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Chapter 9: Predictive Data Mining Case Problem: Grey Code Corporation Book Title: Business Analytics Printed By: Jigar Jitendrak Patel ([email protected]) © 2021 Cengage Learning, Cengage Learning

Chapter Review

Case Problem: Grey Code Corporation

Grey Code Corporation (GCC) is a media and marketing company involved in magazine and book publishing and in television broadcasting. GCC’s portfolio of home and family magazines has been a long-running strength, but it has expanded to become a provider of a spectrum of services (market research, communications planning, web site advertising, etc.) that can enhance its clients’ brands.

GCC’s relational database contains over a terabyte of data encompassing 75 million customers. GCC uses the data in its database to develop campaigns for new customer acquisition, customer reactivation, and identification of cross-selling opportunities for products. For example, GCC will generate separate versions of a monthly issue of a magazine that will differ only by the advertisements they contain. It will mail a subscribing customer the version with the print ads identified by its database as being of most interest to that customer.

One particular problem facing GCC is how to boost the customer response rate to renewal offers that it mails to its magazine subscribers. The industry response rate is about 2%, but GCC has historically performed better than that. However, GCC must update its model to correspond to recent changes. GCC’s director of database marketing, Chris Grey, wants to make sure that GCC maintains its place as one of the top achievers in targeted marketing. The file Grey contains 38 variables (columns) and over 40,000 rows (distinct customers). The table appended to the end of this case provides a list of the variables and their descriptions.

Play the role of Chris Grey and construct a classification model to identify customers who are likely to respond to a mailing. Write a report that documents the following steps:

1. Explore the data. Because of the large number of variables, it may be helpful to filter out unnecessary and redundant variables.

2. Appropriately partition the data set into training, validation, and test sets. Experiment with various classification methods and propose a final model

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for identifying customers who will respond to the targeted marketing.

3. Your report should include appropriate charts (ROC curves, lift charts, etc.) and include a recommendation on how to apply the results of your proposed model. For example, if GCC sends the targeted marketing to the top 10% of the test set that the model believes is most likely to renew, what is the expected response rate? How does that compare to the industry’s average response rate?

Variable Description

CustomerID Customer identification number

Renewal 1 if customer renewed magazine in response to mailing, 0 otherwise

Age Customer age (ranges from 18 to 99)

HomeOwner Likelihood of customer owning their own home

ResidenceLength Number of years customer has lived at current residence. Values: , , , , ,

, , , , , ,

, , , or more

DwellingType Identifies the type of residence. . ,

Gender , ,

Marital , , (divorced, widowed, etc.),

HouseholdSize Identifies the number of individuals in the household. Arguments are: ,

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, , , ,

ChildPresent Indicates if children are present in the home. ;

;

Child0-5 Likelihood of child 0–5 years old present in home

Child6-12 Likelihood of child 6–12 years old present in home

Child13-18 Likelihood of child 13–18 years old present in home

Income Estimated income. Ranges from $5,000 to $500,000+

Occupation Broad aggregation of occupations into high level categories. Arguments are: ,

, ,

(blue collar type jobs), (caregivers, unemployed, homemakers),

HomeValue The estimated home value in ranges. Arguments are , ,

, , , , , ,

,

MagazineStatus Identifies the status for a customer based on their magazine business activity. ,

, ,

, ,

,

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,

PaidDirectMailOrders Number of paid direct mail orders across all magazine subscriptions

YearsSinceLastOrder Years since last order across all business lines

TotalAmountPaid Total dollar amount paid for all magazine subscriptions over time

DollarsPerIssue Paid Amount/Number of Issues Served. Average value per issue (takes the subscription term into account)

TotalPaidOrders Total # of paid orders across all magazine subscriptions

MonthsSinceLastPayment Recency – # months since most recent payment

LastPaymentType Indicates how the customer paid on the most recent order. If it was credit order it will contain the billing effort number (how many bills were sent to collect payment).

, , ,

, , , ,

, , ,

, , ,

on ith billing

UnpaidMagazines Number of magazine titles currently in “unpaid” status for a given magazine customer

PaidCashMagazines Number of magazine titles currently in “paid cash” status for a given magazine customer

PaidReinstateMagazines Number of magazine titles currently in “paid reinstate” status for a given magazine customer

PaidCreditMagazines Number of magazine titles currently in “paid credit”

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status for a given magazine customer

ActiveSubscriptions Number of different magazines the customer is in “Active” status

ExpiredSubscriptions Number of different magazines the customer is in “Expire” status

RequestedCancellations Number of different magazines the customer is in “Cancelled via Customer Request” status

NoPayCancellations Number of different magazines the customer is in “Cancelled for non-payment” status

PaidComplaints Number of different magazines the customer is in “Paid Complaint” status

GiftDonor Yes/No indicator as to whether the customer has given a magazine subscription as a gift

NumberGiftDonations Number of subscription gift orders for this customer

MonthsSince1stOrder Recency (in months) of 1st order for this magazine

MonthsSinceLastOrder Recency (in months) of most recent order for this magazine

MonthsSinceExpire Recency (in months) since the customer’s subscription has expired for this magazine. Negative values represent months until an active subscription expires

Chapter 9: Predictive Data Mining Case Problem: Grey Code Corporation Book Title: Business Analytics Printed By: Jigar Jitendrak Patel ([email protected]) © 2021 Cengage Learning, Cengage Learning

© 2022 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.

USEFUL NOTES FOR:

Case Problem: Grey Code Corporation.

Introduction

Grey Code Corporation is a large technology firm that develops software for the banking industry. The company has seen great success, with its current market capitalization at $3.7 billion and annual revenues of $34 million. Grey Code is headquartered in San Francisco and has over 100 employees.

Case background.

Grey Code Corporation is a software company that produces the most advanced and secure encryption software. The company’s products are used by the military, banks and other organizations to protect their data.

You have been asked to evaluate Grey Code Corporation’s financial statements for the three-year period ending December 31st, 20XX (the “Period”). In your report you will consider whether or not these financial statements are prepared in accordance with generally accepted accounting principles (GAAP) and if they fairly present all material items of information about Grey Code Corporation in conformity with GAAP standards.

Case problem.

Grey Code Corporation is a small company that manufactures and sells products to the military. The company has been experiencing a downturn in sales, which has led to 20% decrease in their revenue over the last year.

Analysis.

You should analyze the problem and identify the problems by looking at it from different angles.

You can do this by asking questions like: How many customers do we have? How much money do they spend on our products? Do our products work properly for them? Do we have a good reputation in the industry, or are we considered to be unreliable company that doesn’t deliver on time or has poor customer service standards (i.e., negative reviews online)?

Solutions.

The first step is to identify the problem. In this case, we can see that Grey Code Corporation has a negative cash flow because it is not profitable and has a large amount of debt. This situation means that Grey Code Corporation cannot expand its business because if it does so, then it will go bankrupt. The second step is to find solutions for these problems by looking at their options:

Selling off some assets or paying off debt (e.g., selling equipment)

Making changes within your company’s structure/organization/processes so that they work more efficiently

References.

Grey Code Corporation is a company that provides a variety of services to different companies in the industry. The company has an office in the US and another office in India. It has been operating for over 20 years and offers its services through both offices.

Grey Code Corporation also provides training to its employees so they can be more efficient when it comes time to work on projects that require their expertise or skill set (i.e., coding).

Conclusion

I hope this article was helpful for you!