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Homework answers / question archive / In the communications sector, customer loyalty is the key to profitability - it costs  much less to retain an existing customer than it does to win a new one

In the communications sector, customer loyalty is the key to profitability - it costs  much less to retain an existing customer than it does to win a new one

Management

In the communications sector, customer loyalty is the key to profitability - it costs  much less to retain an existing customer than it does to win a new one. As part of an organizational business transformation project, XO Communications identified an 

opportunity to improve its performance in the small- and medium-sized business sector 

by increasing customer retention, and needed a strategy that would help it achieve this 

in a cost-effective way.

The majority of the customers in this segment spend less than $1,000 per month 

with XO Communications, so it was not economically prudent to allocate dedicated client 

service managers to each account. At the same time, it was vital to offer these clients a 

high level of service and ensure that any issues they had were dealt with quickly and 

effectively. Instead of a 'brute force' approach - simply hiring more client service 

managers - the company needs to identify the customers who were most at risk of 

changing providers, and prompt the client service team to intervene appropriately.

The XO Communications team worked with IBM Education Services to build up a 

high level of competence in-house and transitioned away from the early models built by 

third-party consultants. This enabled the team to identify the factors that indicate 

whether a given customer is likely to change providers, and build a sophisticated 

statistical model that provides a monthly risk assessment for each customer.

Customers are prioritized based on the score the model calculates for them, and 

the client service team deals with the highest-risk customers first: making contact with 

them, finding out if they have any problems or are dissatisfied with the service they are 

receiving, and then taking appropriate steps to improve the situation.

By providing an analytics solution in-house and giving client managers the ability 

to identify the customer relationships that need most attention, XO Communications has 

been able to reduce customer churn without substantially increasing headcount.

XO Communications has applied the skills and experience from this project to 

generate additional returns in subsequent projects. With additional tuning and analysis, 

the next phase of the customer churn project has produced another $7 million in revenue 

and the model is 50 percent more accurate than 

 

1. What analytics solution is needed by the company?

2. What are the necessary components to solve the problem? Identify and 

explain.

3. Why should analytics be used instead of just hiring more client service 

managers?

4. Given the CRISP-DM approach that makes use of the following steps in 

providing a predictive analytics solution

a. Business Understanding

b. Data Understanding

c. Data Preparation

d. Modeling

e. Evaluation

f. Deployment

5. Give the phases that were described in the case study given.

6. Explain why data understanding and data preparation are important in this 

analytics solution.

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