Some of the common uses of analytical models are:

Acquiring new customers: Acquiring new customers is generally a big cost for the company, with increase in prices on various acquisition channels, companies find it hard to reduce cost in acquiring good profitable customers. Predictive modeling to certain extent becomes very useful in reducing costs in acquiring right customers and increase profitability. It also helps in designing marketing offers, special campaigns for customers to reach out to them.

Predictive models use historical data of customer attributes to understand relationships between attributes and their specific response or behavior. The output of predictive model is generally to predict a future response of the customer with their present data. These models are generally used to rank a list of prospective customers on the likelihood of their predicted response. This is very useful as it helps take present decisions. Other factors can also be fit into the response such as risk of acquiring customers like credit risk, or the cost of retaining customer. We can also predict response to each specific product, which helps in better targeting the customer and increases chances of acquiring them or even for cross selling products

(http://www.stochasticsolutions.com/pdf/CrossSell.pdf).

Additionally, there might be situations where it might not be easy to connect both customer and the response desired. Additionally there may be situations where various responses of customers are also valuable. For example, a customer might purchase a product after visiting the site 4 times, each time the customer performs a action like search, sending an enquiry, contacting user, reading knowledge material etc. Each action may be valuable to business therefore need to included in the model. In all such cases we need to use proxies to understand purchase behavior. Model building is a tedious task, but very worthy effort in increasing profitability.

In process there are additional outputs generated like customer profiling, customer segmentation, clustering and affinity pairs which is very valuable in developing products for customers.

http://en.wikipedia.org/wiki/Predictive_analytics

Customers Retention: The second problem is of retaining existing customers, companies are willing to provide offers to retain customers. The data mining problem will translate into finding the customers at risk (or customers who are looking to switch) and additionally identify those customers who are more likely to change behaviour due the marketing offer given by the company. (http://www.stochasticsolutions.com/pdf/FinanceRetention.pdf).

The data useful will be behavior of customers before attrition for certain time duration along with their demographics, attitudinal & behavioral patterns.

Predicting customer attrition rate is separate from predicting their behavioral change because of promotional offer. These models are extremely useful where markets are saturated and acquiring new customers becomes increasingly difficult.

Marketing techniques for retaining customer could backfire sometimes, resulting in loss of customer due to persuation from the company. There are also certain customers who would attrite irrespective of any marketing offered to them. Capturing this behavioral difference can be done through Control Groups, Test Groups & Hold Groups. This method is called as Differential Response modeling or Incremental impact model or Uplift model or Net model. Here is more info on the same: http://en.wikipedia.org/wiki/Uplift_modelling, and few white papers on the same http://www.stochasticsolutions.com/pdf/SavedAndDrivenAway.pdf. Customers in Control Group are randomly targeted, Customers in Test Groups are targeted based on model, Hold Group Customers are not considered for targeting of offer. Results of test and experiment is used in building the Net Model.

The industries where these techniques will be highly useful are Financial Services, Retail, Telecom, Internet Companies and Software Houses.

Do check back for more articles on this topic.

List of resources to find more information about Analytics

1) http://www.destinationcrm.com/Articles/CRM-News/Daily-News/Predictive-Analytics-Can-Pinpoint-Profitable-Customers-52164.aspx

2) http://scientificmarketer.com/search/label/response

3) http://www.redclaymedia.com/response_modeling.php

4) http://stochasticsolutions.com/retention.html

5) http://www.information-management.com/specialreports/2008_62/10000747-1.html?ET=dmreview:e323:1015879a:&st=email

6) http://www.information-management.com/issues/2007_52/10001990-1.html

7) http://www.predictiveanalyticsinsight.com/articles/callcenter.htm

http://www.predictiveanalyticsworld.com/predictive_analytics.php

9) http://www.marketingprofs.com/4/shearer1.asp

10) http://semphonic.blogs.com/semangel/2009/01/predictive-analytics-getting-a-legup-on-where-analytics-is-headed-.html

The Original article is present on http://www.praveenkodur.com/blog