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CRM and Information


Visualization
Grdal Ertek, Ph.D.
Tue Gizem Martaan
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Customer Relationship
Management (CRM)
Traditional Marketing CRM
Goal: Expand customer base,
increase market share by
mass marketing
Goal: Establish a profitable,
long-term, one-to-one
relationship with customers;
understanding their needs,
preferences, expectations
Product oriented view Customer oriented view
Mass marketing / mass
production
Mass customization, one-to-one
marketing
Standardization of customer
needs
Customer-supplier relationship
Transactional relationship Relational approach
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The approach of identifying, establishing,
maintaining, and enhancing lasting relationships
with customers.


The formation of bonds between a company
and its customers.

What is CRM?
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Prospecting (of first-time consumers)
Loyalty
Cross-selling / Up-selling
Win back or Save
Strategies in CRM
for Mass Customization
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The Marketing Perspective

CAMPAIGN MANAGEMENT

RECENCY FREQUENCY MONETARY VALUE METHOD

CUSTOMER VALUE METRICS

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Campaign Management:
The Marketing Perspective
Developing effective campaigns
Effectively predicting the future
Retaining existing customers
Acquiring new customers
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KNOW

Understand market and consumers
needs and preferences

Exploit customer intelligence,

Perform segmentation
TARGET

( Offer is developed )

Define market strategies

Use channel integration

SERVICE

Retain customers by:

Loyalty programs
Communication
Service forces
SELL

Acquire customers

Use sales force effectively

Develop marketing programs
Campaign Management:
The Cap Gemini Model
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The marketing manager...

1. Defines objectives
2. Identifies customers
3. Defines communication strategies
4. Designs/improves
products/offers/services/promotions
5. Tests the impacts of her decisions
6. Revises her decisions for maximum
effectiveness
Campaign Management:
The Marketing Perspective
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Campaign Management
Step 1: Define Objectives
Targeting
Existing Customers

Retention Strategy
Creating Loyalty?
Increasing the satisfaction level?
Cross-selling or Up-selling?
Targeting
New Customers

Acquisition Strategy
Target customers that show
characterstics similar to
existing groups of customers
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Perform SEGMENTATION

Define the right customers
Use information of past transactions as key
for making predicting future ones
Define the segments and their characteristics
Develop customized marketing strategies for
the different segments
Campaign Management
Step 2: Identify Customers
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Campaign Management
Step 3: Communication Strategies
Which message should be transmitted?
Which channel should be used?
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Analyze the price, time period, risks,
marketing costs
Define the product / offer / service / promotion
and its general structure
Identify effective use of sales and
communication channels
Campaign Management
Step 4: Design the Products, Offers,
Services and Promotions
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Campaign Management
Step 5: Test the Impacts
Impacts of the decisions have to be tested and
and assessed on a sample
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Campaign Management
Step 6: Revise the Decisions
Make revisions to the targeted offer / service /
promotions
Finally apply the decisions to the whole
segment or population
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RFM Method
(Recency, Frequency, Monetary Value )
Recency
When was the last customer interaction?
Frequency
How frequent was the customer in its
interactions with the business?
Monetary value of the interactions
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Marketing Problem:

A firm has sent e-mail to 30,000 of its existing
customers, announcing a promotion of $100.
458 of them responded (1.52% of the
customers)

Is there any relation between the responding
customers and their historical purchasing
behaviours?

RFM Method
(Recency, Frequency, Monetary Value )
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RFM Method:
Recency Coding


30,000 customers are sorted in descending
order with respect to their most recent
purchases

Sorted data is divided into 5 equal groups,
each of them containing 6,000 people

Recency codes are assigned: Top group has
code 5, bottom group has code 1

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3.1
2
1.5
0.62
0.38
0.00
1.00
2.00
3.00
4.00
R
e
s
p
o
n
s
e

%
5 4 3 2 1
Recency code R
Recency Results

According to analysis based
on customer recency, the
group having the highest
recency group has also the
highest response rate

Remark:
(3.10% + 2.00% + 1.50% +
0.62% + 0.38) / 5= 1,52% which
is the response rate

Strict Rule: Ones who have
purchased recently are much
more willing to buy new
products than others
purchasing in the past
RFM Method:
Recency Coding
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Sort the 30,000 customers with respect to
frequency metrics.
Frequency metrics: Average number of
purchases made by customer in a time period t
Sort customers in descending order with
respect to their purchase frequency.
Assign them to 5 groups, top %20 in the first
frequency group.
Assign frequency codes such that the top
group has code 5 and the bottom group has
code 1.
RFM Method:
Frequency Coding
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RFM Method:
Frequency Coding
2.8
2.1
1.3
0.8
0.9
0
0.5
1
1.5
2
2.5
3
R
e
s
p
o
n
s
e

%
5 4 3 2 1
Frequency code F
Frequency Results

It is observed that highest
response rate is from the
customers having highest
frequency
Frequent people respond
better than less frequent
ones but differences
between groups are less
than the ones in the
recency
The lowest frequency group
always contains new
customers
That is why it is named RFM
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The same process as recency and frequency
coding
Sorting is done with respect to monetary
value metric
Monetary value metric is the average amount
purchased in a time period t
At the end of the monetary value coding,
assign monetary value codes M = 1,...,5 to
groups according to their groups.
RFM Method:
Monetary Value Coding
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2.1
1.8
1.4
1.2
1.1
0
0.5
1
1.5
2
2.5
R
e
s
p
o
n
s
e

%
5 4 3 2 1
Monetary value code M
Frequency Results

It is observed that highest
response rate is from the
customers having highest
monetary value
Unlike the recency case,
there are not big
differences between
groups
RFM Method:
Monetary Value Coding
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RFM Method:
Putting the Codes Together
At the end of the monetary coding firm
obtain R F M metrics for customers. Each
customer belongs to one of 125 possible
combinations of the RFM values:

R
F
M
1 2 3 4 5
21 22 23 24 25
231 232 233 234
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Database
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Create 3 digits RFM codes cells
All cells having the same number of
customers in them
RFM values are used to define group of
customers that marketing campaign should
target or should avoid
Used for identifying customers having high
probability to respond to campaigns:
555s response rate > 552s > 543s >541....
Increase the response rate
Increase profitability
RFM Method:
STEPS
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Customer Value Metrics

Critical measures used to define customer
worth in knowledge-driven and customer-
focused marketing

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Customer Value Metrics:
Size of Wallet

Size of wallet =


Assumption: Firms prefer customers with
large size of wallet in order to retain large
revenues and profits

J
j
j
S
1

j
S
Sales to focal customer by firm j
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Customer Value Metrics:
Individual Share of Wallet (SW)
A proportion expressed in terms of percentage,
calculated among buyers
Measured at individual level
A measure of loyalty
Can be used in future predictions
Different from the market share, which also
considers customers with no purchase

Individual share of wallet % =

J
j
j
j
S
S
1

j
S Sales to focal customer by firm j
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Customer Value Metrics
Share of wallet and size of wallet should be
analyzed together because...

Size of
Wallet
Share of
Wallet
Purchases
Customer 1 $500 50% $250
Customer 2 $100 50% $50
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Customer Value Metrics:
Transition Matrix
Shows expected share of wallet from
multiple brands
Depicts consumers willingness to buy over
time
Transition probability from B to A, than from
A to C: 10%*20% = 2%
Brand A Brand B Brand C
Brand A 60% 30% 20%
Brand B 10% 80% 15%
Brand C 20% 15% 70%
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The Engineering Perspective

DATA MINING
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Collection, storage, and analysis of typically
huge amounts of- data
Data readily resides in the companys data
warehouse
Data cleaning is almost inevitable
Data Mining
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Goals of Data Mining

Developing deeper understanding of the data
Discovering hidden patterns
Coming up with actionable insights
Identifying relations between variables,
inputs and outputs
Predicting future patterns
Data Mining
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Data selection
Data cleaning
Sampling
Dimensionality reduction
Data mining methods

Data Mining:
Steps
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Exploratory Data Analysis
Segmentation
Cluster Analysis
Decision Trees
Market Basket Analysis
Association rules
Information Visualization
Prediction
Regression
Neural Network
Time Series Analysis
Data Mining:
Methods
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Information Visualization
Data mining algorithms...
Can only detect certain types of
patterns and insights
Are too complex for end users to
understand
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Information Visualization
A field of Computer Science which has
evolved since the 1990s.

Before 1990s: Graphical methods for data
analysis to pave the way for statistical
methods
After 1990s:
Computer hardware has advanced with
respect to memory, computational
power, graphics calculations
Software has advanced with respect to
user interfaces
Data collection systems have advanced
(barcodes, RFID, ERP)
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The analyst does not have to
understand complex
algorithms.

Almost no training required.

There are no limits to the
types of insights that can be
discovered.
Information Visualization
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Case Studies

Analysis of Supermarket
Sales Data
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The Data
Field Name Desciption
TRANSACTION_ID Transaction ID
PRODUCT_NO Product Number
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Frequent Itemsets
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Frequent Itemsets
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Association Rules
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Case Studies

Analysis of Spare Parts
Sales Data
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The Data
Field Name Desciption
DEPOT Depot ID
SKU_NO SKU (Stock Keeping Unit) Number
VENDOR Vendor (Customer) Number
DAY Day of the month (1,...,31)
MONTH Month of the year (1,...,12)
YEAR Year (ex: 2002)
QUANTITY Quantity required
UNIT_PRICE Price of one unit of product in YTL*
REVENUE Revenue from the order line
Assumption: Each customer gives at most one order each day.
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Determining Top Products:
Pivot Table for Determining REVENUE_SUM
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Determining Top Products:
Pivot Table for Determining COUNT (Frequency)
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Determining Top Products:
Scatter Plot
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Seasonality of Top Products
. . .
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Seasonality of Top Customers:
Pivot Table
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0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
Cumulative % Customers
C
u
m
u
l
a
t
i
v
e

%

R
e
v
e
n
u
e
Determining Top Customers:
Pareto Curve (ABC Analysis)
Revenue
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Seasonality of Top Customers:
Starfield Visualization
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Case Studies

Analysis of SS 2004 Data
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The Data
Field Name Desciption
HS_NAME High School Name
HS_TYPE_TEXT High School Type
UNIV_NAME University Name
UNIV_DEPT University Department
RANK_SAY Rank According to Saysal
Score
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Y
(L)
L

s

H

T

Y
5
(H)
Pareto Squares
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Pareto Squares:
Model Definitions
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Pareto Squares:
Optimization Model
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General Insights
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Benchmarking Highschools
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Benchmarking Departments
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Relationship Management
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Berry, M. J. A., Linoff, G. S. (2004) Data Mining
Techniques. Wiley Publishing.
Ertek, G. Visual Data Mining with Pareto Squares for
Customer Relationship Management (CRM) (working
paper, Sabanc University, Istanbul, Turkey)
Ertek, G., Demiriz, A. A framework for visualizing
association mining results (accepted for LNCS)
Hughes, A. M. Quick profits with RFM analysis.
http://www.dbmarketing.com/articles/Art149.htm
Kumar, V., Reinartz, W. J. (2006) Customer Relationship
Management, A Databased Approach. John Wiley & Sons
Inc.
Spence, R. (2001) Information Visualization. ACM Press.
References
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