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  1. 1. Selling vs. Marketing Predicting Your Customer’s Needs Through Data Mining Brian K. Chapman Marketing Database Analyst State Farm ® Insurance Companies
  2. 2. Marketing Definition Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. Source: American Marketing Association   
  3. 3. Enhanced Marketing at State Farm ® <ul><li>There is selling . </li></ul>Persuading the customer to buy a product or service Making the right offer to the right person at the right time. <ul><li>There is marketing . </li></ul>
  4. 4. <ul><li>Google Hits for “Data Mining” – 49,400,000 </li></ul><ul><li>20 Definitions at First Glance </li></ul><ul><li>Definitions Vary </li></ul><ul><ul><li>“ The ability of users of a system to integrate a database ad hoc” </li></ul></ul><ul><ul><li>“ The analysis of relationships that have not been previously discovered” </li></ul></ul><ul><ul><li>“ Searching large volumes of data looking for patterns that accurately predict behaviors in customers and prospects” </li></ul></ul><ul><ul><li>“ A ‘hot buzzword’ for a class of database applications that look for hidden patterns in a group of data” </li></ul></ul><ul><ul><li>“ Using advanced statistical tools to identify commercially useful patterns in databases” </li></ul></ul>Data Mining Definition
  5. 5. Keys to Successful Data Mining <ul><li>Know your industry </li></ul><ul><li>Know your customers </li></ul><ul><li>Know your data </li></ul><ul><li>Know your tools and techniques </li></ul>
  6. 6. Data Mining for Marketing at State Farm ® <ul><li>Direct mail </li></ul><ul><ul><li>Right person </li></ul></ul><ul><ul><li>Right time </li></ul></ul><ul><ul><li>Right message </li></ul></ul><ul><li>Lead delivery to agents </li></ul><ul><ul><li>Direct mail to in-book </li></ul></ul><ul><ul><li>Individual proactive personal contact </li></ul></ul><ul><ul><li>Pivoting </li></ul></ul>
  7. 7. Database Marketing Data Collection Understanding the Data Model Creation Model Implementation Modify Data Mining
  8. 8. Privacy <ul><li>Privacy is a concern to most consumers </li></ul><ul><li>Public opinion can influence the legislative process </li></ul><ul><ul><li>Keep customer concerns in mind during all aspects of data mining. </li></ul></ul><ul><ul><li>Good Neighbor policy = Good business policy </li></ul></ul><ul><li>Understand the Legal Environment </li></ul><ul><ul><li>Federal </li></ul></ul><ul><ul><li>State (SB1 – California) </li></ul></ul>
  9. 9. Privacy <ul><li>“ Do-Not-Share” </li></ul><ul><ul><li>Gramm-Leach-Bliley-Act: Financial Services Modernization Act of 1999 </li></ul></ul><ul><ul><li>Health Insurance Portability Act of 2005 (HIPPA) </li></ul></ul><ul><ul><li>Fair and Accurate Credit Transaction Act (FACT Act) </li></ul></ul><ul><li>“ Do-Not-Solicit” </li></ul><ul><ul><li>Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM) </li></ul></ul><ul><ul><li>Telemarketing and the Telephone Consumer Protection Act (TCPA) </li></ul></ul><ul><ul><li>Junk Fax Prevention Act of 2005 (Junk Fax Act) </li></ul></ul>
  10. 10. Data Collection Data Mining
  11. 11. Data Collection Marketing Database (MD) <ul><li>Developed in 1998 </li></ul><ul><li>Built by IBM on Unix platform </li></ul><ul><li>DB2 “Relational Database” </li></ul><ul><li>Currently contains over 3000 data attributes </li></ul><ul><li>Updated monthly - 24 month history </li></ul><ul><li>Federated Data Warehouse </li></ul>
  12. 12. Data Collection Understanding the Data Data Mining
  13. 13. Understanding the Data What data does State Farm ® have in MD? <ul><li>Demographics (age, gender, marital status, children, etc.) </li></ul><ul><li>Geographics (city, state, zip) </li></ul><ul><li>Policy information (qty, type of policy, when purchased) </li></ul><ul><li>Item insured (vehicle, home, classic car, paintings) </li></ul><ul><li>U.S. Census (neighborhood) </li></ul><ul><li>Life Events and Change (marriage, birth, recent move) </li></ul>
  14. 14. Understanding the Data Information State Farm ® does not have in IMD… <ul><li>Name </li></ul><ul><li>Street address </li></ul><ul><li>Phone numbers </li></ul><ul><li>SSN </li></ul><ul><li>Ethnicity </li></ul><ul><li>Psychographics – motivations, preferences </li></ul>
  15. 15. Understanding the Data Methods and tools of Data Mining (ad hoc) <ul><li>Structured Query Language (SQL) </li></ul><ul><li>SAS </li></ul><ul><li>SAS Enterprise Guide </li></ul><ul><li>SPSS </li></ul><ul><li>Cognos </li></ul><ul><li>MapInfo </li></ul><ul><li>Microsoft Access </li></ul><ul><li>Microsoft Excel </li></ul>
  16. 16. Data Collection Understanding the Data Model Creation Data Mining
  17. 17. Model Creation Methods and tools of Predictive Modeling <ul><li>SAS Enterprise Miner </li></ul><ul><li>SPSS </li></ul><ul><li>IBM’s Intelligent Miner for Data </li></ul>Techniques of Predictive Modeling <ul><li>Logistic Regression </li></ul><ul><li>Decision Trees </li></ul><ul><li>Neural Networks </li></ul>
  18. 18. Model Creation <ul><li>Predictive models consider complex combinations of factors when looking at a group of customers. </li></ul><ul><li>Those factors can include any factor that relates to both the customer’s and the primary market area. </li></ul><ul><li>The factors that go into models are statistically complex and any particular factor’s importance can change depending on other factors present at the same time. </li></ul><ul><li>Model creation is an iterative process, updated regularly, and subject to change. </li></ul>
  19. 19. Model Creation Demographics Recent Life Events Agent’s Info U.S. Census Data Policy Info Probability Score
  20. 20. Data Collection Understanding the Data Model Creation Model Implementation Data Mining
  21. 21. Model Implementation <ul><li>Direct mail </li></ul><ul><ul><li>Right person </li></ul></ul><ul><ul><li>Right time </li></ul></ul><ul><ul><li>Right message </li></ul></ul><ul><li>Lead delivery to agents (LM): </li></ul><ul><ul><li>Direct mail to in-book </li></ul></ul><ul><ul><li>Individual proactive personal contact </li></ul></ul><ul><ul><li>Pivoting </li></ul></ul>ALWAYS TESTING!
  22. 22. Model Implementation Success stories “… My staff used (the model) to target high propensity renters…sending out 100 postcards to the high propensity customers. Of the 100 prospects, we quoted 12 policies and wrote 6 of them!...” “ My staff sent out 60 high propensity Auto postcards last Wednesday and in one week we wrote THREE autos! This is the best return on investment…!” “ I became an instant believer in (modeling) when Darwyn contacted our high propensity Life prospects in order to set up IFR appointments. As a result, we reached our Life sales goal by October 31!”
  23. 23. Data Collection Understanding the Data Model Creation Model Implementation Modify Data Mining
  24. 24. <ul><li>Changing environment </li></ul><ul><li>Changing customer base </li></ul><ul><li>Changing data availability </li></ul>Modify “ Model creation is an iterative process, updated regularly, and subject to change.”
  25. 25. Database Marketing Data Collection Understanding the Data Model Creation Model Implementation Modify Data Mining

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