Business
Case 1 (Fraud Modeling)
HECollectibles, Inc. sells high-end collectibles directly to consumers
on a home shopping television channel. Although all sales are credit card
prepaid, the company would like to mitigate fraud risk as a preventive
measure. To reach this objective, the company develops a model to predict
fraud. After conducting profiling analysis on the transactional database
with external credit card purchasing activity information, the company
establishes rules that trigger for action when the customer's spending
pattern changes.
Business Case 2 (CHAID Analysis)
Nothing But Fruit Club ships in-season fruit to its customers on a monthly
basis. The customer agrees to purchase at least 6 shipments within 2 years
when joining the club and, in return, will receive an additional free
shipment after the sixth. Traditionally, the company contacts those customers
without automatic billing for prepayment approval prior to each shipment.
In order to improve customer satisfaction and reduce service costs, the
company has tested shipping without prepayment approval to a certain percentage
of its customer base. Using CHAID analysis, the company is now able to
ship fruit to low risk segments of the customer base without asking for
prepayment approval. Due to this effort, the company has reduced the customer
contact cost by 20%, and the customer satisfaction index reports a ten
point increase.
Business Case 3 (Risk Mitigation, DOE)
LikeNew2U.com, an online retailer of secondhand products, wished to significantly
increase sales volumes to meet budgeted goals. Although prepayment is
typically required for all orders, the company was able to design and
perform a statistically valid test which confirmed that order volume dramatically
increased if no prepayment was initially required. Given that such a shipment
method contained an inherent amount of risk, LikeNew2U.com utilized data
mining techniques of internal and external customer data to adjust its
shipment policies to mitigate this risk. Orders from low risk customers
were shipped entirely, with no credit card number requested. Orders from
moderate risk customers were shipped in installments, requiring receipt
of payment prior to the shipment of additional product. Orders from high
risk customers prompted a request for a credit card number per standard
procedure. In this way, LikeNew2U.com was able to significantly increase
its sales while simultaneously limiting its exposure.