teaching data mining: the new “required competency” for marketing professionals today’s...
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Teaching Data Mining: The New “Required Competency”
for Marketing Professionals
Today’s Presenters:Tom Nugent
Kenneth Elliott, Ph.D.
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Industry trends
• Explosive data and information growth
• “Predict or perish!”
• Industry has higher expectations of new graduates
• Soft economy means the most competitive job market in years
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What is Data Mining?
Discovering meaningful patterns in your data
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As the data grows…
What is Data Mining?
The relationships become more complicated
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What is Data Mining?
Data mining discovers meaningful patterns in your complex data
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Data mining is
• A user-centric, interactive process which leverages analysis technologies and computing power
“Computers and algorithms don’t mine data; people do!”
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Data mining is not
• Blind application of analysis/modeling algorithms
• Brute-force crunching of bulk data
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Size and Demand for DM Software
Worldwide Data Mining Market ($M)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2001 2006
Source: IDC. 2001
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Why data mining?
• Standard Life secured 50 million in mortgage revenue
• Verizon Wireless retained 33% of targeted customers, reduced direct mail budget by 60% and increased usage and revenue
• Softmap achieved a 300% year-on-year rise in website profits the first month they deployed models for personalization
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Types of data mining applications
•CRM: analytic applications designed to measure and optimize customer relationships (e.g. customer profitability, retention, marketing analysis)
•Financial/BPM: analytic applications designed to measure and optimize financial performance (e.g. budgeting) and/or to establish and evaluate an enterprise business strategy (e.g. balanced scorecard).
•Operations/Production: analytic applications designed to measure and optimize the production and delivery of a business’s products and services (e.g. demand planning, workforce optimization, inventory analysis, healthcare outcomes analysis).
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Types of data mining applications
• Student Relationship Management- change the vocabulary–Student Retention/Acquisition–Enrollment Management–Surveys–Targeted Marketing
• Financial Aid Allocation
• Web Analysis
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• Sales/marketing applications in framework of the customer lifecycle–Basis for “analytical CRM”
~75% of Data Mining applications are CRM
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“Fewer than 50 percent50 percent of enterprise wide CRM initiatives will generate payback by 2004.” Gartner Group
“Organizations that don’t embrace analytics as a component of their CRM strategies are ultimately going to fail at CRM.” Meta Group
Operational CRM isn’t enough
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“Data mining is a way to lift CRM projects into a higher level of return on investment.” Meta Group
Operational CRM isn’t enough
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What analytical CRM does
More EfficientAcquisition
Longer LastingRelationship
More FrequentUp/Cross Sell
Time
Revenue
Loss
Less Loss
Profit
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More EfficientAcquisition
More Profit
Longer LastingRelationship
More FrequentUp/Cross Sell
Time
Revenue
Loss
Less Loss
Profit
What analytical CRM does
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More EfficientAcquisition
Longer LastingRelationship
Even More Profit
More FrequentUp/Cross Sell
Time
Revenue
Loss
Less Loss
Profit
What analytical CRM does
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Why data mining in marketing?
• How often do our best customers buy?
• What motivates customers to make multiple purchases?
• How can we ensure long-term loyalty?
• How do we attract and retain new customers?
• How can we personalize and align offers to achieve maximum ROI?
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CRM applications in marketing
• Understanding customers– Quickly uncover the attributes that define customer
behaviors– Profile customers to understand their needs and
desires– Results in more relevant and targeted customer
communications
• For example…predict that a 31-year old single male is likely to respond favorably to a discounted travel offer every 6 months
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CRM applications in marketing
• Develop targeted offers
– Identify propensities to purchase certain products
– Maximize campaign results through better targeting
– Analyze past results to predict future results
• For example…predict that a 22-year old woman who lives in Chicago is very likely to purchase a specific new book release
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CRM applications in marketing
• Match specific offers to specific individuals– Fine tune messages by
marketing channel– Deliver offers based on
customer profile– Results in increased
campaign ROI• For example, predict that a
35-year old woman with two children is likely to purchase a new toaster every 2.5 years
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CRM applications in marketing
• Execute real-time campaigns– Assign scores based on
behavior– Provide an immediate
offer based on customer specifics
– Results in increased response and long term customer value
• For example, offer the money market customer on the phone a good rate on a certificate of deposit, based on their profile
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CRM applications in marketing
• Monitor campaign results–Determine how a campaign is doing–Identify ways to improve response–Maximize results by tweaking campaigns mid-
stream
• For example, offer current cellular phone customers the same offer as new customers, based on feedback
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Case studies
• Clustering
• Association
• Sequence association
• Prediction & classification
• SPSS customers
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Clustering techniques
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Clustering techniques
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Clustering in Clementine
• Clustering is used to find natural groupings of cases
• The cluster results, shown below, show that certain groups or “segments” have a much higher propensity to respond
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Association algorithms
+ =
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+ =
Association algorithms
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Sequence association
1
Home Page
2
e-store
3
Check-out Page
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Sample of sequence association output
Results of sequence association indicate which items and in what order have been purchase.
We see here that if frozen meal and beer were purchased on the last visit, then frozen meal will be purchased on the next visit with a confidence of 87.1%
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Prediction & classification
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Education
no college college grad
Prediction & classification
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Income
high incomelow income
Prediction & classification
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Secured $50 Million of mortgage revenue through the use of an
accurate propensity model to target offers %
What data mining has done for…
Standard Life needed to expand its share of the increasingly competitive mortgage market
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Saved 33% of targeted customers, reduced direct mail budget by 60% and increased usage and revenue
What data mining has done for…
Verizon Wireless needed to reduce customer churn and associated replacement costs
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Achieved a 300% year-on-year rise in profits the first month they deployed models for personalization
What data mining has done for…
Sofmap needed to improve cross-selling to their web shoppers and…