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According to McKinsey, machine learning, which has incorporated massive-scale algorithms over the past few years, is evolving faster due to the advent of analytics. With businesses investing heavily in the cloud and the rapid digitization of the professional ecosystem, analytics is set to become a significant factor in determining the fate of organizations.
Data Analytics – How Can It Transform Your Business?
The Impact of Analytics on Business: According to a SAS study, more than 70% of organizations believe that data analytics plays a vital role in generating precise insights. The study also found that, out of ten organizations, six said leveraging analytics makes them more innovative.
Analytics is slowly but steadily evolving in the competitive landscape. Industry leaders are using analytics to make decisions that help them stay ahead of their peers, explore new revenue opportunities, enter new markets, and build stronger relationships with their customers.
The very reason why business models of Uber, Airbnb, and Spotify are sustaining is data and analytics. When you digitize your interactions with customers, you create a window into vast amounts of information. This customer information could be used to develop effective marketing strategies, create better products, and drive more sales.
Many C-suite leaders now recognize the importance of data and the risks it poses if not secured properly. What is startling and makes investment in data and analytics even more important is the kind of ROI it gives. In the Journal of Applied Marketing Analytics, Jacques Bughin says that the ROI on data and analytics is better than the investments made in computers during the 1980s.
The power of data and analytics is also harnessed to improve core operations or create new business models from scratch. The most exceptional example is Netflix. Netflix has effectively used its customer data to refine its recommendation engine and deliver a better user experience. Not only has Netflix surpassed Disney as the most valued media company in the world, with a valuation of more than $160 billion. One of the biggest reasons for their success is their impeccable customer retention rate. Their customer retention rate is more than a staggering 90%, far better than Hulu’s 64% and Amazon Prime’s 75%.
The second most important reason why Netflix is way ahead of its competitors is Content Creation. The kind of quality shows and movies it makes, like “Orange is the New Black”, “Sacred Games”, and “BirdBox”. These shows have received a thunderous response worldwide, resulting in a steady rise in subscription rates. One of the primary reasons why they succeed in making better content is that they understand what their audience wants to see, leveraging data and analytics.
How Does Netflix Leverage Big Data and Analytics?
Netflix has digitized its interactions with its 151 million subscribers. It collects data from each of its users and, using data analytics, understands subscribers' behavior and viewing patterns. It then leverages that information to recommend movies and TV shows tailored to the subscriber’s preferences.
80% of viewer activity is triggered by personalized algorithmic recommendations
$ 1 B+ earnings via customer retention
90 %+ customer retention rate
Where Netflix gains an edge over its peers is that by collecting diverse data points, it creates detailed profiles of its subscribers, which helps it better engage with them.
Netflix collects information on how a user interacts and responds to a TV show or a movie:
- Time and date when a user watched a show
- The device used to watch the show
- If the user pauses the show, do they resume watching
- Does the user binge-watch an entire season of a TV show?
- If they do, how much time does it take to binge-watch it?
More than that, Netflix has ratings from viewers, the number of searches they make, and what they search for. The information collected is enough to create a detailed user profile, and that is exactly what Netflix does. It leverages data analytics to build a robust recommendation algorithm that suggests the best content to subscribers based on their needs and preferences. The user no longer has to endlessly search through streams of content to find what they want to watch. Netflix makes the job easier for them in the process, providing a better, more customized viewer experience.
The Netflix recommendation system accounts for more than 80% of the content its subscribers stream, helping Netflix earn a whopping $1 billion in customer retention revenue. For this reason, Netflix doesn’t have to invest too much in advertising and marketing their shows. They have a precise estimate of the number of people who would be interested in watching a show.
In addition to monitoring its users' online behavior, Netflix has a feedback system in place. They encourage audience feedback, which further helps them understand their preferences and suggest better shows and create better content.
Why is investing in data analytics important?
There is a data explosion today, and the need for analytics has been growing exponentially. Tools and software are being developed to get precise insights from data.
If you want to know your customers better, find revenue opportunities, and tap into new markets. You need a mechanism to help you gain better insights. As an organization, investing in data analytics will give you four significant benefits.
1. A Deeper Understanding of Customers
Earlier companies typically categorized customers by age, gender, and location. Now, with the help of AI, one can map the customers’ digital footprint. Decision-makers can examine key customer behavior patterns, such as price sensitivity, brand affinity, affluence, and preferences. These kinds of data mapping help you better understand your customers, enhancing your ability to build better products and services for them.
2. Early Detection of Problems in Products and Services
More than half of professionals across North America and Europe are heavily dependent on analytics to enhance the quality of their products and services, according to research from Forbes Insights and Cisco. Analytics can give you precise insights into the concerns customers have and their changing needs, and, based on that, you can innovate your offerings.
3. Identifying Better Marketing Strategies
With various digitization channels for customer interaction now available, businesses are adopting an omnichannel approach to engage customers. Using analytics, marketers can gain insights into how to foster meaningful customer engagement across all channels. Also, analytics can help analyze successful marketing programs and identify strategies that yield better ROIs.
4. Finding Ways to Reduce Expenses
Once you start getting insights at the departmental level, you can identify areas to curb your costs. Insurance companies saved a significant amount of money by identifying fraud patterns and dismissing false claims.
How To Harness the Power of Data?
Steps to Build a Data-Driven Culture
As an organization, do not be afraid of change. If you have yet to use analytics as an organization, start with small steps, fail faster, and make a steady transition. Do not go for overnight results, instead, practice consistency and prioritize your efforts.
The first step you need to take as a decision-maker is to incorporate data and analytics into the organization's core vision and to nurture a data-driven culture. Slowly but steadily create a powerful data infrastructure and hire talent to operate it, and make sure to highlight your data-driven culture in your employer branding campaigns.
Your success doesn’t lie in adopting the most powerful technology rather digitization of your organization from the bottom. Companies like Netflix, Amazon, and Google, which are leading the analytics game, have gradually transitioned to a data-savvy culture. It wasn’t all overnight, but a gradual process that took a few years. Not only did they heavily invest in analytics, but they have also remained observant of the evolving trends in artificial intelligence.
They are putting the case strongly before all other organizations- if you want to survive in the market, you need to invest in data analytics, and that is not negotiable at all.
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