorybring it together in a common, centralized repository2.2. in a form that is available and ready to be analyzed when in a form that is available and ready to be analyzed when

needed. needed. business has a consistent and accurate picture of every business has a consistent and accurate picture of every

customer customer can align its resources according to the highest priorities. can align its resources according to the highest priorities.

It is critical that sufficient attention be paid to the data It is critical that sufficient attention be paid to the data aspects of the CRM project, in addition to the software.aspects of the CRM project, in addition to the software.

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Organizational “Buy In”Organizational “Buy In”

There are also enough examples of failures when There are also enough examples of failures when technology is deployed without sufficient technology is deployed without sufficient organizational “buy in”organizational “buy in”

The parts of the organization that will benefit the The parts of the organization that will benefit the most from analytical CRM are the business units most from analytical CRM are the business units and not the IT department. and not the IT department.

It is crucial to have “buy in” from the business It is crucial to have “buy in” from the business units to ensure that the results will be used units to ensure that the results will be used appropriately. appropriately. 1.1. There needs to be a cross-functional team involved in There needs to be a cross-functional team involved in

implementing a CRM project in the organization. implementing a CRM project in the organization. 2.2. Processes need to be adopted, with an appropriate set of Processes need to be adopted, with an appropriate set of

measurable metrics, to ensure that all steps for project measurable metrics, to ensure that all steps for project success are being taken.success are being taken.

3.3. Incentives for performing well on the project should be Incentives for performing well on the project should be included as part of the reward structure to ensure motivation.included as part of the reward structure to ensure motivation.

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Incremental Introduction of CRMIncremental Introduction of CRM

Introducing CRM into an organization must Introducing CRM into an organization must be managed carefully. be managed carefully. • High initial costHigh initial cost• Significant change on the organization’s Significant change on the organization’s

processes,processes, It is quite possible that insufficient care in It is quite possible that insufficient care in

its introduction leads to its introduction leads to • high expensehigh expense• small early benefitssmall early benefits

low moralelow morale excessive finger-pointing.excessive finger-pointing.

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5.Conclusion5.ConclusionThe Internet provides an organization the ability to The Internet provides an organization the ability to enter into a close, personalized dialog with its enter into a close, personalized dialog with its individual customers. individual customers. The maturation of data management technologies and The maturation of data management technologies and analysis technologies have created the ideal analysis technologies have created the ideal environment for making customer relationship environment for making customer relationship management a much more systematic effort. management a much more systematic effort. There has been a significant growth of software There has been a significant growth of software vendors providing CRM software, and of using them, vendors providing CRM software, and of using them, the focus so far has largely been on the “relationship the focus so far has largely been on the “relationship management” part of CRM rather than on the management” part of CRM rather than on the “customer understanding” part.“customer understanding” part. Ensuring that the right message is being delivered to Ensuring that the right message is being delivered to the right person, that multiple messages being the right person, that multiple messages being delivered at different times and through different delivered at different times and through different channels are consistent, It is still in a nascent stage.channels are consistent, It is still in a nascent stage.

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The best customers are being over communicated The best customers are being over communicated to, while insufficient attention is being paid to to, while insufficient attention is being paid to develop new ones into the best customers of the develop new ones into the best customers of the future.future.

This paper described how Analytical CRM can fill the This paper described how Analytical CRM can fill the gap. Specifically, it described how data analytics can gap. Specifically, it described how data analytics can be used to make various CRM functions much more be used to make various CRM functions much more • customer segmentationcustomer segmentation• communication targetingcommunication targeting• retentionretention• loyaltyloyalty

The paper hopes that the data mining community The paper hopes that the data mining community will address the analytics problems in this important will address the analytics problems in this important and interesting application domain.and interesting application domain.

a case for analytical customer relationship management

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