Why you should stop predicting customer churn and start using uplift models

Uplift modeling has received increasing interest in both the business analytics research community and the industry as an improved paradigm for predictive analytics for data driven operational decision-making. The literature, however, does not provide conclusive empirical evidence that uplift modeling outperforms predictive modeling. Case studies that directly compare both approaches are lacking, and the performance of predictive models and uplift models as reported in various experimental studies cannot be compared indirectly since different evaluation measures are used to assess their performance. Therefore, in this paper, we introduce a novel evaluation metric called the maximum profit uplift (MPU) measure that allows assessing the performance in terms of the maximum potential profit that can be achieved by adopting an uplift model. This measure, developed for evaluating customer churn uplift models, extends the maximum profit measure for evaluating customer churn prediction models. While introducing the MPU measure, we describe the generally applicable liftup curve and liftup measure for evaluating uplift models as counterparts of the lift curve and lift measure that are broadly used to evaluate predictive models. These measures are subsequently applied to assess and compare the performance of customer churn prediction and uplift models in a case study that applies uplift modeling to customer retention in the financial industry. We observe that uplift models outperform predictive models and lead to improved profitability of retention campaigns. (c) 2020 The Authors. Published by Elsevier Inc.

Automated summary

Uplift modeling has gained attention in predictive analytics, with the introduction of a new evaluation metric called the maximum profit uplift that helps assess the potential profit of uplift models. This measure allows for comparison of customer churn prediction models and uplift models, and has been applied in a case study in the financial industry.