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Customer portfolio analysis using the SOM

Published Online:September 9, 2011pp 396-412https://doi.org/10.1504/IJBIS.2011.042397

Abstract

In order to compete for profitable customers, companies are looking to add value using customer relationship management (CRM). One subset of CRM is customer segmentation, which is the process of dividing customers into groups based upon common features or needs. Segmentation methods can be used for customer portfolio analysis (CPA), the process of analysing the profitability of customers. The purpose of this paper is to illustrate how the self-organising map (SOM) can be used for CPA. We segment, identify and analyse a case organisation’s profitable and unprofitable customers in order to gain knowledge for the organisation to develop its marketing strategies. The results are validated through cross and face validation. The SOM is able to segment the data in an innovative and reliable way and to provide new insights for decision makers.

Keywords

customer relationship management, CRM, customer portfolio analysis, CPA, data-driven market segmentation, self-organising map, SOM

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