10 data mining. what is data mining? “data mining is the process of selecting, exploring and...

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10 Data Mining

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Page 1: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

10Data Mining

Page 2: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

What is Data Mining?

“Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown information for using it to make crucial business decisions.”

Page 3: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Goal of Data Mining

Simplification and automation of the overall statistical process, from data source(s) to model application

KNOWLEDGEKNOWLEDGEINFORMATIONINFORMATION

DATADATA

Page 4: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

In order to solve problems, companies look into their data for scientific & logical evidence

Users would like tosee pre-defined business trends quickly and easily

Goal

‘If customer age is between 35 ~ 45 & product is ‘A’,’E’ & there is 30% increase in usage of ATM recently then response rate is 4 times higher”

Reports in the form of

‘revenue by year/month/area ’

‘revenue by month/area/

weekday’

.

Deliver-ables

OutputFormat

• Rule : If age in (35,45) andproduct (‘A’,’E’) andATM usage > 30% then…• Score : 0.55, 0.90..

area/ weekday BK PK SM

01/M 9999 1234 3456 02/T 3456 4353 657803/W 4335 5467 5673

OLAPOLAPOLAPOLAPDATA MININGDATA MININGDATA MININGDATA MINING

Data Mining vs. Other analytical approach

Page 5: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Data Mining is …

Decision Trees

Nearest Neighbor Classification

Neural Networks

Rule Induction

K-Means Clustering

Page 6: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Data Mining Algorithms

Predictive

use data on past process to predict future production

Descriptive

use data on past process to describe current situation

Probability of

Future production

HistoricalData

Predictive algorithm - neural - tree - regression

Description of

currentproduction

HistoricalData

Descriptive algorithm - cluster - association

Page 7: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Why Data Mining?—Potential Applications

Data analysis and decision making support

• Market analysis and management

– Target marketing, customer relationship management, market

basket analysis, cross selling, etc

• Risk analysis and management

– Forecasting, customer retention, improved underwriting, quality

control, competitive analysis

• Fraud detection and detection of unusual patterns (outliers)

• Text mining (news group, email, documents) and Web mining

• Stream data mining

• Bioinformatics and bio-data analysis

Page 8: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Market Analysis and Management

• Where does the data come from?—Credit card transactions, loyalty cards, discount coupons, customer complaint calls, plus (public) lifestyle studies

• Target marketing

• Find clusters of “model” customers who share the same characteristics: interest, income level, spending habits, etc.

• Determine customer purchasing patterns over time

• Cross-market analysis—Find associations/co-relations between product sales, & predict based on such association

• Customer profiling—What types of customers buy what products (clustering or classification)

• Customer requirement analysis

• Identify the best products for different groups of customers

• Predict what factors will attract new customers

• Provision of summary information

• Multidimensional summary reports

• Statistical summary information (data central tendency and variation)

Page 9: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Corporate Analysis & Risk Management

• Finance planning and asset evaluation

• cash flow analysis and prediction

• contingent claim analysis to evaluate assets

• cross-sectional and time series analysis (financial-ratio,

trend analysis, etc.)

• Resource planning

• summarize and compare the resources and spending

• Competition

• monitor competitors and market directions

• group customers into classes and a class-based pricing

procedure

• set pricing strategy in a highly competitive market

Page 10: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Fraud Detection & Mining Unusual Patterns

• Approaches: Clustering & model construction for frauds, outlier analysis

• Applications: Health care, retail, credit card service, telecomm.• Auto insurance: ring of collisions

• Money laundering: suspicious monetary transactions

• Medical insurance– Professional patients, ring of doctors, and ring of references

– Unnecessary or correlated screening tests

• Telecommunications: phone-call fraud– Phone call model: destination of the call, duration, time of day or week.

• Retail industry– Analysts estimate that 38% of retail shrink is due to dishonest

employees

• Anti-terrorism

Page 11: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Define business problem

Make dataavailable

Sample

Explore

Modify

ModelAssess

Mine in cycles

Review

Implement in production

Evaluate environment

Data Mining Process

Page 12: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Retention Targeting

AssumptionsNumber of customers (in selected segment) = 300,000Average revenue per user (ARPU)/year = THB 14,400Annual churn rate = 30%

New churn rate through targeted churn activities = 29%

Annual Loss due to old churn rate = THB 1,296 million

Annual Loss due to new churn rate = THB 1,252.8 million

Annual Savings = THB 43.2 million

Indicative ROI Example

Page 13: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Cross selling/Up selling

AssumptionsNumber of customers(in selected segment) = 400,000Number of direct mail/year = 6Variable cost per direct mail = THB 80.00

Modeling allows for elimination of lower 20% ranked direct mail list without significant loss in gross response

Annual Cost without modeling = THB 192 million

Annual Cost with modeling = THB 153.6 million

Annual Savings = THB 38.4 million

Indicative ROI Example

Page 14: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Acquisition Targeting

AssumptionsNumber of targeted prospects = 30 000Number of direct marketing campaigns/year = 12Average response rate = 2%Average revenue per user (ARPU) = THB 14,400

Improved response rate (due to market segmentation & value proposition) = 3%

Annual Benefit without modeling = THB 103.6 million

Annual Benefit with modeling = THB 155.5 million

Annual Savings = THB 51.9 million

Indicative ROI Example

Page 15: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Indicative ROI Example

Retention Targeting = THB 43.2 millionCross selling/up selling = THB 38.4 millionAcquisition Targeting = THB 51.9 million

Total Savings/Benefits = THB 133.5 million

Justifying ROI

Page 16: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Case Study

The Financial Services of La Poste“A bank like other banks, but not like other banks”

Page 17: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Generalist Positioning

28 million people have an account with the Financial Services of La Poste12 million have a current account at La Poste

5.6 million customers are under 25

1.2 million customers are financially insecure

500,000 own assets

500,000 are professionals and companies

Page 18: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Multi-channel Customers

800 million incoming annual contacts with La Poste320 million visits to Post Offices

368 million cash machine contacts

60 million Internet/Minitel contacts

40 million "incoming" telephone calls

500 million annual outgoing contacts with La Poste

Page 19: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown

Very Loyal Customers

Customers who have great confidence in us and who are very loyalto La Poste because they share our values…..

…. But whom we don’t know well enough and with whom we need to improve the relationship.

Build an integrated CRM

Page 20: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown
Page 21: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown
Page 22: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown
Page 23: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown
Page 24: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown
Page 25: 10 Data Mining. What is Data Mining? “Data Mining is the process of selecting, exploring and modeling large amounts of data to uncover previously unknown