What is Predictive Data Mining?
Predictive Data Mining combines data warehouse with advanced multivariate statistical analysis and artificial intelligence.The artificial intelligence is gained through the use of a neural network, a powerful data modeling tool that is able to capture and analyze complex input/output relationships for the prediction of future customer behavior, classifying customer segments and forecasting events.Today, predictive data mining has become an essential tool for strategic decision making at many mid-size companies and large corporations.
Like a human brain, a neural network acquires knowledge through a training process and its knowledge is stored within inter-neuron connection strengths known as synaptic weights.When trained and deployed correctly, perceptron (MLP) neural networks, sometimes used by THE MARKETING ANALYSTS provide superior results when analyzing linear and non-linear relationships.
How are Marketing Neural Networks Being Used?
Right now, there are vast databases and powerful technologies crunching numbers about your lifestyle and the lifestyles of millions of other Americans.They know the value of your home, the type of car you drive, the ages of your children, your credit rating and more.This data is being mathematically processed to determine if you are the best target for the latest gadget to hit the market.
While this sounds like something from a George Orwell novel, it describes the predictive modeling power behind neural networks and modern data mining technologies.While data mining conducted at this magnitude is limited to certain government agencies, the price of this technology has dropped substantially due to new mathematical discoveries, lower technology costs and improved processing power.As a result, many corporations are now embracing the power of predictive data mining to gain competitive advantages through customer segmentation strategies, predicting customer behavior and by making projections about the future.
Here are a few additional ways that predictive data mining is being used today.
Producing accurate sales forecasts is an important part of measuring your marketing strategy.Inaccurate forecasts lead to missed opportunities, avoidable costs, inefficiencies and many other problems.Although Microsoft Excel provides certain forecasting tools, its forecasting tools fail when non-linear relationships and missing data are present, this is often the case when analyzing marketing data.In these cases, neural networks provide superior forecasting accuracy.
When neural networks are correctly designed and deployed, they can accurately identify people who will be most receptive to a product, promotion or advertising campaign.Some of the most frequent methods of segmentation with neural networks combine metrics such as recency of purchase, frequency of purchases and amount spent.Other factors include age, sex, income, location, education level, occupation and household status.Today, neural networks are a primary method for highly predictive marketing segmentation.
Prediction and Classification
Neural networks are a proven technology for solving complex classification problems.Credit companies often deploy neural networks to spot fraudulent credit card activity and identity theft.Other companies deploy neural networks to identify defecting customers in order to maximize their customer retention.