What are predictive analytics?
Predictive analytics use data regarding past behaviors to predict how individuals will behave in the future.
For instance, your credit score is a predictive model including your repayment history and other information to predict whether you’re a good credit risk or not.
Predictive models commonly include a number of variables, such as # of late payments, and weighting factors that reflect the importance of that variable in predicting future behavior. These are commonly regression-type models.
Modern predictive analytics use similar data and build similar models to predict how groups of people will behave, in general, or classify individuals into such groups. For instance, we might build a model that predicts how much of a product we’ll sell if we lower (or raise) the price. While we won’t be able to predict WHO will buy at the new price, we really don’t care. We only need to know if we’ll sell more at the new price. Thus, predictive analytics help us determine which marketing strategies will produce the best ROI (Return on Investment).
How businesses use predictive analytics
Businesses use predictive analytics in a number of ways, such as the one discussed above. In addition, a number of tools, such as CRM (Customer Relationship Management) use predictive analytics to determine marketing strategies. Another type of predictive analytic is CLV (Customer Lifetime Value) which uses purchase information to classify customers into groups and determine the level of profit reflected by each group, which is used to build marketing strategies to each group.
Descriptive models and predictive analytics
Descriptive models are often overlooked as tools for generating predictive analytics because they suggest strategies that will generate better results without being able to quantify how much better the results will be.
An example is the TRA (Theory of Reasoned Action). This model states that buying behavior is impacted by a consumers attitudes and beliefs about the products, as well as the norms related to that purchase. This theory, of course, underpins how social media works. Social media helps build attitudes toward products based on the most credible sources — our friends — and establishes norms of behavior when we see all our friends buying the product.
So, why aren’t these descriptive models used more frequently in businesses. In part, that’s due to poor exchange between businesses and academics who seem to speak different languages.
Predictive analytics and social media
Marketing in general, and social media marketing in particular, are not heavily influenced by predictive analytics. Although, that’s changing as supercomputers allow organizations to use massive data captured during transactions to build predictive models of what consumers buy and factors that impact their purchases.
Still, relatively few companies use predictive analytics to drive marketing strategy. Sometimes, when I pitch to prospective clients, I’m shocked at how few demand any true analytics from their agencies and almost none even understand the concept of predictive analytics. If the agency provides any analytics, it’s commonly simple ones such as # of Fans, # or RT, or other somewhat meaningless data.
Agencies and in-house marketing employees often develop simple correlations as a way to build social media marketing strategy. For instance, they might notice that certain types of content drive more engagement or that posting at certain times generates more engagement, so they do more of this. But, this lacks to depth of understanding necessary to build predictive analytics.
I have several proprietary predictive analytics tools I use to help clients optimize their ROI. For instance, I have a complex algorithm (model) to help businesses generate leads for the sales force from their email marketing programs. In other cases, I build predictive models from scratch or use descriptive models to generate predictive analytics, such as my hierarchy of effects in social media.
Hausman and Associates
Hausman and Associates publishes Hausman Marketing Letter and the monthly email newsletter of the same name. We also provide cost-effective marketing and social media through our virtual agency concept. We welcome new clients and would happily provide a proposal to show you how we can make your marketing SIZZLE with predictive analytics.