Churn Management Optimization with Controllable Marketing Variables and Associated Management Costs

Authors

Yong Seog Kim, Utah State UniversityFollow
Hyeson Lee
John D. Johnson

Document Type

Article

Journal/Book Title/Conference

Expert Systems with Applications

Volume

40

Issue

6

Publisher

Elsevier

Publication Date

5-2013

First Page

2198

Last Page

2207

Abstract

In this paper, we propose a churn management model based on a partial least square (PLS) optimization method that explicitly considers the management costs of controllable marketing variables for a success- ful churn management program. A PLS prediction model is first calibrated to estimate the churn proba- bilities of customers. Then this PLS prediction model is transformed into a control model after relative management costs of controllable marketing variables are estimated through a triangulation method. Finally, a PLS optimization model with marketing objectives and constraints are specified and solved via a sequential quadratic programming method. In our experiments, we observe that while the training and test data sets are dramatically different in terms of churner distributions (50% vs. 1.8%), four control- lable variables in three marketing strategies significantly changed through optimization process while other variables only marginally changed. We also observe that the most significant variable in a PLS pre- diction model does not necessarily change most significantly in our PLS optimization model due to the highest management cost associated, implying differences between a prediction and an optimization model. Finally, two marketing models designed for targeting the subsets of customers based on churn probability or management costs are presented and discussed.

Comments

This is a final accepted manuscript. The published version may be accessed here http://dx.doi.org/10.1016/j.eswa.2012.10.043

The publisher retains the copyright to this work and may require a subscription to access the published version.

Please use publisher's recommended citation.

Recommended Citation

Kim, Y. S., et al. Churn management optimization with controllable marketing variables and associated management costs. Expert Systems with Applications (2012), http://dx.doi.org/10.1016/j.eswa.2012.10.043