BUILDING COMPETITIVE ADVANTAGE VIA CRM BASED ON

DATA WAREHOUSE AND DATA MINING

Jiejun Huang, Wei Cui, Yanbin Yuan

School of Resource and Environment Engineering, Wuhan University of Technology, Wuhan, China

Keywords: Customer Relationship Management (CRM), Data Mining, Data Warehouse, Decision-making.

Abstract: Customer Relationship Management (CRM) is providing a novel approach for managing the relationships

between a corporation and its customers towards maximal profitability and sustainability. Data mining and

data warehouse are the useful information technologies, which provide powerful means for extracting and

utilizing the business information from historical data resources and runtime data flows. This paper reviews

the objectives, functionalities, and development trends of CRM, discusses the architecture, data model and

development methodologies of CRM systems based on data warehouse and data mining, then outlines the

applications of integrated CRM systems in decision making, including business administration, marketing,

customer service, customer management, and credit evaluation. Eventually, it describes some problems and

challenges for further research.

1 INTRODUCTION

How to manage the enormous enterprise and the

involved customer group becomes a crucial problem

for corporation. It is a gigantic impact for global

economy, such as insolvency of Enron, financial

fraud of Worldcom, and the degenerate of Polaroid

and Xerox. For this reason, it is widely concerned

for all the enterprise to improve the corporation

management, and customer relationship

management. Data warehouse and data mining are

both promising new technologies to transact

information. It is their individual superiority to

organize the business macro-database, and to mine

the hidden and meaningful information. And it is

very helpful for increasing a company’s

effectiveness and enhancing the competitiveness

(Adam R, 2001).

The paper is organized as follows. Section 2

provides a brief summary of CRM systems. Section

3 discusses the structure and the process of CRM

system based on data warehouse and data mining. In

section 4, the commercial application of the

integration CRM system is deeply analyzed,

including business administration, market selling,

customer management and credit evaluating. At last,

we describe a set of challenging problems in section

5, and conclude with a summary.

2 WHAT IS CRM

2.1 The Goal and Function of CRM

CRM is aimed for management efficiency, and used

new technologies to manage relationship between

corporation and its customers effectively. The main

functions of CRM include analyzing the customer’s

purchase interests, classifying the customers, and

seeking latent and worthy ones. Thereby, the

corporation can carry out personality service;

heighten customer’s satisfaction and loyalty. In

order to keep competitive advantage, the corporation

must adopt the strategy of customer centred, and

build CRM system (Alex B, Smith,K 2000). It will

decrease selling-cost and provide scientific

conference for company to draw up production

strategy and development scheme.

Through the CRM, the company can adjust the

portal to connect with the customer, manage market

resource effectively and build more value customer

relationship, perform customer segmentation,

ascertain the target market. It establishes an

integrated feedback system, customer can

comprehend the company more easy, and the

company can provide superior service for them. All

that may lead to the relationship more closely

between the company and its customers.

287

Huang J., Cui W. and Yuan Y. (2006).

BUILDING COMPETITIVE ADVANTAGE VIA CRM BASED ON DATA WAREHOUSE AND DATA MINING.

In Proceedings of the Eighth International Conference on Enterprise Information Systems - AIDSS, pages 287-290

DOI: 10.5220/0002439402870290

 SciTePress

2.2 Trends and Directions of CRM

CRM was expounded in the end of 20

century. Its

systemic capability is enlarged constantly, and the

application domains are more extensive. In the

future, the CRM systems will be connected with

network, and become integration, intelligent and

automation.

2.2.1 Web CRM

CRM is the core parts of current company. With

more and more company becoming members of the

World Wide Web, It is well known that the Internet

will become even more vital. The Internet has

exploited a widely market across space and time, it

will be a basic platform for the development of

enterprises. The internal sources can be shared by

Web CRM, and the business process is optimized.

No doubt that web CRM will be the future direction;

it can support all the process, such as web

management, web service and web marketing.

2.2.2 Intelligent CRM

CRM combines automatic selling technologies and

intelligent systems, such as automatic withdrawal

system, intelligent query system and public

information service system, to achieve business

intelligent perfectly. The fusion of communication

methods (phone, fax, and email), automatic

processing the customer relationship, and building

automatic prediction model, all of these can provide

an intelligent method to make decision. The goal of

CRM will be automatic and intelligent system; it can

do all the trade automatically, including customer

management, process the business information,

advertise and sell activities.

2.2.3 Integrated CRM

There takes great progress in the combination of

CRM and ERP, and leads to infallible tendency for

development of enterprise (Allan R, 2002).

Meanwhile, new technologies apply in CRM,

including data warehouse, data mining and OLAP,

which will strengthen the function of CRM. Data

warehouse can efficiently manage and analyze the

complex business information. OLAP can be used to

analyze the data from multidimensional, visual and

complex view (Nordine M, 2001). Data mining may

discover the meaningful relationship, pattern, or

model from the customer data, which can guide the

business activities, including customer

segmentation, customer retention, and customer

scoring, etc.

3 BUILDING CRM SYSTEM

BASED ON DATA WAREHOUSE

AND DATA MINING

Data warehouse can help the company do better for

its customer service, and then create immense profits

(Gabrielle G, 1999), (Lariviere Bart, Van Den,

2005). More important that data warehouse has

allowed the company to strengthen CRM core

capabilities and business partnerships (Lawyer J,

Chowdhury S, 2004). Data mining provides an

information technology to develop and utilize the

data; it is very helpful for making decision by

extracting regulations, patterns and models from

large databases. And using knowledge discovery

techniques is favourable to reaching a competitive

advantage with CRM (Gottgtroy M, 2003).

Therefore, the CRM system based on data

warehouse and data mining has significant business

value, it components jointly as data collecting and

integrating, data modelling and knowledge

discovery, business application and decision making.

The architecture of CRM system based on data

warehouse and data mining is showed as figure 1.

And the three steps to implement the CRM system

described as following.

Internal data

Customer data

Market data

Data collect, clean, transform and loa

CRM

Server

Data warehouse

Information

Processes

optimize

Metadata

Knowledge

Database

Report and

Query

OLAP

Data

Minin

Data

anal

sis

Business

plan

Customer

retention

Customer

mentation

Customer

service

Decision

Making

Figure 1: The architecture of CRM system based on dat

warehouse and data mining.

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3.1 Surveying Market and

Collecting Data

Define a business subject is a first step to make

decision. We should collect the data about customers

and market, and survey the market around the goal.

There are lots of methods to capture the data,

generally, as questionnaire, customer register table,

statistics data, financial report, Web log files and

tough points. The data not only includes customer

information, internal data, competitive data and

market information, but also includes the detailed

data such as cost record spending on customers,

transaction record and the customer contributions. In

order to insure the reliability of the data, it must be

cleaned and transformed and integrated. It is an

indispensable step for the system, and it will affect

the quality and effect of decision making directly.

3.2 Building Model and Extracting

Knowledge

Building data warehouse of CRM, including design

data structure, optimize its functions, store and

manage the metadata, etc. In order to employ OLAP

and make it easy to query and analyze data, we

should organize the data efficiently (showed as

fig.2). Then we can choose the method and

algorithm exactly to build data mining model, and

extract the hidden and meaningful knowledge. After

understanding the model, we should evaluate and

refine it until we have produced a model that is

likely to be successful in discovering knowledge.

The process is a core of the system which extracting

the meaningful information by data mining model.

3.3 Result Evaluation and Business

Application

This phase is to explain and evaluate the results, and

then apply the knowledge to specific domain.

Building the CRM server is to implement the

optimization of process, exchange and sharing of

information, feedback and transaction of customer

data. The system has many functions such as

analyzing the return of investment, the response

rates, and the churn rates. Based on the result, the

manager can draw up business plan and seek the

target market. Furthermore, they can carry out the

marketing strategy and adjust their production. By

the evaluation model, we can execute the customer

recognition, customer segmentation and customer

retention, order tracking, and step-selling service,

etc.

4 APPLICATIONS OF THE

INTEGRATED CRM SYSTEMS

4.1 Business Administration

From the point of system, the company can make all

of the processes optimization as customer service,

product development and marketing. It supports

information share and business cooperation, and

maximize the functions including resource

utilization and production. The company can find

requirement of customers, and explore a new

business domain and then improve the abilities of

market adaptation. With the CRM system, the

company can grasp the customers and markets more

intelligently. It has embodied an obvious result in

finance and telecommunication.

Product dimension

Product ID

Product name

Product category

Product price

Product time

Product description

Address dimension

Address ID

Street

City

State

Countr

Order ID

Order product

Order account

Order type

Customer_ID

Product_ID

Transaction_ID

Order_ID

Total production

Total sailing

Total revenue

Fact table

Customer ID

Customer name

Customer phone

Customer record

Customer Grade

Address ID

Customer dimension

Transaction ID

Transaction date

Transaction location

Transaction price

Transaction type

Transaction dimension

Order dimension

Time dimension

Time ID

Day

Month

Quarter

Yea

Figure 2: Snowflake schema of the data for CRM.

BUILDING COMPETITIVE ADVANTAGE VIA CRM BASED ON DATA WAREHOUSE AND DATA MINING

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4.2 Customer Service and Customer

Management

CRM has built a bridge for enterprise and customers,

and becomes more efficient and rapid by data

mining. With the right care and service, customers

will be high-value, and their profitability will be

optimized. After mining the customer’s hobbies and

interests, managers can improve business process.

This will reduce the cost, and raise the benefit.

Based on the information of customers, data mining

can help segment the prospective customers, seek

high profitable ones. Furthermore, it can create a

solution to solve the problems, such as which

customers are mostly to churn? The marketing tools

merged with data mining have a mighty ability to

predict the market, and business managers can

implement the marketing campaign (Groth R, 1999).

Companies can evaluate the marketing message to

be delivered to customers and identify high-value

ones. With personalized services, the relationship

between company and customers is kept tightly.

4.3 Prediction and Marketing

Forecast and exploit the market is a crucial matter in

improving economic benefit. CRM system can

provide online service for customers, and the

enterprise may quickly process the feedback about

product function and selling service, and catch the

information about interaction record, transaction

history and request. After that, marketing and

serving automatically will be come true, so the

quality and efficiency of the actions has been

improved. Web mining is helpful for identifying the

profitable customers, improving the respond rate and

reducing the cost. We can plan and predict the

marketing campaigns after mining the customer

data, implement positive selling and cross-selling,

then provide the manifold and intelligent service. So

that the business process has been expand and the

quality and efficiency of the actions has been

improved.

4.4 Credit Evaluation and Fraud

Detection

Based on the transaction records, we can score the

customer’s credit rate, and then carry out selling and

preferential service, enhance the abilities of market

responding. In insurance, managers can analyze the

action and feature of customers through building the

evaluation model of customer. Then, they survey the

instance and detect fraud, to discover who claims for

compensation with perjury and predict a potentially

fraudulent transaction. In telecommunication, data

mining can predict and track cellular fraud for

telecommunications, this control and reduces the

unexpected risk effectively.

5 FUTURE RESEARCH

CRM is the core parts of current company, how to

manage the customer relationship becomes a key of

business competition. In order to take the lead of

economic society, the company should make full use

of the information technologies, and utilize its

vantages and features. Data warehouse and data

mining have mighty abilities to analyze the

information, this provide a strong science evidence

and technological support. The integrated CRM

system will play an important role in commercial

activity; and we believe that it will have a widely

development market and application prospect.

ACKNOWLEDGEMENTS

The work in this paper was supported by National

Natural Science Foundation of China (60175022,

40571128, and 40572166)

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