When organizations want to make data-driven predictions about future events, they rely on predictive analytics. Driven by the explosion of big data, predictive analytics is fast becoming an important part of many industries and functions.
While predictive analytics has been used for years in financial services, it’s now an integral part of many industries and businesses. The massive increase in data collection abilities coupled with the widespread availability of commodity hardware are the two trends that have made the spread of predictive modeling a reality.
Common applications
Customer Relationship Management (CRM). Using a combination of regression analysis and clustering techniques, CRM tools can separate your customers into cohorts based on their demographics and where they are in the customer lifecycle, allowing you to target your marketing efforts in ways that are most likely to be effective.
Detecting outliers and fraud. Where most predictive analytics applications look for underlying patterns, anomaly detection looks for items that stick out. Financial services have been using it to detect fraud for years, but the same statistical techniques are useful for other applications as well, including medical and pharmaceutical research.
Anticipating demand. Now retailers are able to anonymized search data to predict sales of a given product down to the regional level. Amazon has even patented a process it calls “anticipatory shipping,” which aims to ship products it expects customers to buy before they’ve even placed an order.
Improving processes. For manufacturers, energy producers, and other businesses that rely on complex and sensitive machinery, predictive analytics can improve efficiency by anticipating what machines and parts are likely to require maintenance. Using historical performance data and real-time sensor data, these predictive models can improve performance and reduce downtime while helping to avert the kinds of major work stoppages that can occur when major systems unexpectedly fail.
Building recommendation engines. Personalized recommendations are relied on by streaming services, online retailers, dating services, and others to increase user loyalty and engagement.
Improving time-to-hire and retention. Even HR departments are beginning to use predictive analytics to improve their hiring and management policies. Companies can use data from the HR systems to optimize their hiring process and identify successful candidates who might be overlooked by human screeners.