Several days ago, based on an e-mail I received, I did a little research into Predictive Analytics. Among other things, I found an interesting and easy to read article by Eric Siegel, titled: Predictive Analytics with Data Mining: How It Works*. What follows is a brief summary of Predictive Analytics according to Siegel. I would like to ask my readers: do you use Predictive Analytics? If you use (or have used) this technique, could you please post your experiences of and comments about Predictive Analytics?
According to Siegel, Predictive Analytics is a technique that is based on discovering what he calls a Predictor, a value that you can measure about your client. He uses the example of a measure that he calls recency; a customer who has made a purchase recently will be more likely to make a purchase than a customer that purchased longer ago. The practical application of this understanding in a marketing campaign, according to the article’s author, is to contact clients who have made the more recent purchases first, as they will be more likely to purchase.
Siegel points out that combining predictors can make the technique more effective. Taking the already mentioned predictor, recency and combining it with personal income can make the predictor more accurate. He uses the following equation to show how it works:
recency + personal income
If recency carries more weight than personal income, he would alter the equation to:
2 x recency + personal income
Siegel calls the equations above linear models and goes on to point out that Predictive Analytics can take the form of models using what he calls business intelligence rules with the following example:
If the customer is rural, and her monthly usage is high,
then the customer will probably renew
Eric Siegel then goes on to explain how technology is used to apply Predictive Analytics, combining Data Mining of your customer data in order to find the models that are the most appropriate for you to use. I found the article to be quite instructive and encourage you to give it a read. Here is a link to the article: Predictive Analytics with Data Mining: How It Works. Again, if any of my readers have experience with Predictive Analytics, I would greatly appreciate it if you could post your experiences and comment.
* Originally Published in DM Review’s DM Direct, February 2005.