UNIT IV

BUSINESS INTELLIGENCE APPLICATIONS

• Marketing models
• Logistic and Production models
• Case studies.
Marketing models
 Marketing models

Explains,how the combination of relational

marketing strategies with business intelligence
and data mining models makes it possible to
simultaneously increase revenues and reduce
the costs of marketing actions, with an overall
benefit for the profitability of an enterprise
 1.Marketing models -Introduction
• Marketing decision processes are characterized by a high level of
complexity.
• due to the simultaneous presence of multiple objectives and
countless alternative actions resulting from the combination of the
major choice options available to decision makers.
• This chapter will primarily focus on two prominent topics in the
field of marketing intelligence.
• The first theme is particularly broad and concerns the application
of predictive models to support relational marketing strategies,
whose purpose is to customize and strengthen the relationship
between a company and its customers.
• The second theme concerns sales force management.
• First, we will provide an overview of the major decision-making
processes emerging in the organization of a sales staff, highlighting
also the role played by response functions.
• Then, we will illustrate some optimization models which aim to
allocate a set of geographical territories to sales agents as well as
planning the activities of sales agents.
• Finally, some business cases consisting of applied marketing
models will be discussed.
 Relational marketing
•Decision-making options for a Relational marketing strategies revolve around the choices.
• which can be effectively summarized as formulating for each segment ideally for each
customer, the appropriate offer through the most suitable channel, at the right time and at the best
price.
•A company capable of gathering, storing, analyzing and understanding the huge amount of data
on its customers can base its marketing actions
The relationship between an enterprise and its customers is
sometimes mediated by the sales network.
which in some instances can partially obstruct the visibility of
the end customers.
The number of customers and their characteristics strongly influence the nature and
intensity of the relationship with an enterprise.
there are highly intense relationships existing between the company and a small number
of customers of high individual value.
The high value of each customer
justifies the use of dedicated resources, usually consisting of sales agents
• business-to-business (B2B)
and key account managers, so as to maintain and strengthen these more intense
relationships
• business-to-consumer (B2C)
 An environment for relational marketing
analysis
• Include the company’s data warehouse, obtained from the
integration of the various internal and external data sources, and a
marketing data mart that feeds business intelligence and data
mining analyses for profiling potential and actual customers.
 Types of data feeding a data mart for relational
marketing analysis
• Describes the main types of data stored in a data mart for relational
marketing analyses.
• The marketing database contains data on initiatives carried out in
the past, including previous campaigns and their results,
promotions and advertising, and analyses of customer value
Cycle of relational marketing
analysis
 Development and application
flowchart for a predictive model
 Cross-selling and up-selling

• The term cross-selling refers to the attempt to sell an additional

product or service to an active customer, already involved in a
long-lasting commercial relationship with the enterprise.
• To develop an up-selling initiative, by persuading a customer to
purchase an higher-level product or service, richer in functions
for the user and more profitable for the company, and therefore
able to increase the lifetime value curve of a customer
 Acquisition
• Retention plays a prominent role in relational marketing
strategies, for many companies the acquisition of new customers
also represents a critical factor for growth.
• The acquisition process requires the identification of new
prospects, as they are potential customers who may be totally or
partially unaware of the products and services offered by the
company.
 Retention

• retention: indeed, it has been empirically observed that the cost

of acquiring a new customer, or winning back a lost customer, is
usually much higher – of the order of 5 to 9 times higher – than
the cost of the marketing actions aimed at retaining customers
considered at risk of churning.
 Market basket analysis
• The purpose of market basket analysis is to gain insight from the
purchases made by customers in order to extract useful knowledge
to plan marketing actions.
• It is mostly used to analyze purchases in the retail industry and in e-
commerce activities, and is generally amenable to unsupervised
learning problems.
• Each transaction consists of a list of purchased items. This
list is called a basket, just like the baskets available at retail
points of sale
 Web Mining
• web mining methods in order to analyze data on the activities
carried out by the visitors to a website.
• Web mining methods are mostly used for three main purposes
content mining, structure mining and usage mining.
Content mining. Content mining involves the analysis of the content
of web pages to extract useful information.
Structure mining. The aim of this type of analysis is to explore and
understand the topological structure of the web.
Usage mining. Analyses aimed at usage mining are certainly the most
relevant from a relational marketing standpoint
Taxonomy of web mining analyses
 2. Sales force management
• The term sales force is generally taken to mean the whole set of
people and roles that are involved, with different tasks and
responsibilities, in the sales process.
• A preliminary taxonomy of sales forces
• Residential. Residential sales activities take place at one or more
sites managed by a company supplying some products or services,
where customers go to make their purchases.
• Mobile. In mobile sales, agents of the supplying company go to the
customers’ homes or offices to promote their products and services
and collect orders.
• Telephone. Telephone sales are carried out through a series of
contacts by telephone with prospective customers.
Decision processes in sales force
management
Sales force design process
 Business case studies
• An example of segmentation for retention
analysis in a mobile telephone company
 Logistic and production
models
• will focus on optimization models aimed at
the integrated planning of the logistic chain
from the perspective of a single company.
• In particular, we will begin with a qualitative
description of the relevant processes within a
logistic production system, by highlighting the
major decisions that logistics managers have to
face.
 Supply chain optimization
• Defined as a network of connected and interdependent
organizational units that operate in a coordinated way to
manage, control and improve the flow of materials and
information originating from the suppliers
• Reaching the end customers, after going through the
procurement, processing and distribution subsystems of a
company.
• The major purpose of an integrated logistic process is to
minimize a function expressing the total cost, which
comprises processing costs, transportation costs for
procurement and distribution, inventory costs and
equipment costs.
An example of global supply chain
 Optimization models for logistics
planning
• describe some optimization models that may be used to represent
the most relevant features of logistic production systems.
• real-world logistic production systems feature simultaneously more
than one of the elements considered, so that the models developed
in applications
Optimization models for logistics
planning
 Tactical planning
• defined as the sum of manufacturing production costs and inventory
costs.
• The aim is to determine the production volumes for each product over
the T periods to satisfy the given demand and capacity limits for a
single resource, and also to minimize the total cost.
• Pit = units of product i to be manufactured in period t,
• Iit = units of product i in inventory at the end of period t, and the parameters
• dit = demand for product i in period t,
• cit = unit manufacturing cost for product i in period t,
• Extra capacity

• Multiple resources

• Minimum lots and fixed costs

• A further feature often appearing in manufacturing systems is represented by minimum
lot conditions: for technical or scale economy reasons, it is sometimes necessary that the
production volume for one or more products
Bill of materials
• A further extension of the basic planning model deals with the
representation of products with a complex structure, described via the so-
called bill of materials.
• the structure of the bill of materials:
• aij = units of product i directly required by one unit of product j,
• where the term product refers here to both end-items and components at
various levels of the bill of materials.
Multiple plants
• a manufacturing company has a network of M production plants, located in
geographically distinct sites, that manufacture a single product.
• The logistic system is responsible for supplying N peripheral depots, located
in turn at distinct sites.
 Revenue management systems
• Revenue management is a managerial policy whose purpose is to
maximize profits through an optimal balance between demand and
supply.
• It is mainly intended for marketing as well as logistic activities and
has found growing interest in the service industry, particularly in
the air transportation, tourism and hotel sectors
Decision processes in revenue management
 Revenue management relies on the following basic
principles

• To address sales to micro-segments: segmentation carried out by means of

business intelligence and data mining models is critical to achieve an
adequate knowledge of the market.
• To exploit the product value cycle: to generate the highest revenues, it is
required to grasp the value cycle of products and services, in order to
optimally synchronize their availability over time and to determine the price
for each market micro-segment. Notice that the value cycle also depends on
the sensitivity of micro-segments to price variations.
• To have a price-oriented rather than cost-oriented approach in balancing
supply and demand: when supply and demand are out of balance,most
enterprises tend to react by increasing or decreasing capacity. In many
instances it might, however, be more convenient to adopt price variations,
avoiding repeated variations in capacity.
•
• To make informed and knowledge-based decisions: a consistent use
of prediction models tends to mean that decisions rest on a more
robust knowledge basis. In particular, a correct prediction of
consumer purchasing behaviors is essential to evaluate elasticity
and reactions to price variations.
• To regularly examine new opportunities to increase revenues and
profits: the possibility of timely access to the available information,
combined with the possibility of considering alternative scenarios,
strengthens the competencies of marketing analysts and increases
the effectiveness of their activity
Logistics planning in the food industry-Structure of the logistic
production system
Architecture of the logistic production optimization
system
End of II unit