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ANYONE CAN BOOST PROFITS QUICKLY WITH SOME SIMPLE DATA MINING. Some curiosity and an ordinary computer is all you need to begin. Since the simplest data mining efforts often provide the greatest benefits, maybe you should give it a try! |
Data mining is simply a way to use what we already know about someone or something to discover something new about the someone or something. Basically, it is "common sense," uncommonly applied. Data mining is not some kind of technical, mystical, "black box" process. You don't have to be a computer genius or actuarial statistician to do it.
THE BIG PICTURE
The whole concept behind data mining is to find patterns of behavior that define or describe groups of customers. Understanding your customers better builds your business in four ways:
- You can communicate with customers more effectively and at lower cost.
- You can encourage customers to buy more from you by extending appropriate offers.
- You can retain more of them as loyal customers by responding better to their needs.
- You can find new customers by better understanding why your existing customers buy from you.
STEP-BY-STEP
There is a simple secret to successful data mining. The secret is to start simple and look for the obvious before investing in elaborate, expensive (and often incomprehensible) data mining systems. Here is how to start out using only your desktop computer and the data you already have on hand.
First, you need data. Specifically, you need a list of your customers. You also need a list of what they have purchased from you. (This includes what they bought, when they bought it and how much they paid you for it.) These two kinds of data usually can be exported from your financial accounting system as invoice headers and invoice detail ("transaction") files. Unless you have a very large number of customers and/or transactions, you can probably load the data directly into an Excel® workbook.
If you have trouble loading the raw data, there may be "garbage data" in your system. If so, it might easily be misleading you. For example, "garbage data" often confuses counts and calculations. What your system says is your "average customer" very well may not be! Sometimes garbage data seriously distorts totals, too. (For more information about how to deal with "garbage data", take a look at Data Hygiene - Database Bullets to Dodge. You can read a story about how revealing "garbage data" avoided a nearly-disasterous plan to redefine sales territories in Changing Course Saves The Day...)
Second, sit back and turn on your imagination. Use the graph wizard in Excel® to display pictures of the number of customers (customer counts) by category, by total sales, by product and whatever other fields might exist in your data. Then use the graph wizard to display pictures of the total sales by customer by category, product, etc. Finally, compare the two sets of graphs. Are they what you expected to see? Often, you'll spot something that surprises you.
Third, play around to explore anything that catches your interest. Look for what is not in the graphs as well. For example, if your business is highly seasonal, do you see the seasonal trends you expect? Are they showing up when you expect them? Are follow-on purchases missing? Why? One of our clients was surprised to discover that the reorder behavior they expected just wasn't there. But, when they adjusted the timing of their follow-up mailings, it showed up and boosted their profits nicely. (Take a look at Start-up Company Achieves Front-Page Growth for more details. )
USE WHAT YOU DISCOVER
Every company is different, of course. Management Analytics Group has discovered that it's very hard to predict what might be the best or fastest way to turn around sagging financial performance or sales results. That's why off-the-shelf "canned" computer programs so often do not work very well. Data mining can reveal hidden facts, behavior patterns and relationships. Nevertheless, a successful data mining effort depends more upon understanding the results than upon the data mining tool itself.
Fancy (and expensive) data mining software and sophisticated statistical tools have their place, of course. When the "first, fast and easy" discoveries have already been made, these more powerful tools are essential. However, they rarely do as well at the outset as simple tools and common sense do for finding the "low hanging fruit" opportunities to boost sales.
AND BE SURE TO DO IT OVER AGAIN
You expect your sales, advertising and marketing results to change when you apply what you discover from your data mining efforts. Just remember that these changes require you to repeat your analysis -- not only to measure your success, but also to continue to adjust offers, campaigns and media choices appropriately. It is helpful to think of data mining as a more of a "process" than an "event." This is why data mining quickly becomes an integral part of your decision-making.
To make it easier to repeat and expand your data mining efforts, you may find it very helpful to set up a specialized "marketing database." Such databases are usually small and easily maintained. Because they are designed to answer marketing (rather than financial or production) questions, they allow you to respond quickly to questions and hunches that interest you. Take a look at What is a management analytics database? and What Goes Into a management analytics database? to learn more about how to do this.
Once you become familiar with data mining as a decision-making tool, you will almost certainly find more and more ways to use data mining to your advanage. After pursuing the "quick and easy" opportunities, you may wish to explore more sophisticated data mining tools to uncover additional ways to improve sales and marketing results. Take a look at the Management Analytics Group How-to Resources library. It offers a detailed description of many more advanced data mining tools and how to use them.
HELP IS ALWAYS NEAR
As you understand data mining better, you may find that you occasionally have questions or need some assistance. When this happens, we are here to help. Just ask us!
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