Profiting From Consumer Behavior

Data mining helps businesses make more money by predicting the spending habits of their customers

business owners, data mining can be a powerful tool to take their company from zero to profitability — in relatively short order.

Specific uses of data mining include:
Market segmentation — identifying the common characteristics of customers. Market segmentation allows a company’s marketing or sales arm to focus on prospects that are “most likely” to buy products.

Customer churn — predicting the factors that cause customers to leave a business and go to a competitor. Understanding these factors helps companies take action to reduce their churn rate.

Fraud detection — identifying which transactions are most likely to be fraudulent.

Direct marketing — analyzing mailing lists to identify the best prospects in order to obtain the highest response rate.

Interactive marketing — predicting what online buyers are most likely to respond to in order to optimize Website advertisements and increase conversion rates.

Trend analysis — analyzing changes over a period of time to forecast future performance.

Bullock, who has been building Websites since 1993 and cut his teeth on the Taguchi method (a process of optimization used in manufacturing since the 1950s in post-war Japan but only lately imported to the West), says that by doing basic tracking, companies could see immense increases in their revenues.

While some data miners focus on the history of customer behaviors, or market basket data, Bullock’s firm looks at what customers are doing in the present. “I work with online merchants to increase response rates of online marketing activity based on what the prospective buyer is responding to in real time. While the online customer is in a buying cycle, that’s when real-time data mining is so important,” he says. Bullock adds that by using such data, he can optimize a Website ad and increase its conversion rate by up to 400%, rather than the 20% to 30% with which most online retailers are happy.

So, is he blowing air? Not likely. Bullock, who has worked with consulting groups that have done projects for such firms as American Express, says that companies simply aren’t tapping into their Websites’ potential. Failing to do data mining is a crucial mistake that companies both small and large make — especially online. “Today, having a Website is a requirement for being in business,” Bullock says. “Most companies don’t realize that collecting online data that converts into leads, buyers, and profits is critical. Having a Website is not enough; you need to monitor and evaluate the customer’s actions and monetize that traffic.”

Data mining has come a long way from the days when it was simply used as a direct marketing tool for mailing lists, says Data Miners Principal Michael Berry. For the small-business owner who wants to plunge into data mining, the industry provides numerous options.

Data Worth Its Weight in Gold
Who are you? What do you purchase and when do you purchase it? The details in the answers are a gold mine to Michael Berry, founding principal of Data Miners Inc. (www.data-min ers.com) in Boston. Berry’s clients rely on his business intelligence and consulting firm to find out things like the type of cell phone you prefer

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