What is data mining?
Data mining is the process of analyzing your data to discover patterns that can be used to predict future behavior such as buying patterns, fraudulent activity, and resource demand. One of the most visible instances of data mining is the analysis of your personal information by credit agencies. Credit agencies store your personal data including your name, SSN, where you live, where you used to live, and even such information as if you got married, got divorced, changed jobs, got sued, filed for bankruptcy, or were arrested. This information is used by lending agencies to decide whether or not you should receive credit.
You probably have direct experience with the second most visible instance of data mining – being targeted for specific purchases. When you receive promotions from stores where you shop that relate to your recent purchases, it may be because a computer analyzed your purchases, noticed a pattern, and tried to predict what your next purchase would be. For example, if you bought a new grill, you might just be in the market for new deck furniture, and maybe if you received a coupon for 15% off all deck furniture, that might be enough incentive for you to make a purchase.
This type of data mining can be seen as a way for a business to develop a long-term relationship by anticipating what a customer might buy and thinking of it before he or she does. Businesses hope the incentives they offer will convince you to buy from them. By anticipating your wants and needs, a company hopes to keep you as their customer and not have you defect to another company.
But data mining also can be used for less obvious analysis. For example, have you ever gotten a call from your credit card company asking you where you physically are and if you are in possession of you credit card? If you live in North Carolina, and suddenly a large charge appears on your credit card from a company in Colorado, the credit card company computers may flag this as possible fraud and may call to verify that the purchase is actually valid. Your buying habits and patterns are stored in a database, and if you deviate from the patterns significantly, a flag is raised to alert the credit card company of possible fraud.
How do you start data mining to move your business forward? You can use off the shelf data mining software if there’s a package that fits your business functions. Or, work with your consultant to develop custom data mining software to provide you with the features you need to maximize the return on the data you store. Custom software means flexibility – if you need to deviate from the original scope of your data mining development project, you can do so. Custom software can be an important element in your strategy to ensure that your business remains profitable and competitive.
How does data mining affect you?
Much of your life is stored in various databases. And not only is this data available to legitimate purveyors of information, but since the information is stored on a computer, it is – unfortunately – available to computer hackers and identity thieves. If a news report informed you that the American Express credit card database had been hacked into, you would probably assume that the hackers were looking for personal information to make illegal purchases. But recently, an article in the media reported an attack on a database full of personal data stored by a company called ChoicePoint. This attack compromised the personal information of approximately 145,000 people all across the US. ChoicePoint‘s website says they have access to 14 billion records on individuals and businesses and goes on to state that you can use this data to make informed decisions. This company does not offer a service such as a credit card or financial services or a product. Their business is simply providing the storage of, and then access to, data that can be mined for information. Data itself has become a business. The goal of this attack and others like it? Getting your personal data.
How can you use data mining successfully in your business?
Data mining is not just about credit, fraud, and purchases. You can use data mining techniques with information you already have about your customers and their purchase history to:
- Identify motivation behind buying decisions.
- Forecast new business opportunities.
- Analyze markets.
- Project resource demands.
- Predict trends and patterns.
Data mining can help you discover new markets and ways to be more profitable in existing markets. It can help you avoid the embarrassing situation of having to tell a customer you can’t deliver because you didn’t plan well enough. And data mining can spot trends and patterns that allow you tailor your production and output so that you have just what you need when you need it.
You can use data mining to make the right decisions to keep your business at the top of its market.