Segmentation of telecom customers based on customer value by decision tree model

The more the telecom services marketing paradigm evolves, the more important it becomes to retain high value customers. Traditional customer segmentation methods based on experience or ARPU (Average Revenue per User) consider neither customers’ future revenue nor the cost of servicing customers of different types. Therefore, it is very difficult to effectively identify high-value customers. In this paper, we propose a novel customer segmentation method based on customer lifecycle, which includes five decision models, i.e. current value, historic value, prediction of long-term value, credit and loyalty. Due to the difficulty of quantitative computation of long-term value, credit and loyalty, a decision tree method is used to extract important parameters related to long-term value, credit and loyalty. Then a judgments matrix formulated on the basis of characteristics of data and the experience of business experts is presented. Finally a simple and practical customer value evaluation system is built. This model is applied to telecom operators in a province in China and good accuracy is achieved. 2011 Elsevier Ltd. All rights reserved.