Cover Your Bases

Mining For Gold

Once you've built your database, it's time to analyze--or mine--the information that's in it. Database mining is the specialty of Gordon S. Linoff and Michael J.A. Berry of Data Miners Inc. (http://www.data-miners.com), a data mining and consulting firm located in Boston and New York City. Their latest book, Mastering Data Mining: The Art and Science of Customer Relationship Management (John Wiley & Sons), explores how data mining can lead to better relationships with customers--and more sales for your business.

According to Linoff, in data mining, businesses look for clear patterns within the data they've collected. "We should begin thinking of our customers as a portfolio and about optimizing the opportunities there," says Linoff. "The process is like playing a game of 20 questions--ask a bunch of questions, arrive at a conclusion."

Linoff uses a cross-selling model that Data Miners built for a bank as an illustrating example. The financial institution's challenge was in matching specific items from its large menu of products and services to the appropriate existing customers. Since offering all the products and services to all the customers would confuse them and likely result in the customers buying nothing, Data Miners developed profiles of those customers who were likely to buy certain products. This allowed them to create cross-sell models or "best next offer" models. By analyzing buying patterns within existing data, the company could then offer specific products to customers who matched the profiles for each product or service. The result: more than double the previous level of sales success.

The database guru does have a few mining cautions, however. First, your results will only be as good as the data going into your file. It's important to find the right people to manage the database--those who understand the reasons for the database as well as the complexities of maintaining it. Finally, make sure that common sense is the main ingredient in developing your models. If you build a bad model, you could spend big bucks chasing the wrong customers.

Gwen Moran is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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This article was originally published in the February 2000 print edition of Entrepreneur with the headline: Cover Your Bases.

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