If You Predict It, You Own It
By Gary Zellerbach on Aug 06, 2009
As I've written about previously, I'm currently the Project Manager for the Sun Machine Learning Engine (SMILE) project, based on predictive analytics (PA) technology we're developing in-house. While I have a lot of experience building and managing complex web systems such as this, I haven't worked with PA technology before. I set out to learn more about it, for two reasons:
- Since I'm the PM for this project, it's generally a good idea to know what I'm doing and talking about!
- ROI is very important, both for this project and for ensuring the ongoing application of PA technology in general at Sun. This matters, of course, to Sun's management, and as you might imagine, it can't hurt to convey these benefits to our soon-to-be new owners as well.
So, I set out to learn more about PA, what it is, and what benefits it offers. In this post, I want to share and consolidate some of my findings -- hopefully this will be helpful to others who are considering or starting similar projects.
Now, before I get much further, credit where credit is due. The title of this post, "If You Predict It, You Own It", is a tag line I like, taken directly from Eric Siegel's Prediction Impact site. I recommend this site for an intro to the subject, as it offers many helpful articles as well as resources, such as the Predictive Analytics World conferences and training programs.
So what is PA?
- Wikipedia has a good article on PA, starting with a concise summary definition: "Predictive analytics encompasses a variety of techniques from statistics and data mining that analyze current and historical data to make predictions about future events." The Applications section offers an excellent overview of the many uses for this technology. Currently, we're using SMILE primarily for Cross-sell and Direct Marketing. The last part of the article focuses on Statistical Techniques, an area I'll leave to the statisticians and engineers building SMILE.
- Back to Prediction Impact, scroll down the home page and you'll find an informative section called "Prediction Impact Publications and White Papers." To get started, I recommend, "Predictive Analytics with Data Mining: How It Works."
That will give you a good, quick intro to PA. What about the results? What's out there we can leverage to help sell such projects within our organizations? I did some of my own research into this and was also fortunate to have assistance from Sun's Digital Libraries & Research staff in locating a few additional publications. Here are some representative quotes/stats/images that make strong "sound bytes" in support of PA!
Optimizing Customer Retention Programs
by Suresh Vittal with Christine Spivey Overby and Emily Bowen, Forrester
- "Marketers have long relied on analytical techniques to identify and reduce customer churn. For instance, segmentation models help marketers to better profile customers and understand behavior, while cross-sell and upsell modeling deepens relationships and creates barriers to exit."
- "Marketers who target all types of respondents, not just the positives, risk wasting valuable resources on indifferent customers or at worst even triggering churn. This is especially critical in this climate of pressure upon marketing spend."
- "Telenor found that by only targeting persuadables, it was able to reduce overall churn by 1.8%. A more telling statistic: These improvements were driven by only targeting 60% of the potential churners. The benefits of targeting smaller groups is clear — cost savings achieved from fewer contacts by telemarketing and lowering of customer fatigue through selective contacts."
- "The combination of increased retention rates and lower cost means Telenor will realize an 11-fold increase in uplift campaign ROI when compared with existing programs."
Peppers & Rogers Group
©2008 Carlson Marketing Worldwide.
- "While the Internet and new technologies aren’t crystal balls, the sheer wealth of information that can be gleaned about today’s customers—and then applied toward anticipated future behaviors—is staggering. Failure to take this information into account is like leaving money on the table, or worse. You could simply hand it over to your competitors....Today’s smart companies use data, and the insight gained from it, to predict customer behavior."
- "In one example, American Airlines used predictive analytics to better understand the relationship between various customer segments and differential flight patterns. They achieved sky-high ROI results of nearly 1,200 percent in a period of two months."
- "IDC report studied dozens of companies and hundreds of predictive analytics projects. It found that the median ROI for the projects that incorporated predictive technologies was 145 percent, compared with a median ROI of 89 percent for those projects that employed only traditional analytics."
- Nice summary chart from this article:
"Mob Marketing" Webinar and Presentation
Suresh Vittal, Principal Analyst, Forrester Research
Jack Jia, CEO, Baynote
- "Relevant and personalized interactions are critical for enhancing customer experience."
- Baynote quoted the following benefits for their recommendation technology:
- 40% Lead Lift
- 20% Net Revenue Lift (40% profit lift)
- 400% Engagement Lift
- 1000% Search Lift
A vibrant and active amount of commercial activity also lends credence to the power and value of PA, and here's info on some PA providers:
- I ran into the aforementioned Baynote at a trade show a few years ago and was intrigued with their technology.
- We were recently approached by Angoss, offering "Proven Results with On-Demand Customer Analytics." In perusing their site, I found a nice collection of "success stories."
- Newcomer Demdex sounded interesting, based on a recent TechCrunch article.
- Iterating.com has a long list of PA products and providers.
And finally, just last week IBM bought perhaps the "granddaddy" of enterprise PA providers, SPSS, for $1.2 billion in cash -- a very serious endorsement of the power and value of PA!
As noted, we are taking a DYI approach here, and you might be wondering about our results so far. I'll let you digest this info first, then follow up soon with a post on how SMILE is performing...