Innovative customer relationship management method developed by IBM researchers to help Finnair optimize its market campaign planning receives 2005 Practice Prize

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Atlanta, June 17, 2005 — The Institute of Operations Research and Management Sciences (INFORMS) named IBM's Customer Equity and Lifetime Management (CELM) solution the winner of the 2005 INFORMS Society for Marketing Science Practice Prize, which recognizes the fusion of marketing theory and practice.

CELM, developed at IBM Research - Zurich and jointly introduced with Finnair, is an innovative approach that leverages customer data to better understand customer lifecycles and determine current and potential future value of customers, i.e. customer lifetime value, for optimizing marketing policies. A pilot implementation had tremendous impact on Finnair's customer loyalty program: Costs were reduced by 20% while the customer response rate increased by 10%.

Despite technological advances and abundant customer data, not much has been done to leverage this data for identifying buying patterns and behaviors over time. Lifetime value is a critical shortcoming of current CRM systems because customers with similar spending patterns today may vary considerably in their lifetime value.
CELM, as a first of its kind, addresses this shortcoming and leverages customer data in existing customer relationship management (CRM) systems in order to build customer relationship models that enable marketing managers to optimally plan and budget targeted marketing policies. Using sophisticated predictive modeling techniques, customer data is analyzed, simulated and optimized based on the observed and expected lifetime value and volatility (risk) of customers. The technology helps to segment, understand and predict current and potential high-value customers and provides a decision-support system for optimal planning and budgeting of targeted marketing actions in order to maximize the return on marketing investments.

Finnair, a leading European airline, has been running a Frequent Flyer program for many years and deployed a pilot of CELM to optimize marketing planning and maximize the lifetime value and loyalty of its members while reducing marketing costs. In close collaboration with the Finnair Marketing team, who provided the necessary business insights to adapt the technology optimally, a pilot was successfully implemented and had tremendous impact on Finnair's planning and operation of its marketing campaigns targeting the top customers of its frequent flyer program. The airline was able to improve the level of customer understanding with superior insight into buying patterns as well as increase the effect a given set of marketing campaigns would have on a particular customer segment. During the initial project, marketing costs were reduced by more than 20% while the response rate increased as much as 10%.

"This innovation is a great example of how operations research and marketing science techniques, when used by those who recognize their tremendous potential, provide enormous benefit to a firm's critical process, in this case the cost effective management of a firm's base of loyal customers," said Prof. Gary L. Lilien of Penn State, chairman of the INFORMS Prize Committee and a past president of the professional association.

CELM is part of IBM Research's On Demand Innovations Services (ODIS), in which IBM researchers and business consultants work directly together with clients to develop innovative solutions that optimally address the clients' problems. A synergistic collaboration, ODIS combines and leverages the technology expertise of IBM Research on the one hand and the deep business insights of IBM Business Consulting Services on the other hand.

The INFORMS Society for Marketing Science Practice Prize, established in 2003, is awarded for outstanding implementations of marketing science concepts and methods. The methodology must be sound and appropriate to the problem and organization. The work should have a significant, verifiable, and quantitative impact on the performance of the client organization.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, the stock market, and telecommunications.

About Finnair

Finnair, one of the world's oldest operating airlines, was established on November 1, 1923. The company is a pioneer in its field in exploiting e-commerce and has developed a number of Internet and mobile-telephone-based services. Finnair estimates that by 2006 most of the passengers will be using Internet services, from making their ticket reservations to clearing check-in. Finnair's route network covers over 50 international destinations and 21 destinations within Finland. The number of personnel of the Finnair Group is approximately 11,000 and turnover is 1.6 billion euros. Finnair carries 7.5 million passengers annually.