Analytics Consulting, Prasanna Parthasarathy

Analytics Consulting

Contributed By
Prasanna Parthasarathy
Currently with Infosys Technologies as Associate Consultant –
Business Intelligence-Enterprise Solution
Alumnus of Bharathidasan Institute of Management

Bharathidasan Institute of Management, Trichy

 Analytics Consulting, Prasanna Parthasarathy

Analytics Consulting

1. Market Analysis – Opportunities, Current Size and Potential

Retail industry is one of the most competitive industries - thanks to low margins it
offers. In low margin businesses it is the volume of operations which plays the
crucial role. In the quest to get maximum share of the consumer’s spend retailers
have been using technology to chalk out their strategies. Variety of CRM
solutions are one such example of the usage of technology. Undoubtedly, many
retailers were able to reap early dividends owing to their Customer Loyalty
Programs. However, over a period of time they have become but a standard
feature across retailers and as such no longer serve as a differentiator.

In such a scenario focus is back on how to improve upon the elusive ‘Net Profit’
figure. The answer probably lies not in ‘volume selling’ but in ‘intelligent selling’
and a host of other initiatives called together as ‘Analytics consulting’.

After Finance and Manufacturing industries Retail is one the biggest spender on
IT. Present size of Retail industry worldwide is XXX bn USD and with an
estimated spending of Y% of revenues on IT, it turns out to be sizeable ZZ bn
USD. Though data is not readily available to ascertain the pie of Analytics
consulting from this, rough estimates for Business Intelligence spend provide a
figure of AA mn USD. It is to be noted IT organisations can look forward to gain
10% of this in near future.

Also, please note that Analytics consulting is only the area suggested by us to
begin with to be a player in much bigger area of opportunity known as Analytics
Consulting.

2. Targeted Market
Retailers across the world.

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 Analytics Consulting, Prasanna Parthasarathy

3. Service Idea
“The key in business is to know something that nobody else knows.”
— Aristotle Onassis
“To understand is to perceive patterns.”
— Sir Isaiah Berlin
Analytics consulting is sometimes described as the ‘Complete Thought’
involving both the ‘Left Brain’ (Logical, objective; sees the details) and the
‘Right Brain’ (Intuitive, subjective; gets the big picture).

Analytics consulting will encompass a whole gamut of solutions which aim at

improving the efficiency of operations at a retailer’s end.

The benefits of Analytics consulting or Predictive Analytics extend from cost

reductions to incremental revenue, from customer cross-selling and upselling to
product supply chain optimization and market basket analysis.

In general, some IT applications, systems or projects are mostly cost-centric,

whereas others tend to support producing incremental revenue. For example,
metadata initiatives, data mart consolidation or certain kinds of data quality
projects tend to support operational efficiencies and cost reductions, largely by
helping IT to work smarter and do more with less. This is Business Intelligence
or Data warehousing. This is the space where Data warehousing
organizations across the world foocuses currently. It is true, incremental
revenues sometimes result from advanced applications with sophisticated
dynamics from data mart consolidation when the entire technology stack is
consolidated. But by and large the result is cost reduction.

In contrast, Analytics consulting achieved by predictive analytics tend to provide

benefit in generating incremental revenue. It makes sense to drill down on both
dimensions - the customer as well as the product - and consider how predicative

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 Analytics Consulting, Prasanna Parthasarathy

analytics enables cost reductions as well as incremental revenue opportunities.

This results in the classic two-by-two matrix depicted in the figure below.

Customer Product

• Cross-Selling • Market Basket Analysis

Incremental
Revenue • Up Selling • Pricing Model
• Customer Profitability • Product Promotion
• Merchandising optimisation

• Customer Scoring / Credit • Demand planning for

Cost
worthiness inventory reduction
Reduction
• Fraud detection / detection • Supply chain optimisation
via profiling • Machine / system failure
• Customer cost profiling forecasting

Customer/Cost Reductions [Cr-CoR]: Applications include scoring customers

according to a variety of behaviors, especially credit worthiness and use, and
rejecting high-risk customers. Building a customer profile is on the critical path to
fraud detection, and many applications in fraud detection are designed around
profiling. Of course, this contributes to cost reduction. Fraud detection and
reduction are growth industries where Fair Isaac (including the technology
acquired in the HNC merger) has pioneered predictive profiling with Falcon
Fraud Manager and analogous programs for insurance, retail, telecommunications
and finances, designed and implemented around profiling customers and buying
behavior. Quadstone specializes in predicting telecommunications customer
churn and analyzing the root causes of churn to reduce it. Reduced costs of direct
mail through superior targeting also play a role here.

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 Analytics Consulting, Prasanna Parthasarathy

Customer/Incremental Revenue [Cr-IR]: Cross-selling, upselling, customer

profitability - this is the most famous quadrant in the matrix and the one that has
received the most attention. Unica Affinium, Group 1 Model 1 and Quadstone
have established client bases in the direct marketing vertical where gaining
efficiencies through targeted promotions and lift charts represents revenue
incrementally earned. SAS Marketing Automation and KXEN also have
applications that address the marketing opportunity. Siebel and PeopleSoft have
licensed private-label versions of the ANGOSS Mining Manager technology,
which builds solutions with templates and industry-specific predictive analytic
content in their analytic CRM offerings.

Product/Cost Reductions [Pr-CoR]: Demand planning to reduce inventory,

sourcing product based on forecast, supply chain optimization, machine/system
failure analysis and prediction

Product/Incremental Revenue [Pr-IR]: Market basket analysis, sourcing based

on demand forecast, revenue optimization from pricing mark downs (retail),
merchandising and promotions (retail) - portfolio balancing in the capital markets
is a source of incremental revenue due to arbitrage opportunities based on the
prediction of default and prepayment rates as well as risk (and therefore cost)
reduction.

Workbenches can be used to build applications when the retail problem is not
well-defined or when there are many problems. The predictive modeling
workbenches such as SAS Enterprise Miner, SPSS Clementine, IBM
Intelligent Miner For Data, Insightful Miner and ANGOSS are a good fit
under these circumstances - when an enterprise will confront a diversity of
opportunities or when the problem is not well defined in advance - as well as
when the team does not want to code directly in the underlying statistical
language such as SAS, SPSS or S-Plus.

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 Analytics Consulting, Prasanna Parthasarathy

Data Warehousing Classic Data Mining Predictive Analytics

Query & Reporting Statistical Analysis Prescriptive
functions Algorithms
Static perspective Continuous changes Also discontinuous
changes
Describe the present and Predict the past Predict the future
the past
Assume Hypothesis Validate Hypothesis Invent and Validate
Hypothesis

Differentiators

In data warehousing, the analyst asks a question of the data set with a predefined
set of conditions and qualifications, and a known output structure. This is the
traditional data cube - what customers are buying or using what product or service
and when and where are they doing so? Typically, the question is represented in a
piece of SQL against a relational database. The business insight needed to craft
the question to be answered by the data warehouse remains hidden in a black box
- the analyst's head.

Data mining gives us tools with which to engage in question formulation based
primarily on the "law of large numbers" of classic statistics. Predictive analytics
has introduced decision trees, neural networks and other pattern matching
algorithms constrained by data percolation. It is true that, in doing so,
technologies such as neural networks have themselves become a black box.
However, neural networks and related technologies have enabled significant
progress in automating, formulating and answering questions not previously
envisioned. In science, such a practice is called "hypothesis formation," where the
hypothesis is treated as a question to be defined, validated and refuted or

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 Analytics Consulting, Prasanna Parthasarathy

confirmed by the data. The confirmation or refutation of the hypothesis counts as

knowledge in the strict sense. In neither case, data mining or predictive analytics,
is a decision made. A prediction is a prediction, not a decision. The ultimate
determining mark of predictive analytics (and applications) is that the prediction
is inside the model.

A Case of Customer clustering in Retail (Source: Forrester Research)

The future of Business Intelligence and Data Warehousing lies in predictive

analytics. Predictive analytics has successfully proliferated into applications to
support customer recommendations, customer value and churn management,
campaign optimization, and fraud detection. On the product side, success stories
in demand planning, just-in-time inventory and market basket optimization are a
staple of predictive analytics. The retail clients should focus on Analytics
consulting to get to know the customer and segment, to predict customer
behavior, and to forecast product demand and related market dynamics. Be
realistic about the required complex mixture of business acumen, statistical
processing and information technology support as well as the fragility of the
resulting predictive model, but make no assumptions about the limits of predictive

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 Analytics Consulting, Prasanna Parthasarathy

analytics. Breakthroughs often occur in the application of the tools and methods
to new commercial opportunities.

Recommendations

End-user enterprises should plan on using predictive analytics to gain incremental

revenue opportunities though superior predictions about consumer buying
behavior, product pricing and related market dynamics. Sample applications
include attrition reduction in finance and telecommunications; pricing
optimization in retail; fraud reduction in insurance; demand planning inventory
optimization in manufacturing and consumer packaged goods (CPG); and loyalty
development, upselling and cross-selling in direct marketing and customer-facing
applications across diverse industries.

Enterprises should look for tools that offer a wide variety of high-performance
statistical functions for data preparation and analytic algorithms for predictive
modeling and inference. Enterprises should take a cross-functional approach to
predictive analytics. In particular, enable collaboration between business owners,
IT data preparation and deployment, and statisticians in order to gain the benefits
of predictive analytics in incremental revenue opportunities.

Bharathidasan Institute of Management, Trichy