Trends Pulling Back the Curtain on the Value of Predictive Technology

By Lema Kikuchi

For all the value that predictive technology offers, the models behind it remain shrouded in mystery for many retail marketing teams.

When retail marketing teams first approach predictive models, some of the biggest questions that regularly surface center around the data that goes into them. For example, how much data do you need to make accurate predictions? And based on that, how long do you need to wait until you start seeing any value from the models? Demystifying these questions empowers marketers to confidently use predictive technology and reaffirms the need to get started with predictive tools sooner rather than later.

 

The Growing Value of Predictive Technology

The thing about predictive models is that the more data they have, the more powerful they get. These models can provide value from the get-go, but that value will increase over time as they have more and more data on which to base their predictions. Additionally, some predictions (like category affinity) require less variety and quantity of data than others (like predicted lifetime value and lifecycle stage) to ramp up.  

One quick way to get a lot of value out of predictive models from day one is to upload historical purchase data. While the models will become more robust as view/search/cart and other data accumulates, purchase history alone can get things going right off the bat. Since most retailers have collected mountains of order data for years now, feeding this data into the system will boost the model performance from day one. With historical purchase data, the models will start to learn patterns of thing such as purchase frequencies, order sizes and popular combinations of products.  

The models will continue to learn a lot more about customers and products as they acquire more data with which to work, such as product views and category searches. Over time, the technology will learn more and more about each customer and their product preferences and spending habits as well as the relationships and patterns of interactions between customers and products.

One way to think about how the amount and variety of data can impact the power of predictive technology is to compare the models’ outputs to a photograph.

When you first get started with predictive technology, you’ll likely only have a month or so worth of data in the system. At this point, it might be like looking at a blurry photograph.

Predictive Technology Explained

You can still get value out of the system because it gives you something to narrow in on, but you can only go so deep. For example, you might be able to look at predicted customer lifetime value, but to start you’ll only be able to segment audiences into pretty broad buckets, such as the top 50% versus the bottom 50%. That’s because the model does not yet have enough information to confidently produce more targeted results.  

As you collect more data over time, the image will start to become clearer and you’ll be able to zoom in a bit closer. For instance, once you have a quarter’s worth of data, you might be able to zoom in to the point where you can look at the top 25% of customers based on predicted lifetime value and even overlay their affinity for discounts or various product categories.

Predictive Technology Explained

With six months of data you begin to get a pretty crisp picture, but two year’s worth of data brings it to another level because that allows you to capture seasonal behaviors and year-over-year patterns. With that amount of data, you’ll have a much clearer image that allows you to zoom in on narrow segments, such as the top 5% of customers based on predicted lifetime value as well as their affinity to a new product line, all segmented by their likelihood to convert on email (of course this is just one example of many).

Predictive Technology Explained

So when all is said and done, predictive technology can provide value from the get go, but that value will significantly increase over time as data accumulates. You can still make useful predictions with a small amount of data, but you can only make those predictions on very strong signals. As the data in your system grows, you can begin to make predictions on more subtle and granular things.

 

Do You Even Need Predictive Technology?

What’s wrong with sticking to the traditional analysis of past behaviors alone? Nothing necessarily, but making decisions based on analyzing past behaviors doesn’t provide anywhere near the results that making decisions with predictive technology can. To better understand the value that this technology can provide, let’s look at some results from campaigns built using predictive category affinity models.

Consider the case of one major furniture retailer that decided to test the value of predictive technology by sending the same category promotion email to its full email list split into two groups:  

  1. A small but targeted audience comprised of customers who had previously browsed the category and customers with a high predicted affinity toward the category
  2. Everyone else in the email database  

The first, targeted email went to 90k customers, which was one million fewer customers than received the second, batch and blast email, but the first email generated double the orders and 19% more in revenue.

Email Performance: Batch and Blast vs Predictive Technology

The same performance pattern holds true even when looking at past behavior versus predicted affinity. Specifically, Steve Madden also tested the value of predictive technology, this time by sending the same category promotion email to an audience of past buyers and an audience with a predicted affinity toward the category. Much to the team’s surprise, the predictive audience was 60x bigger than the audience of past buyers and 100% of the campaign revenue came from the predictive audience.

And the value of predictive technology extends to channels beyond email too. For instance, one footwear and apparel retailer saw a 2.5x increase in site conversion by doing onsite personalization for category affinity audiences, while one technology retailer increased its return on advertising spend from 3.5x to 11x when prospecting on Facebook using an audience with a predicted affinity toward a specific category and a high predicted lifetime value.

 

Why is Predictive Technology So Valuable?

What is it that makes predictive technology so powerful? There are three reasons in particular why predictive technology delivers results like those detailed above:

  • Traditional analysis of past behaviors alone often misses certain opportunities because it doesn’t account for all of the complicated relationships between the various behaviors, which means you have to know what you’re looking for. As a result, it’s harder to get the big picture and you might miss out on important details. It’s kind of like taking a very zoomed in view of a photograph. That view can tell you a lot, but without the bigger picture alongside it, you might be missing out. Predictive technology helps surface that bigger picture.

Predictive Technology Explained

  • Adding predictive insights, such as category affinity, to your campaign can help broaden the reach of your efforts without sacrificing personalization. It does this by expanding the size of audiences for different campaigns while maintaining a very targeted approach. This type of expansion has proven extremely profitable for several brands, including Steve Madden and vineyard vines.
  • Targeting customers based on these types of predictions can help you engage with customers in a more proactive way rather than just reacting to what they do. Proactive engagement is extremely important at a time when customers are looking for highly personalized, curated experiences. In fact, as your predictive models get smarter over time, you can even use them to emulate the ultimate value-add retail experience — the small shop owner who knows her customers so well that she calls them when something comes in that she thinks they’ll like.

At the end of the day, predictive technology allows you to use the customer data you’re already collecting in a more meaningful way by making smarter decisions about who to target. Perhaps best of all, it makes the analysis and decisioning process easy by eliminating guesswork and manual inputs.

 

Get Started Sooner Rather Than Later

Given that predictive technology can provide a valuable boost to your marketing efforts and that it only gets more powerful over time as it collects more data, it’s important to get started with predictive technology sooner rather than later.

How does all of this look in action? Click here to discover how Steve Madden uses predictive technology to supercharge its eCommerce marketing efforts.

Steve Madden Predictive technology

Join the most informed marketers in the biz

We’ll keep it short and to the point, and maybe even throw in some emojis.

Ready to see the magic?
Sign up for a demo
Page 1 Created with Sketch.
Bluecore Logo