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iStart - Ignoring the gut feel: The emerging world or predictive analytics


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With promotional dollars more precious than ever, smart
marketers are always looking to refine their methodologies and
increase their return on investment. In recent times, however,
they may just have found their holy grail - David McNickel
explores the rapidly evolving world of predictive analytics…

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iStart - Ignoring the gut feel: The emerging world or predictive analytics

  1. 1. Cover Story16 Quarter Three 2012
  2. 2. Ignoringthe gut feelThe emerging worldof predictive analyticsWith promotional dollars more precious than ever, smartmarketers are always looking to refine their methodologies andincrease their return on investment. In recent times, however,they may just have found their holy grail - David McNickelexplores the rapidly evolving world of predictive analytics…F or many who studied marketing early in their company began using demographic & census data to careers, theres a timeless adage credited determine franchise value - and geo-location to determine variously to Lord Lever, Henry Ford and John franchise boundaries - it was able to offer high value fran- Wannamaker (and others), that goes some- chises at a higher cost to the franchisee - but also guaran- thing like this; “I know half the money I spend tee higher returns.on advertising is wasted, I just dont know which half.” While − Weight Watchers Australia identified the locationthis attitude may have prevailed in the days before comput- of its member meetings as being critical in the decisioners and sophisticated data analysis, today no marketer in process of prospective clients in joining the organisation ortheir right mind can afford to blow half their promotional not. Hold them too far away and people wouldnt join. With dollars - and nor should they - as the technology 1500 meetings a week and constant membership churn and expertise are readily available to relegate Weight Watchers turned to locational intelligence to plan guesswork to the trash can of bad ideas. Whats optimum meeting sites around the country - and maxi- relatively new about data analysis, though, is mised its membership potential. outcome orientation. Whereas number crunch- − In the UK the Royal Shakespeare theatre company ing has typically had an historic focus - providing analysed its audiences addresses, shows attended and answers to rearward facing what happened type ticket prices paid to develop a marketing plan that boosted questions – todays marketers are looking forward, asking signups to its membership program by 40 per cent - andwhats going to happen next, and getting answers they average attendance by more than 70 per cent.can bank on. Predictive analytics has arrived and is being − The US Internal Revenue Service uses predictiveused by organisations large and small. analytics to detect tax evasion. When a return doesnt stack Some recent examples include; up in terms of its average models the filer is selected for − Hire A Hubby originally had a one size fits all flat fee auditing.approach to selling its franchises. No matter the neigh- –At Pitney Bowes Asia Pacific, solutions group GM Chrisbourhood, the franchise fee was the same. But when the Lowther says analytics tools can deliver useable intelli- ›› Quarter Three 2012 17
  3. 3. Cover Story // Predictive Analytics gence across a broad range of entities. “Pretty much data the business needs to support those core matter of weeks depending on the scope of the any organisation that has an interest in relatively processes.” Identifying where that data is and what project.” A good case in point he says is a recent large populations of customers can benefit,” he says. condition its in is fundamental to preparation he project to help a large Australian retailer decide on “In the commercial space, its basically anyone in the says. “From there they can identify gaps in their the best locations to position new stores. “From business to consumer world. We do a lot of work knowledge of customers that will enable them to broadly discussing an idea of what they wanted with franchises and retailers, financial service institu- improve their overall business performance.” Once to do to engagement was a couple of weeks - and tions, telcos - all of which have a geographic interest data gaps are revealed, businesses (in conjunction then it was a services project which took 20 work- in where their customers and prospects might be with their analytics partner) can decide where to ing days at which point we presented our recom- and how they might find them. Then theres a lot source additional data from (census information or mendations.” In terms of return on investment of public sector & government organisations which list brokers for example) and then how to combine Lowther says predictive analytics delivers one of the have the responsibility for provision of services into that new data with their existing data sets to enable quickest returns of any technology solution. “Weve their communities - so theres a very broad range of informed decision making. Predictive solutions can had customers say that the acquisition of this tool applications.” be delivered on a case by case basis if businesses has paid for itself within a week,” he says, “or we The decision to seek out an analytical solution are only looking for occasional one-off insights, says have other customers say the original purchase can be triggered in a number of ways. For example Lowther, or for organisations adopting analytics as of services was paid for by the returns from their an organisation may have hit a wall when it comes an integrated part of their business planning there first campaign.” Overall Lowther says organisations to understanding disappointing results or is embark- are now a range of software solutions that can be should expect to double their effectiveness and ing on an ambitious growth strategy and wants to implemented and managed internally. points to a recent example of an Australian market define its objectives and resource allocation based research company hired by a major bank to con- on real-world analytics rather than gut feel. Implementation and ROI duct face-to-face surveys. Prior to engaging Pitney “Businesses need to plan what they want to So whats a likely timeframe for the implementa- Bowes the researchers were achieving seven to achieve,” says Lowther, “uncovering opportunities tion of a predictive analytics solution? Whereas eight interviews a day he says. “But after applying a and converting those into business objectives. installing a new ERP, CRM or telephony system geospatial analytics solution they were able to plan One of the things businesses need to cover off in can often take months and in some cases years, the visits of their agents - taking into account travel preparation is to fundamentally understand how Lowther says analytics solutions can take a fraction times, geography & density of population targets - their business works right now - from a core pro- of the time in comparison. “It can be very much and double that to more than 15 a day.” cesses perspective - and then understand what quicker than that,” he says. “Perhaps as quick as a18 Quarter Three 2012
  4. 4. Getting started Before they can create a new future based on predictive analyt- ics, however, businesses need to make a start. Technology is certainly part of the solution, but like any other business solu- tion, technology is only an enabler and whats more important is to understand that analytics is a process - one that any organisa- tion can adopt. Asked to summarize an effective approach, the“ When you reach a experts recommend the following steps.certain level of deals you 1) Know your business and define your goals Be clear on the business objectives for any analytics project. Aredo have to be presenting you trying to identify your most profitable customers, the bestpeople with the most location for a new store - or potential markets for a new product or service? Keeping your analytics projects focused and specificrelevant deals to them. ” is the key to effective outcomes.Campbell Brown, GrabOne 2) Know your data Every organisation collects data on its customers and even a start-up company can source useable data from a range of pub- lic and private sources. Analytics partners can assist in cleaningGeospatial explained data, defining data gaps and recommending the best data sourc- For an industry that is trying to simplify its mes- es for achieving the business objectives identified in step 1.sage to clients, the predictive analytics sector isoccasionally burdened with complicated sound- 3) Start Modelling With objectives defined and data sets organised its time to starting terminology for what are actually quite basic modelling for the insights your business requires. You may wishconcepts. Although it sounds like a cross between to develop an internal analytics resource, or work on an ad-hocbrain surgery & intergalactic navigation, geospatial project by project basis, but whichever option you choose, expe-analytics, for example, isnt a complicated idea at rience tells at this stage, so engage an expert and go to work.all. “Geospatial basically means information aboutlocation,” says Lowther, “its as simple as that.” And 4) Deploy & Evaluatealmost all businesses have already gathered geo- With predictive recommendations in hand, deploy your resourcesspatial data on their customers or prospects, he and test your strategies. Evaluate your success against yoursays, probably without realising its value. “In the objectives and tweak your modelling accordingly – remember-business world around 80 per cent of customer ing that analytics isnt a set and forget solution, its an ongoinginformation contains a geospatial element. It could an address, a postcode, or even a country but atwhatever level youve usually collected some way of So where to from here for predictive analytics? At Pitney Bowes,identifying where a person or an asset is. Identifying Lowther, perhaps somewhat predictably, says the technologywhere people and things actually are in the physical and potential productivity gains are available now, inexpensiveworld - thats geospatial.” Applied to decision making, and here for the asking. “These solutions are easy to use andthe application of geospatial techniques enables very affordable,” he says. “It certainly wont hurt for businessesorganisations to apply the appropriate resource to to have a look because the results that are achievable and thedifferent scenarios. Crisis response in government rapid return on investment means the business opportunitiesis a good example he says. “In Australia many city are within the grasp of pretty much any organisation that choos-councils use geospatial solutions as the basis of an es to take it on.”emergency management system. An earthquake, abushfire or a chemical spill all have a geo-locational ›› Quarter Three 2012 19
  5. 5. Cover Story // Predictive Analytics impact, so using geospatial analysis allows councils to quickly know who is affected, and in asset terms what is affected in a particular area. They then clearly understand what the implications are of dif- ferent types of emergencies and can mobilise an appropriate response.” Churn analytics to stop loss For most businesses, though, a crisis is nothing as dramatic as a bushfire – but the results of things like poor customer retention can be no less destructive. All marketers agree that it costs many times more to acquire a new customer than it does to retain an existing one. Despite this, however, most businesses are clueless as to why their customers have left – “ we can analyse their [historic] behaviour and and which ones are going to leave next. Predictive analytics can be illuminating in this regard says look at the triggers, the things that happened Datamine managing director Mike Parsons. “Were not talking about stopping the people who have that caused them to leave. Then we model that left,” he says, “because theyre gone already. But we and apply it to the remaining customer base and can analyse their [historic] behaviour and look at the triggers, the things that happened that caused can say based on that modelling, these are the them to leave. Then we model that and apply it to the remaining customer base and can say based on people who are likely to churn if you dont do that modelling, these are the people who are likely something about it. ” Mike Parsons, Datamine to churn if you dont do something about it,” says Parsons. This insight then allows management to allocate resources more efficiently. For example, if a com-20 Quarter Three 2012
  6. 6. “ You will be able to redeem your coupons, earn your Flybuy points and pay for your purchase via near-field communication - all with a single tap of your phone. Thats the future. ” Francisco Cordero, InMobipany only has the capacity to make a courtesy call “What we do is based on broader user behaviour,” wants to use the phone as a CRM tool to cross sellto 10 per cent of its customers, then ensuring that says Brown. “So we bought 75 million email clicks their own customers they can advertise only to10 per cent includes the customers identified as from our email provider ExactTarget. We can see Vodafone customers.” Rather than randomly plac-most likely to leave will be much more effective at what our users were clicking on - what they were ing mobile advertisements with all smartphonereducing churn than any other metric for deciding interested in. We then match that with what theyve users, marketers can narrow their targeting specifi-who to call. The key here is relevancy. A call made been liking on Facebook, their purchase history cally. Device ID technology permits Nokia to runto a client who is happy with your company is and demographics. We pull it all into line with an mobile ads only on Samsung handsets, for example,essentially wasted effort, but if that call arrives when algorithm that has a weighting for each data stream or app developers to advertise only on handsetsa customer has some pressing issue with your busi- and that shows us what they might have a higher running a chosen operating system. At Vodafone,ness – suddenly its relevant, and the relationship will propensity towards purchasing. When you reach a m-Commerce manager Bridget Gallen says locationlikely be saved. certain level of deals you do have to be presenting based services can already deliver relevant retailer people with the most relevant deals to them,” he coupons direct to the handsets of phone usersStay relevant says. looking for deals in their immediate vicinity - and This concept of relevancy also applies to the While the bulk of GrabOnes current customer adoption of this type of marketing will only increasegoods and services youre supplying. At daily deals interactions are still occurring via the internet, as smartphones become more m-Commercewebsite GrabOne, marketing manager Campbell Brown says transactions via mobile are increasing capable. “You will be able to redeem your coupons,Brown says creating offers with increased customer at a phenomenal pace. “About nine months ago,” earn your Flybuy points and pay for your purchaserelevancy has become critically important for he says, “our mobile transactions made up 1.5 per via near-field communication - all with a single tapboosting the success of advertisers campaigns. cent of total monthly transactions whereas now of your phone. Thats the future.”Brown describes GrabOne “as a local commerce they make up anything from 14 to 18 per cent. Wereplatform” where a range of businesses (often small working really hard to capture that first mobileto medium enterprises) offer deals on products purchase.”and services to their local community and beyond. And why is mobile so important? Because it For more on m-CommerceBuilding customer rapport and repeat business is allows customer targeting by both geographic snap the tag or googleimportant to organisations like this, he says, and region and by device says mobile marketing “iStart mCommerce”GrabOne is keenly focused on predictive analytics experts InMobis general manager Franciscoas a tool to grow the business. Interestingly, the Cordero. “Think about telcos, he says. “If Telecompredictive aspect of GrabOnes relevancy initiatives wants to buy up all the mobile advertising inven-is not solely based on customer purchase history. tory on Vodafone handsets they can. Or if Vodafone Quarter Three 2012 21