Top performing companies use these strategies to reach strong performance gains, achieving a customer retention rate over 93 percent and a current operating profit of 23 percent, with 12 percent year-over-year improvement, according the report, “Predicative Analytics: The Right Tool for Tough Times.” This compares to the other 80 percent of average or laggard respondents that gained a margin of 13 percent and retention rate of only 80 percent.
What is particularly noticeable is that the top strategy for best-in-class organizations – a strong focus on cross- and up-selling – only ranks fifth as a priority for average and laggard performers.
"As a strategy, that is a great way to improve profits as many of the overhead costs associated with sales and marketing are avoided,” said David White, senior research analyst for Aberdeen Group. “That's one reason why leading organizations have been able to demonstrate higher operating profits, and also show better increases in profit margins."
Enterprises are under pressure to predict the future behavior of customers and potential customers, in addition to maintaining a grasp of internal performance more precisely than ever before, according to White.
A number of factors are driving the use of predictive analytics across enterprise, but one stands out from the rest, according to the report. A tougher competitive environment drives analytics adoption 25 percent more than any other factor among all respondents.
Additional pressures include falling customer retention, a need to find process efficiencies, decreasing sales revenue and increasing difficulty forecasting demand. Top performers alone also face strong pressure to predict workforce requirements, with 26 percent of respondents selecting it as one of their top two pressures.
In a separate take on the same issue, “Businesses benefit most when they understand what has happened and what will happen,” David Campbell, CTO of business intelligence and performance management at IBM wrote in his article “10 Red Hot BI Trends.” “Predictive analytics provides future insight. This ability can add huge value to an organization’s ability to respond to changes in markets, business risks and customer trends.”
Information Management awarded The Venetian Resort-Hotel-Casino a 2009 Innovative Solution Award for its application of predictive analytics. By looking at a customer’s past stays, activity on the casino floor and purchases in other parts of the hotel, SAS creates a forecast of what the customer is likely to spend on the next visit by digging into the data of an individual customer and predicting the value the customer will have on the next trip. Stephan Kudyba, founder of Null Sigma Inc., described it as an effective utilization of the most sophisticated form of analytics to cut costs and improve resource allocation.
Mind readers aren't the only people who can predict the future these days, thanks in part to the maturation of predictive analytics. Use cases vary widely -- from integrating supply and demand chains, to finding new vaccines, to figuring out which customers will be the most profitable. Tune into this episode of DM Radio to hear how the experts do it.
Adrienne Baker is associate editor at Information Management. She can be reached at adrienne.baker@sourcemedia.com.
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