Tracking customer portfolio composition: A factor analysis approach

Abstract

SUMMARYIn this paper, we address the changing composition of a customer portfolio taking into account actions undertaken by the company to adapt its service offer to market conditions and/or technological innovations. We present a specific methodology to identify clusters of customers in different periods and then compare them over time. The classification process takes into account both qualitative and quantitative aspects of the consumption levels of the services or products offered by the company. The possibility of period-toperiod variation in the customer portfolio and the service or product offer is also considered, in order to achieve a more realistic scenario.The core of the proposed methodology is related to the family of exploratory factorial and cluster techniques. The customers are classified by using a bicriterial clustering methodology based on 'tandem' analysis (multiple factor analysis + cluster analysis of the main factors). The bicriterial approach allows for a compromise between customers' consumption levels (a quantitative criterion) and their consumption/nonconsumption pattern (a qualitative criterion). The evolution of the customer portfolio composition is explored through multiple correspondence analysis. This technique allows visual comparison of the position of different clusters against time and the identification of key changes in customer consumption behavior. The methodology is tested on realistic customer portfolio scenarios for a major telecommunication company. We simulate various scenarios to show the strengths of our proposal.

Multiple Factor Analysis for Contingency Tables in the FactoMineR Package

“…• Customer portfolio composition (Abascal et al, 2010). It is possible to enrich the analysis using supplementary variables, including quantitative, qualitative and frequency variables.…”