CUSTOMER RELATIONSHIP MANAGEMENT

CONCEPTS AND TECHNOLOGIES

Chapter 12
Using Customer-related Data
Analytical CRM

 Analytical CRM is the process through which

organizations transform customer-related data into
actionable insight for either strategic or tactical
purposes.
How analytics support Strategic CRM

 Strategic CRM focuses on the development of a

customer-centric business dedicated to winning and
keeping (potentially) profitable customers by creating
and delivering value better than competitors cost
effectively.
 Analysis of customer-related data can help answer
crucial strategic CRM questions such as:
● which customers should we serve? What is our share of
customer spending on our category? What do our customers
think and feel about their experience of doing business with
us?
How analytics support Operational CRM

 Operational CRM involves deployment of automated

solutions in the sales, marketing and service areas.
 Analysis of customer-related data can help answer
crucial operational CRM questions such as:
● which channels should we use to communicate with our
customers? What offers should we make, and when should
we make them? How does our sales performance differ
across territories and product ranges, and how can we fix
any problems? How well do we manage our opportunity
pipeline? How satisfied are customers with the service we
provide and what can be done to improve it?
Basic data configuration for CRM analytics

Figure 12.1
Analytics for CRM strategy and tactics

Build revenues Reduce costs Enhance

loyalty/satisfaction
Cross-sell Automate selling Enhance complaints
campaigns processes resolution
Up-sell campaigns Service customers Improve customer
online service
Protect valued Improve customer Improve fulfilment
relationships self-service process
Generate sales Sack unprofitable Improve online
leads customers experience
Acquire new Improve sales rep Improve value
customers productivity proposition
Close more Improve data quality Introduce CSat
opportunities measures

Table 12.1
How analytics are used during the customer lifecycle

 Customer acquisition
● Lead scoring might take account of a wide range of market,
organisational, personal, relational and behavioural
attributes.
 Customer retention
● Identify which customers have highest future potential CLV.
 Customer development
● Identify the next best offer to make the customer.
Criteria used in prospect scoring

Market Organisationa Personal Relational Behavioural

l
Market size Revenues Seniority Ex- Website
customer visitor?
Market Profits Decision Lost Registrations
growth role opportunity ?
Market Spending on Budget Lead Contracted
segmentatio category owner source – to current
n website or supplier?
ad
New Certifications Influence Referral? Video
entrants viewed?
Number of Social Years of New to Research
competitors network experienc database? participant?
participation e

Table 12.2
NBA

 Next best action (NBA) merges customer insight

(predictive analytics particularly) and context to
deliver recommendations for action.
● Company desired actions include up-sell or cross-sell
 Context determines whether or not an offer should be
made, what that offer should be, and even when it
should be made.
● A customer with an unresolved complaint should receive an
outbound customer service call to establish what the
customer expects by way of complaint resolution, not an
offer.
NBO

 ‘Next best offer’ (NBO) is a subset of NBA.

 Early groundwork for NBO was laid by Amazon.com
 Today’s modelling is based on more complex,
context-sensitive, predictive analytics that enable the
right offer to be made at the right time and in the right
channel.
 The tools that support NBO are known as
recommendation engines.
 Dynamic NBOs are made to customers in real time
as they interact at a business’s touch points.
Analytics for structured data: introduction

 CRM analytics for structured data are well developed.

 As questions become more complex and shift from
description to explanation or prediction, the analytical
procedures required to generate answers also
become more complex.
 OLAP queries allow CRM users to drill down into the
reasons why a particular piece of data is as it is
 Data mining tools draw on a well established array of
statistical procedures, such as correlation,
regression, decision-tree and clustering routines.
Analytics for unstructured data

 Unstructured data do not fit a predefined data model

 Includes textual and non-textual files such as:
● spread-sheets, documents, PDF’s, hand-written notes, and
image, audio, video and multi-media data.
 Unstructured data often reside outside the business
in social media data repositories, which can be huge,
hence the term ‘Big Data’.
 Analytics for these types of data are still evolving.
Text analytics

 Text analytics extracts relevant information from

unstructured text files, and transforms it into
structured information that can then be leveraged in
various ways.
 Unstructured textual data is found in:
● call centre agent notes, emails, documents on the web,
instant messages, blogs, tweets, customer comments,
customer reviews, questionnaire free-response boxes, social
media posts, transcripts of telephone calls and interviews
and so on.
Social media sentiment analysis

Figure 12.2
How text analytics supports CRM

 Improving the accuracy of the predictive models

 Automatic routing
 Root cause analysis
 Trend analysis
 Sentiment analysis
3V’s of Big data

Figure 12.3
Technology essentials for analysing Big Data

1. Hadoop, an open source framework or computing

environment, distributes data across a large number
of computers, each of which processes a portion of
the data
2. Open source analytics applications.
3. Commercial software-solution vendors add further
management and decision support tools,
frameworks and solutions.
Types of structured data kept in relational databases

 Categorical data, also known as discrete data, are

data about entities that can be sorted into groups or
categories.
● Unordered categorical data are nominal data
● Ordered categorical data are ordinal data.
 Continuous data are data that can take on any
value within a finite or infinite range.
● Interval data are measured along a continuum that has no
fixed and non-arbitrary zero point.
● Ratio data are also interval data but with the added
attributes of a fixed data point 0 (zero).
Why is this important?

 Analytical procedures differ according to the type of

data.
● Categorical data use nonparametric procedures such as
logistic regression. Continuous data use parametric
procedures such as linear regression.
● Methods that are used to correlate sets of ordinal data differ
from those used to correlate interval data.
Three ways to generate analytical insight

 Standard reports
 Online analytical processing (OLAP)
 Data mining
Standard reports

 Can be either pre-defined, or query-based (ad-hoc).

 Standardised reports are typically integrated into
CRM software applications, but often need
customization.
● Some customization of the report can be done when it is run,
for example in selecting options or filtering criteria, but the
end result is limited to what the report designers envisaged.
 Visualization tools include tables, charts, graphs,
plots, maps, dashboards, hierarchies, and networks.
Standard report: active accounts of a sales rep

Figure 12.4
Online Analytical Processing (OLAP)

 OLAP technologies allow data stored in a data mart

to be subjected to analysis using processes such as
● slice-and-dice, drill-down and roll-up.
 OLAP data are stored in one or more star schema
 A star schema separates data into facts and
dimensions.
● Facts are quantitative data such as sales revenues and
sales volumes.
● These facts have related dimensions. Dimensions are the
ways in which facts can disaggregated and analysed.
Star Schema example

Figure 12.5
Data mining

 Data mining is the application of descriptive and

predictive analytics to large data sets to support the
marketing, sales and service functions.
What data mining analytics do

 Classification
 Estimation
 Prediction
 Affinity grouping
 Clustering
 Description and visualisation
Directed v undirected data mining

Directed Undirected
Directed data mining (also Undirected (or unsupervised)
called supervised, predictive or data mining is simply
targeted data mining) has the exploration of a dataset to see
goal of predicting some future what can be learned. It is
event or value. The analyst about discovering new
uses input data to predict a patterns in the data. The
specified output. Directed data analyst isn’t trying to predict or
mining stresses classification, estimate some output.
prediction and estimation. Undirected data mining uses
clustering and affinity-grouping
techniques.
Data mining procedures

Directed data mining Undirected data mining

techniques techniques
Decision trees Hierarchical clustering
Logistic regression K-means clustering
Multiple regression Two-step clustering
Discriminant analysis Factor analysis
Neural networks

Table 12.3
Decision trees

 The graphical model output of decision tree analysis

has the appearance of an inverted root and branch
structure.
 Decision trees work through a process called
recursive partitioning.
 The decision tree algorithm progressively partitions
the dataset into groups according to a decision rule
that aims to maximise homogeneity or purity of the
response variable in each of the obtained groups.
Logistic regression

 Logistic regression measures the influence of one

or more independent variables that are usually
continuous (interval or ratio data) on a categorical
dependent variable (nominal or ordinal data).
Multiple regression

 Multiple regression uses two or more predictor

variables to predict a dependent variable. The
dependent variable must be a continuous (interval or
ratio) variable.
Discriminant analysis

 Discriminant analysis (DA) clusters observations

into two or more classes.
 DA can be used to find out which variables contribute
most to explaining the difference between groups.
Neural networks

 Neural networks fit a model to existing data for

classification, estimation and prediction purposes.
 Neural networks’ foundations are machine learning
and artificial intelligence.
 Neural networks can produce excellent predictions
from large, complex and imperfect datasets
containing hundreds of potentially interactive
predictor variables.
Hierarchical clustering

 Hierarchical clustering is the ‘mother of all

clustering models’.
 It works by assuming each record is a cluster of one
and gradually groups records together until there is
one super-cluster comprising all records.
Dendrogram output from hierarchical clustering routine

Figure 12.6
K-Means clustering

 K-Means clustering is the most widely used form of

clustering routine.
 It works by clustering the records into a
predetermined number of clusters. The
predetermined number is ‘k’.
 The reference to ‘means’ refers to the use of
averages in the computation.
● In this case it refers to the average location of the members
of a particular cluster in n-dimensional space, where n is the
number of fields that are considered in the clustering routine.
K-Means clustering output

Figure 12.7
Two-step clustering

 Two-step clustering combines predetermined and

hierarchical clustering processes.
 At step one, records are assigned to a pre-
determined number of clusters (alternatively you can
allow the algorithm to determine the number of
clusters).
 At step two, each of these clusters is treated as a
single case and the records within each cluster
subjected to hierarchical clustering.
 Works well with large datasets.
Factor analysis

 Factor analysis is a data reduction procedure.

 It does this by identifying underlying unobservable
(latent) variables that are reflected in the observed
variables (manifest variables).
SERVQUAL’s latent variables

Reliability Communication
Responsiveness Credibility
Competence Security
Access Understanding/knowing the
customer
Courtesy Tangibles

Table 12.4
OECD privacy principles

1. Collection Limitation Principle

2. Data Quality Principle
3. Purpose Specification Principle
4. Use Limitation Principle
5. Security Safeguards Principle
6. Openness Principle
7. Individual Participation Principle
8. Accountability Principle
Safe Harbor Principles

1. Notice
2. Choice
3. Onward Transfer (Transfers to Third Parties)
4. Access
5. Security
6. Data integrity
7. Enforcement
W3C

 The World Wide Web Consortium (W3C) Privacy

Interest Group charter is to “improve the support of
privacy in Web standards by monitoring ongoing
privacy issues that affect the Web, investigating
potential areas for new privacy work, and providing
guidelines and advice for addressing privacy in
standards development.”
 The group notes that the evolution of Web
technologies has increased collection, processing
and publication of personal data.