Uses of Predictive Analytics
tools and techniques with business goals.
Why Use Predictive Analytics?
 Advances in technology over the past two decades
have led to a highly volatile, global economy that
enables instant communication and connection
worldwide.
 The result is increased competition through broader
access to global markets, shrinking business cycles,
and changing rules. In other words, there is no more
“business as usual.”
 The biggest shift has been in the power of consumers
to influence their buying experience.
 With access to global products and services, they can
demand better quality, lower prices, and faster
delivery.
 As a result, companies are under pressure to achieve
more with fewer resources. Businesses are
challenged to deliver the right offer, at the right time,
at the right price, through the right channel.
 Companies must now have up-to-the-minute
information about their customers, operations,
suppliers, competitors, and markets.
 Advances in technology that have empowered
consumers have also enabled companies to use huge
amounts of data about their markets and customers
and automate many marketing and operational
tasks.
 Businesses use predictive analytics to analyze data to
gain realistic predictions about future environmental
conditions. The organization can then make
decisions and take action to maximize business
opportunities identified by predictions.
Why Now?
 Growing volumes and types of data
 More interest in using data to produce valuable
information.
 Faster, cheaper computers and easier-to-use
software.
 Tougher economic conditions and a need for
competitive differentiation.
 Companies can leverage predictive analytics to gain
a competitive edge.
 The first step is to understand how to connect the
What Is The Business Goal?
 Predictive models can serve a variety of goals.
o The best place to start is by asking what
business problem you are trying to solve.
 Attract new customers?
o Targeted response modeling on new
customer acquisition campaigns will bring in
more customers for the same marketing
cost.
 Avoid Risk?
o Risk of loss or claim models will identify
customers or prospects that have a high
likelihood of defaulting on a loan or filing an
insurance or warranty claim.
 Make unprofitable customers more profitable?
o Cross- and up-sell targeting models are used
to increase profits from current customers.
 Retain profitable customers?
o Retention/loyalty or attrition/churn models
identify customers with a high likelihood of
lowering or ceasing their current levels of
activity.
o By identifying those customers before they
leave, you can take action to retain them. It
is often less expensive to retain customers
than it is to win them back.
 Reduce expenses?
o Better targeting through the use of models
for new customer acquisition.
o By improving the efficiency of marketing
efforts.
 Identify fraud?
o Predictive models can unveil patterns that
assist in identifying credit card, insurance,
and health care fraud and money laundering
operations.
 Avoid process failure?
 o Companies in a variety of industries are Common Specific Uses
modeling data collected from production
1. Prospecting - identifying potential new
lines, customer feedback, hospital error, et
customers and converting prospects into actual
cetera to predict breakdowns and take
customers.
corrective actions.
2. Cross-selling and segmentation - segmenting
 Analyze health treatments?
customers based on past purchasing behavior to
o Predictive models in the life sciences are better target future promotional offers.
saving money and lives. Models that predict
3. Customer retention - analyzing the reasons
disease outbreaks, for example, are used to
behind losing customers and enacting cost-
calculate inventory in high-risk geographic
effective practices to increase retention and
regions.
reduce loss.
Uses of Predictive Analytics
4. Churn analysis - determining which customers
Predictive Customer Analytics are most likely to churn and taking steps to
 Acquire the ideal customers. prevent them from doing so.
 Grow your customer relationships
5. Market basket analysis - determining the right
 Retain your most valuable customers
combination of products and services to
 Develop successful products and product offers
promote, merchandise, price, and bundle
together to maximize sales.
Predictive Operational Analytics
 Manage your operations 6. Market optimization - determining the optimal
 Maintain your infrastructure marketing campaign by audience segment.
 Maximize capital efficiency
7. A/B analysis - testing different changes (such as
Predictive Threat and Risks Analytics new or different products) and comparing the
results against a baseline example.
 Monitor your environment
 Detect suspicious activity 8. Capacity planning - correctly allocating shared
 Control outcomes infrastructure resources to allow for appropriate
usage without overpaying for unused, excessive
capacity.
Qualitative and Quantitative Benefits
9. Sales forecasting - forecasting sales for stores
Predictive analytics provides both qualitative and
based on location, demographics, and past sales.
quantitative benefits:
10. Assortment planning - delivering the right
1. Qualitative.
products at the right time to the right stores.
 Creating a complete picture of the targeted
customer demographic. Understanding what
customers need, what they like, and what they don’t
like has important value, but assigning a dollar value
to this knowledge is not easy.

2. Quantitative.
 Identifying tangible growth in sales, revenue, or the
customer base, which can be assigned a numeric
value or percentage.
 Experiencing lower costs, fewer complaints, better
customer retention, and fewer problems will
translate to cost savings.