The Churn Game

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The goal here is to find the KPIs for customer retention, through the Regression and Decision Tree techniques, for comprehensive business decision making.

ObjectiveThe business goal of this project was to develop a churn prediction model by identifying the major factors leading to it.

Significance

  • The subject of customer retention, loyalty, and churn is receiving attention in many industries.
  • The unceasing competition in the market has caused companies to divert their focus more towards customer retention rather than customer acquisition.
  • Research has repeatedly shown that existing customers spend more, purchase higher-margin products/services, and are more likely to refer to additional customers.
  • So, how do you avoid the high price of constantly replacing existing customers with new ones? Thus, it becomes extremely essential to identify the factors causing a customer to switch and take proactive actions in order to retain them.

Data Description:

  • The data is a real-world set collected from Kaggle, consisting of 7034 observations and 21 variables.
  • The data set has 4 numerical variables and 16 categorical variables.
  • The last column is churn - representing the customers who left in the last month, yes (27%) and those who did not leave, no (73%) is the output variable (y).
  • There are only 11 missing values, all of them for the TotalCharges column. Moreover,  these are exclusive for the customers whose tenure = 0. So, we can conclude and replace these missing values with 0.

 

Feature Selection

  • The 16 categorical variables were converted into numerical variables(binary) by creating dummy variables that give a total of 31 variables.
  • The correlation map presented that many variables were highly correlated, thus, they were eliminated for model building.
  • RFE was performed on the remaining variables and depending upon their rank, the best features were selected.

Logistic regression model:

  • After selecting the features and splitting the data set to 70:30, logistic regression was performed using the Sklearn package.
  • Interestingly all the variables proved to be significant as the p-value for all of them was less than 0.05.
  • This suggests that the model is a good fit i.e. it shows good convergence. 

Decision tree:

  • The decision tree algorithm was applied to the data set using the same significant variables.
  • The accuracy resulted was 73%.

Analysis:

  • As shown in the confusion matrix, the logistic regression model gives us an accuracy of 72.7%, an average precision rate of 79% and f1-score of 0.79
  • The ROC rate(area under the ROC curve ) is around 71% which proves that the model is a good fit.
  • The decision tree model also gave an accuracy of 73%, which is quite similar to that of the logistic model.

        So, both of the models are a good fit for this data.

Results:

Out of the given variables, I have screened these variables as the most significant metrics (KPIs):

  • Tenure
  • Monthly Charges
  • Phone Services 
  • Multiple Lines
  • Senior Citizens
  • Dependents
  • Online Security
  • Online Backup
  • Device Protection
  • Tech Support
  • Contracts
  • Paperless Billing
  • Payment Methods

 Summary:

After learning the KPIs, it becomes easy for the companies to focus on the significant metrics and make business decisions based on them to retain their customer base.

 

 

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