A novel cost-sensitive framework for customer churn predictive modeling

Abstract

Customer churn predictive modeling deals with predicting the probability of a customer defecting using historical, behavioral and socio-economical information. This tool is of great benefit to subscription based companies allowing them to maximize the results of retention campaigns. The problem of churn predictive modeling has been widely studied by the data mining and machine learning communities. It is usually tackled by using classification algorithms in order to learn the different patterns of both the churners and non-churners. Nevertheless, current state-of-the-art classification algorithms are not well aligned with commercial goals, in the sense that, the models miss to include the real financial costs and benefits during the training and evaluation phases. In the case of churn, evaluating a model based on a traditional measure such as accuracy or predictive power, does not yield to the best results when measured by the actual financial cost, ie. investment per subscriber on a loyalty campaign and the financial impact of failing to detect a real churner versus wrongly predicting a non-churner as a churner.