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Predicting customer churn in telecommunications service providers
2009 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Customer churn is the focal concern of most companies which are active in industries with low switching cost. Among all industries which suffer from this issue, telecommunications industry can be considered in the top of the list with approximate annual churn rate of 30%. Tackling this problem, there exist different approaches via developing predictive models for customers churn, but due to the nature of pre-paid mobile telephony market which is not contract-based, customer churn is not easily traceable and definable, thus constructing a predictive model would be of high complexity. Handling this issue, in this study, we developed a dual-step model building approach, which consists of clustering phase and classification phase. With this regard firstly, the customer base was divided into four clusters, based on their RFM related features, with the aim of extracting a logical definition of churn, and secondly, based on the churn definitions that were extracted in the first step, we conducted the second step which was the model building phase. In the model building phase firstly the Decision Tree (CART algorithm) was utilized in order to build the predictive model, afterwards with the aim of comparing the performance of different algorithms, Neural Networks algorithm and different algorithms of Decision Tree were utilized to construct the predictive models for churn in our developed clusters. Evaluating and comparing the performance of the employed algorithms based on “Gain measure”, we concluded that employing a multi-algorithm approach in which different algorithms are used for different clusters, can bring the maximum “Gain” among the tested algorithms. Furthermore, dealing with our imbalanced dataset, we tested the cost- sensitive learning method as a remedy for handling the class imbalance. Regarding the results, both simple and cost-sensitive predictive models have a considerable higher performance than random sampling in both CART model and multi-algorithm model. Additionally, according to our study, cost- sensitive learning was proved to outperform the simple model only in CART model but not in the multi-algorithm.

Place, publisher, year, edition, pages
Keyword [en]
Social Behaviour Law, Customer relationship management, customer churn, data, mining
Keyword [sv]
Samhälls-, beteendevetenskap, juridik
URN: urn:nbn:se:ltu:diva-46732ISRN: LTU-PB-EX--09/052--SELocal ID: 45b3dd30-306d-487b-b164-cf1bcb381ae2OAI: diva2:1020047
Subject / course
Student thesis, at least 30 credits
Educational program
Electronic Commerce, master's level
Validerat; 20101217 (root)Available from: 2016-10-04 Created: 2016-10-04Bibliographically approved

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