Using Predictive Analytics to Drive Sales Growth

Predictive analytics seems to be the new buzz word. Using extensive data collection
and processing techniques, and administering data analytics programs to make better
informed decisions is finding greater acceptance in the corporate world. This white
paper discusses how you can use such predictive analytics approach to make smart
data-driven decisions to drive your sales growth.

Understanding Predictive Analytics

Predictive analytics is the discipline of gathering the best and most accurate customer
data available and putting it through a rigorous analytical framework to better
understand how customers behave and where you can earn extra profits. By focusing
on hard data and predicting the customer behavioral patterns, you can close the gap
between your guesswork of how customers behave and how they actually behave
while entering a transaction with your company.

Predictive analytics provides more realistic and grounded information about the
markets and customers than hunches and intuitions. By making data-driven decisions,
you can work on increasing those customer experiences that propel the customers to
create greater value to your organization through more sales.

The attitudinal and behavioral information gathered through predictive analytics will
let you optimize your sales and marketing processes to impact the customer buying
behavior in a more effective way. You can use such insights to generate more revenue
through up-selling and cross-selling, decrease your total sales and marketing operating
costs and increase promotional campaign effectiveness. Here are five ways you can
use predictive analytics framework to your advantage.

Classifying Your Customers

How do your customers approach you? What ways and means do they use to interact
with your offerings? Where do the most profitable of your customers come from?
What drives them to opt for your products and services? What makes a customer more
profitable to your company and hence more valuable? Why do some customers
happen to be more profitable than others? Is it because they buy more or more often or
pay a premium for quality or buy through a less expensive channel?

There is an approach every customer uses to buy any product or service. By

understanding customer behavior, you can map the factors, ways and means that
attract your customers toward you and generate value to your organization. As the
Pareto’s Principle states 80 percent of your revenues might probably be coming from
only 20 percent of your customers. Identifying those 20 percent and understanding
why they create more value can help you increase your revenues.
Using predictive analytics helps you accurately measure things like recency,
frequency and total buy value of your customers across multiple channels and multiple
categories. Metrics like these help you calculate the customer value and classify them
into various groups. Evaluate the life-time value of your customers on the basis of a
variety of parameters such as brand loyalty, purchase quantity, and margins.

Measuring the incremental value each customer brings to you through referrals,
recommendations, and buying up-sold and cross-promoted goods helps you manage
future sales and marketing strategies such as discounts, promotions, and targeted
campaigns. Design up-sell campaigns to target loyal customers and cross-sell
promotions to target high-value customers. See how you can divert more customers to
the sales channels that give you more margins.

You can also think of following a product-centric approach – to maximize the value
created by each product – toward customers who buy less frequently and customer-
centric approach – to maximize the value created by each customer – toward your
most profitable customers or a judicious mix of both. This should help you save
operating costs on running sales promotion campaigns that target the whole customer
base.

Segmenting Your Customers

Segment your customers into groups and sub-groups on the basis of various factors
such as their needs, the value they generate, the channels they use, and the margins
they bring. Predictive analytics are of great help to you in gleaning such attributes
from the customer data.

By isolating each segment according to their requirements, you can devise better
strategies that are customized to address their core needs and improve brand
experience. Develop independent sales and marketing strategy to each sub-group and
see what you can do to derive more value from them.

For example, a software and hardware retailer can use predictive analytics to segment
its customers on the basis their knowledge sophistication. By adapting different
approaches to treat these sub-groups, they can tailor their campaigns to the needs of
each sub-group and get more revenue by recommending the more relevant and
appropriate software and hardware products.

Targeting Your Customers

Predictive analytics helps you optimize your marketing promotions to each segment
by providing insights into their preferences such as most products bought, product
renewal frequency, and sales channels most used, etc. Traditional marketing focuses
on segmenting the marketplace while predictive analytics helps you segment your
customers. While the former is important to create brands and gain market share, the
later will help you create the highest possible value from the created brands and
captured market share.

By viewing your customer base from new perspectives, you begin to identify more
opportunities. Be it an opportunity to design a new product to fill a need you didn’t
foresee or making changes in marketing campaigns to eliminate duplication of
messages or giving more importance to a certain sales channel, predictive analytics
can be a valuable component of your sales growth strategy.

Predicting Customer Behavior

Predictive analytics can analyze your customer data to predict their next buying
behavior. It adds more realism instead of mere guesswork in designing future sales
and marketing strategies. By segmenting your customers on the basis of their
probability-of-buying, you can tailor your campaign to coincide the buying behavior
of the customers.

You can increase the frequency of promotional messages during a certain period or
increase the number of touch points or just time the right message to the right
customer at the right time to enhance the effectiveness of sales and marketing
promotions.

Optimizing Your Strategy

Predictive analytics isn’t just about market segmentation and sales promotions. The
analysis it provides about your customers can be a very important part in the
organization’s strategy formulation. Understanding the specific needs of your
customers, apart from the entire market, will let you identify opportunities that have
far greater chances of delivering immediate returns on your investment.

Knowing customer preferences will also help you in realigning the whole sales and
marketing operational systems and practices that are currently employed in your
organization. Such an enterprise-wide optimization drive will increase efficiency.

Conclusion

Predictive analytics is a tool that helps you better understand how customers think and
behave and how you can realize the unexploited customer potential. Gleaning the right
insights with predictive analytics can have some very transforming effects on your
strategic objectives, sales processes and marketing activities. Making decisions that
are supported by data will also find increased acceptance by the board and other
departments. Since the results are almost immediate, investing in predictive analytics
will help you make the most of your customers.