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Predictive Analytics 101: Using Past Customer Behavior To Predict Future Buying Trends

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Predictive AnalyticsI don’t know about you, but I like knowing how something works before I choose to invest in it.

Chances are you’ve heard a lot about predictive analytics – what it does, why you need it, and how you can use it to make better business and marketing decisions for your company.

But what is predictive analytics anyway?

How does it work?

If you choose to invest in an analytics-driven project, what exactly can you expect?

The good news is that the term “predictive analytics” makes a simple concept sound a lot more complicated than it actually is.

When a client hires us to predict future customer behavior, we often create what’s called a Regression Analysis Model. We use this model to identify the kind of environment that will motivate a particular type of customer to make a purchase.

Let’s say you want to know which of your customers are likely to respond to a particular marketing campaign.

First, you’ll give us all the data you have from a past campaign such as…

  • items purchased
  • number of items purchased
  • the cost
  • the date of purchase

…and so on. (oh, and don’t worry if your data is disorganized).

Next, we’ll add other relevant data points like…

  • zip code
  • gender
  • occupation
  • education
  • household income

…and anything else we think will impact a customer’s response to your campaign.

We then take all of the data and conduct what’s called a “Regression Analysis”.

Regression Analysis is about looking at past behavior to predict future behavior. By looking for predictors within past data, we can determine how well those factors can predict a future outcome.

In other words, we’re looking to see patterns in the data that will help us pinpoint demographics that correlate with behavior. For example, by doing a Regression Analysis of your last campaign, we might see that the majority of customers who made a purchase in response to an email blast were 30-something single moms.

Then comes the fun part – building a predictive model based on what we found in our Regression Analysis of your past campaigns.

This model will let us score each of your customers according to their likelihood to buy.

It will tell us…

  • which type of customer is most likely to make a future purchase
  • when they’re likely to buy
  • what they’re likely to buy
  • how they like to be marketed to

By looking at your customer’s past buying behavior and seeing which campaigns they responded to, we can create a predictive model pointing directly to those customers most likely to buy in the future.

You can then spend your marketing dollars on the group that’s most likely to give you the biggest return on your marketing investment.

Simple, huh?

Predictive Analytics is a powerful tool to help you answer one burning question at a time, such as “Which of my customers are most likely to make a purchase during my next marketing campaign?”

By answering this and other questions using data, you can better determine where you should spend your marketing dollars, stop wasting money on customers unlikely to buy, and slash your overall marketing spend.

Food for Thought: Classic Chicken a la King

I recently got a hankering for the classic dish Chicken a la King. Since I hadn’t made it before, I had to do a bit of digging to find out how to make it properly and in the classic style that appealed to me.

The best part about this recipe is that it calls for poaching the chicken instead of stewing or roasting. This was a relatively new cooking method for me so I wasn’t sure what to expect, but the end result was chicken that was moist enough to cut with a fork!

Poaching the chicken reminded me a lot of using predictive analytics for the first time. Just as I was tempted to roast or stew the chicken since it’s more familiar to me, you may be tempted to stick with your old marketing methods based on intuition and guesswork.

But just as poaching left me pleasantly surprised, the power of predictive analytics will leave you wondering “Why didn’t I try this years ago?”

This Chicken a la King is a luscious dish – if you’re feeling nostalgic give it a try! http://www.epicurious.com/recipes/food/views/chicken-a-la-king-233531

Are you ready to get strategic with your marketing? See how Massa & Company can help you increase profit margins and slash your marketing spend with predictive analytics. Find out more by calling (312) 463-1050 or contacting us online.

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About the Author:

Bonnie Massa is Founder and President of Chicago-based Massa & Company, Inc. She works with companies and nonprofits to make the best use of their information about customers, partners, donors and sponsors. With more than 30 years of experience in marketing and predictive analytics, Bonnie is passionate about helping clients make informed, data-driven decisions to increase the value of their customer base. She works with organizations of all types to attract new customers and constituents, segment existing customers and analyze customer behavior to predict future behaviors. She speaks fluent “geek” and is an effective translator between business executives and technology experts. Bonnie currently serves as President of American Marketing Association Chicago Chapter, a volunteer position leading the best marketers in the city. She strongly believes that making pasta and ice cream from scratch are worth the effort, and she spends much of her free time testing and re-testing that theory.