Data mining helps in discovering the patterns of large data sets. With these patterns, we can extract valuable information and transform them into actionable insight that can aid in strategic planning and increase the profitability of the company.
How Data Mining Works
Data mining consists of five major elements:
- Extract, transform, and load transaction data onto the data warehouse system.
- Store and manage the data in a multidimensional database system.
- Provide data access to business analysts and information technology professionals.
- Analyze the data by application software.
- Present the data in a useful format, such as a graph or table.
Here are some ways Data Mining Can Help You
- Basket or Affinity Analysis: This looks at the items customers buy to then recommend related products. This helps retail stores improve their sales based on the assumption that you can predict future customer behavior with their past purchases and recent preferences.
- Sales Forecasting: This looks at when customers buy to predict when they will buy again. You could use this type of analysis to determine the industrial design of the products’ lifecycle or to plan complimentary products to sell. Sales forecasting also looks at the number of customers in your market to predict how many people will buy at what time.
- Customer Loyalty: In a world where price wars occur, you will get customers jumping ship every time a competitor offers lower prices. You can use data mining to help minimize this churn.
- Market Segmentation: From your data you can break down your market into meaningful segments like age, income, occupation or gender. Segmenting your database can improve your conversion rates as you focus your promotions on a tight, highly-interested market. And it can also help you understand who your competitors are in each of those segments, allowing you to customize products and promotions that satisfy the needs of that audience in a way a generic, broad promotion never will. Most businesses need to expand their circle of competitors out two or three times if they plan on competing effectively. Data mining will help you do that.
- Product Production Analysis: Data mining is also perfect for creating custom products designed for market segments. In fact, you can predict which features users may want.