CRM and Information

Visualization
Grdal Ertek, Ph.D.
Tue Gizem Martaan

Customer Relationship
Management (CRM)
Traditional Marketing

CRM

Goal: Expand customer base, Goal: Establish a profitable,

increase market share by
long-term, one-to-one
mass marketing
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

What is CRM?
The approach of identifying, establishing,
maintaining, and enhancing lasting relationships
with customers.

The formation of bonds between a company

and its customers.

Strategies in CRM
for Mass Customization

Prospecting (of first-time consumers)

Loyalty
Cross-selling / Up-selling
Win back or Save

The Marketing Perspective

CAMPAIGN MANAGEMENT
RECENCY FREQUENCY MONETARY VALUE METHOD
CUSTOMER VALUE METRICS

Campaign Management:
The Marketing Perspective

Developing effective campaigns

Effectively predicting the future
Retaining existing customers
Acquiring new customers

Campaign Management:
The Cap Gemini Model
KNOW

TARGET

Understand market and consumers

needs and preferences

( Offer is developed )
Define market strategies

Exploit customer intelligence,

Use channel integration
Perform segmentation

SERVICE

SELL

Retain customers by:

Acquire customers

Loyalty programs
Communication
Service forces

Use sales force effectively

Develop marketing programs 9

Campaign Management:
The Marketing Perspective
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
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Campaign Management
Step 1: Define Objectives
Targeting
Existing Customers
Retention Strategy

Targeting
New Customers
Acquisition Strategy

Creating Loyalty?
Increasing the satisfaction level?
Cross-selling or Up-selling?

Target customers that show

characterstics similar to
existing groups of customers

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Campaign Management
Step 2: Identify Customers
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

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Campaign Management
Step 3: Communication Strategies
Which message should be transmitted?
Which channel should be used?

13

Campaign Management
Step 4: Design the Products, Offers,
Services and Promotions
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

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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

15

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

19

RFM Method
(Recency, Frequency, Monetary Value )
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?
20

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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RFM Method:
Recency Coding
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
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RFM Method:
Frequency Coding
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.
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RFM Method:
Frequency Coding
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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RFM Method:
Monetary Value Coding
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.
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RFM Method:
Monetary Value Coding
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

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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:
Database

21

22

23

24

231

232

233

234

25

235

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RFM Method:
STEPS
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
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Customer Value Metrics

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

29

Customer Value Metrics:

Size of Wallet
J

Size of wallet =

Sj

S
j 1

Sales to focal customer by firm j

Assumption: Firms prefer customers with

large size of wallet in order to retain large
revenues and profits

30

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 % =

S j Sales to focal customer by firm j

Sj
J

S
j 1

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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
Brand B

60%
10%

30%
80%

20%
15%

Brand C

20%

15%

70%

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The Engineering Perspective

DATA MINING

34

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

35

Data Mining
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
36

Data Mining:
Steps

Data selection
Data cleaning
Sampling
Dimensionality reduction
Data mining methods

37

Data Mining:
Methods
Exploratory Data Analysis
Segmentation
Cluster Analysis
Decision Trees

Market Basket Analysis

Association rules
Information Visualization
Prediction
Regression
Neural Network
Time Series Analysis

38

Information Visualization
Data mining algorithms...
Can only detect certain types of
patterns and insights
Are too complex for end users to
understand

39

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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Information Visualization
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.
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Case Studies
Analysis of Supermarket
Sales Data

42

The Data
Field Name

Desciption

TRANSACTION_ID

Transaction ID

PRODUCT_NO

Product Number

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Frequent Itemsets

44

Frequent Itemsets

45

Association Rules

46

Case Studies
Analysis of Spare Parts
Sales Data

47

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

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Assumption: Each customer gives at most one order each day.

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

51

Seasonality of Top Products

...

52

Seasonality of Top Customers:

Pivot Table

53

Determining Top Customers:

Pareto Curve (ABC Analysis)

Revenue

54

Seasonality of Top Customers:

Starfield Visualization

55

Case Studies
Analysis of SS 2004 Data

56

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
57

Pareto Squares
L
Y(L)

s
T

Y5(H)

58

Pareto Squares:
Model Definitions

59

Pareto Squares:
Optimization Model

60

General Insights

61

Benchmarking Highschools

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Benchmarking Departments

63

Relationship Management

64

References
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.
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