Polytechnic University of the Philippines

College of Business Administration

Department of Marketing Management

BALITAO, KENJI P.

BSBA MM 3-3N

BUMA 30073

Lesson 2: Predictive Analytics in the Wild (Key Takeaways)

Predictive analytics, as discussed in the previous lesson, is a data-driven tool that acts as a bright
light bulb for businesses. Its main purpose is to assist businesses in predicting unknown events using
techniques like data mining, statistics, modeling, algorithms, machine learning, and artificial intelligence.
In the previous lesson, we also looked at how data and predictive analytics help businesses add value to
their operations, which is a formula for success.

In this lesson, the focus is on the most common applications of predictive analytics, including
how it is used to create a more effective and efficient recommender systems, how it is used in improving
the STP framework, and how it is used as a fraud detection tool.

Many people uses predictive analytics to make informed decisions, whether in business or on a
daily basis. We unconsciously use predictive analytics on a daily basis; the application of our experiences
leads to a better understanding of various patterns and, as a result, better decision-making. Using
experiences to foresee which route we will take to avoid traffic, and using patterns to know when we will
post pictures on social media to gain more likes are two examples of how we used predictive analytics on
a daily basis. Predictive analytics is also used in businesses to gain a better understanding of factors that
may affect the effectiveness and efficiency of their operations, as well as to drive their sales.
Understanding people's buying patterns, recommender systems, campaign efficiency, pricing of goods
and services, and predicting trends/future shifts are among the most common uses of predictive analytics
in marketing.

One of the most important outcomes of predictive analytics is recommender systems, which are
used by businesses as a marketing tool to predict consumer preferences and deliver the right product or
service to consumers. The process is simple; they will match the consumer preferences with items or like-
minded people using statistics and machine learning systems. Netflix is an example of a company that
uses recommender systems, in which it suggests movies to users based on their viewing habits.

Implementing recommender systems can be done in three ways: collaborative filtering, content-
based filtering, and a hybrid approach. Each of the approaches mentioned above serves a different
purpose for a business. A collaborative filtering is a method in which it predicts the interest of a user on
products by collecting preferences information from many others. A content-based filtering is a method
that utilizes product features to recommend other products similar to what the user likes, based on the
previous actions. The best method is the hybrid approach that combines both collaborative and content-
based filtering and focuses on benefiting their complementary advantages. Meeting the two criteria which
is the precision (set of perfect matches) and recall (set of possible matches) is also important in a
recommender system to satisfy the consumers and drive more sales.
 Polytechnic University of the Philippines
College of Business Administration
Department of Marketing Management

Predictive analytics can also assist businesses in determining the best market to target without
overspending. A business's profitability, conversion ratio, and operational efficiencies can all be improved
by using an effective predictive model, especially in marketing. An example is the response modeling
using predictive analytics which is a method for classifying consumers who will respond to a marketing
campaign based on data collected. It is more efficient and cost-effective compared to traditional
marketing, which is why, in today's competitive business environment, it is more recommended if it is
used (see table 1.1 and 1.2).

Table 1.1 Uses small sample to compare profit generated by direct mailings-traditional marketing versus
response modeling

Table 1.2 Response modeling has targeted only 10% of the 10,000 and still gained more profit
 Polytechnic University of the Philippines
College of Business Administration
Department of Marketing Management

Uplift modeling, a more accurate version of response modeling that answers questions about
customer conversion if contacted, is also mentioned in this section. Customers were divided into four
groups in this section: persuadables, sure things, lost causes, and do not disturbs. Some modelers believed
that categorizing customers into these groups would provide insight into what businesses should do to
avoid losing customers and instead gain more.

Predictive analytics is also used to detect fraud and crimes in businesses. A business can build a
fraud score algorithm and model to prevent different fraud strategies by analyzing past data, trends, and
variables. Outlier detection algorithms are also included in this, which are actions that are out of the
ordinary or outside of regular patterns, which can indicate that an anomaly is occurring.

Aside from predictive analytics, businesses can also use content and text analytics in having a
more efficient and effective operation. It is usually used to have a systematic and coordinated approach in
doing things such as retrieving information and analyzing documents.

The last part which is the video presentation serves as the lesson's conclusion, depicting the
connection and importance of data, customer/predictive analytics, and the STP framework (Segmentation-
Targeting-Positioning) in creating a marketing campaign. It is stated here that maximizing the use of data
is critical in order to provide innovative customer experiences. A business will be able to target the right
market and provide the right campaign, product, or service by fully understanding how the STP
framework works through the use of customer/predictive analytics. As an example, response modeling
using predictive analytics, as mentioned above, is an effective way of accurately targeting the market,
resulting in increased profit and lower costs.

In conclusion, predictive analytics makes our job as marketers easier. We should be astute enough
to use it to our advantage in order to outsmart our competitors and rise above the pack.