ByCRM with an ExampleWhat is Churn Management?The Cost of ChurnWhy Churn is a Problem?Data Mining Techniques Used for ChurnThe DataUsing Decision Tree to Segment the CustomersThe Data Mining ModelUsing Demographic ClusteringCustomer Churn for Telecommunication IndustriesUsing IBM Intelligent Miner ByAdnan RahiCS 595What is Customer Relationship Management?Customer relationship management (CRM) is the term used for the business practice to allow businesses with more than few customers to better serve and manage theinteraction with those customers. It is easy to manage a few customers without any problem. You know the customers by name, and you and customer’s account manager probably know in some detail what their interest is and what their business is. You probably know what they like and dislike about your company and it s products and services. If you have 10 milion customers, you’d ideally like to have the same kind of relationship with them. It is not cost effective to have multiple people from your company assigned to each customer. This is where you need help from technologies and best practices of customer relationship management. In some circles, CRM is also known as customer profitability management.The bottom line is that if you want to improve customer profitability, you almost always have to first improve the relationship that you company has with that customer. Often, the best way to improve profitability is to improve customer loyalty.CRM with an ExampleIn the table below, you can see a simple example of a customer value matrix of customer current value and potential value. This should be one of the first things that you do with data mining, and you should have it available in order to segment and control your customer population. Keep in mind that this is the very first step in segmenting your customers, and it only gets more complicated from here. The reality is that if youdoi even this first step, you will probably be far ahead of your competitors in understanding your customers.Note that you may have many more customer segments than the six shown in this table, but you will usually have the main segments. Segment 1 has your best customers: they will remain your best customers throughout their lives and their current value matches their potential. Segment 2 is similar, except that they are likely to have low lifetime value, despite their high value today, probably because they are not loyal and are likely to switch to a competitor at some time in their customer life. Segment 6 represents your low value customers that you will treat with your least expensive service. Segments 4 and 5 represent customers who, with the right care and service, can be trasitioned to high value customers, either near term or long term.Segment Current valueLifetime value Potential valuePotential lifetime valueCurrent service levelBest service level1 High High High High Gold Gold2 High Low High High Gold Gold3 High Low High Low Gold Bronze4 Low Low Low High Bronze Gold5 Low Low High High Bronze Gold6 Low Low Low Low Bronze BronzeThus, at its most basic level, sales and marketing investments should be keeping valuable customers and moving less valuable customer toward more value.What is Churn Management?Churn management is a term used in the telecommunications industry to describe the process of ensuring that profitable customers stay with a particular company. Advanced techniques of churn management include the ability to predict whether a given individual is likely to move to another service provider, and to be able to define the correct actions to keep that profitable customer. The Cost of ChurnChurn costs European and U.S. telcos close to US$4 billion each year, and the global cost of customer defection may well approach a staggering US$10 billion per year.Annual churn rates of 25 to 30 percent are the norm, and carriers at the upper end of this spectrum will get no return on investment on new subscribers. Why? Because it typically takes three years to recover the cost (approximately US$400 in the United States and US$700 in Europe) of replacing each lost customer with a new one (customer acquisition). In the European and Asian markets in particular, the number of new market entrants is adding to the churn phenomenon. In Europe, 30 new telcos entered the market in 1998, seeking the 15 percent market share that analysts say they will need to survive. The growth in the number of subscribers has eased this situation in the past, but as marketgrowth slows and average revenue-per-user declines, increased competition is likely. Why Churn is a Problem?The problem confronting telcos' management is that it is very difficult to determine which subscribers leave the company and why. It is therefore even more difficult to predict which customers are likely to leave the company, and more difficult still to devise cost-effective incentives that will persuade likely "churners" to stay.Churn is such a massive problem that it affects other aspects of customer relationship management (CRM), such as customer acquisition. A manager must ask himself, "Am I recruiting the right people or are they likely to churn before I have made areturn on my investment?" "How is churn affecting the lifetime value of my customer base?" and "Can we get a complete view of our customer information, so that we can profile likely churners?" It perhaps comes as something of a surprise to learn that telcos, who are among the biggest users of IT systems and sit on a goldmine of customer information, are faced with such problems when it comes to acting on that information to manage their customerrelationships. The reason for this is that telcos' IT departments tend to focus on meeting day-to-day operational goals, such as providing and maintaining the switching system needed to allow calls to take place, and the billing systems to charge for calls made. In many cases the technology is not in place to support the complex requests for informationfrom the sales and marketing departments, who must address the issue of churn. In addition, the organization may lack the expertise to support complex data mining and analytical/predictive tasks, which are essential in combating churn (as well as in many other aspects of CRM). The volumes of data that are needed to undertake such tasks are huge and sometimes difficult or impossible to access and consolidate using conventional operational-system tools. Data Mining Techniques Used