Key Differences Between Predictive Analytics and Data Mining

6 minute read

Key Differences Between Predictive Analytics and Data Mining

In the last decade, big data has become the lifeblood of business organizations across the globe. Predictive analytics and data mining have gained significant traction as businesses seek to leverage big data to improve customer experience and, by extension, their bottom line.

Today, only 1% of organizations are yet to invest in big data and AI. The big data analytics market (BDA) was worth $231.43 billion in 2021 and is expected to grow to $549.73 billion by 2028. But only enterprises with significant IT budgets can set aside enough resources to advance their data mining and predictive analytics ambitions.

In the cutthroat landscape of today's marketplace, understanding the tools available to you and how best to use them is a gold mine. So, should your business be using data mining or predictive analytics? Data mining vs predictive analytics: which one would be preferable for your big data needs? Or do the two mean the same thing?

This article will look at the key difference between the two terms and which one your business should focus on toward improving its performance.

Defining Data Mining

Data mining refers to sifting through mountains of raw data to find insights and patterns that can help an organization find new growth opportunities, mitigate risks, predict trends, and solve problems. In data mining, businesses use certain software programs to turn raw data into useful information they can use to develop better marketing tactics, decrease costs and increase sales.

The process is often either semi-automated or completely automated and is designed to analyze huge chunks of data looking for correlations, patterns, and anomalies. The effectiveness of data mining largely depends on how well the data is collected, warehoused, and processed. Data mining use cases are spread out across many industries and fields, but it's especially helpful in research and science.

Data mining solutions to business challenges

  • It identifies correlations, patterns, and anomalies in large datasets that humans can't detect.
  • It provides businesses the descriptive power by finding patterns in the data.
  • It enables marketers to understand customer segments, purchase patterns, and behavior analytics.
  • It captures, cleans, and transforms data, uncovering patterns and relationships between disparate datasets.
  • It helps extract insightful details to empower the business
  • It allows businesses to learn more about their audiences, past trends, and current conditions.
  • It helps business leaders better understand customer demands and market dynamics across different segments.
  • It enhances customer experience, resulting in better sales. 

Defining Predictive Analytics

Predictive analytics refers to reviewing historical and current data patterns using modeling techniques, artificial intelligence, machine learning, and statistics to identify the likely future outcomes and performance of a business and its processes. By looking at the past, predictive analytics helps organizations predict which of those patterns are likely to repeat themselves or reemerge in the future. Armed with this information, an organization can adjust the allocation of its resources for the most significant impact.

But predictive analytics goes further than that; it tries to model the possible events of the future. Predictive analytics mathematical models are fed historical data, and then the model is applied to present data, hoping to figure out what will happen next. At its core, it addresses this question: What is the most likely thing to happen based on the current data, and is the outcome cast in stone(is there something that can be done to change that outcome)?.

The models could make predictions about the coming days (e.g., the likelihood of an anomaly occurring or predicting sales for the next month) or the more distant future (e.g., predicting the lifetime value of a customer in the next year or two.) While predictive analytics is often conducted using machine learning algorithms, there are scenarios where it is done manually. The models place a numerical score or value on the probability of a particular event or action.

Predictive analytics finds its application in various fields, including weather prediction, scientific research, and healthcare.

Predictive analytics solutions to business challenges

  • It reduces uncertainty by offering a better view of the prevailing business situation.
  • It predicts specific outcomes so that businesses can make correct decisions.
  • It helps enterprises predict their customers' next move.
  • It predicts future results, models different scenarios, and identifies the best strategy for any situation.
  • It enables users to anticipate outcomes and develop proactive strategies for a wide range of future scenarios.
  • It reveals deeper insights about customer purchasing trends and projects the likely shifts in demands.
  • It makes smart the discovery of data and market predictions.

Difference Between Data Mining and Predictive Analytics

The primary distinction between predictive analytics and data mining is that data mining focuses on finding hidden patterns in data using mining tools and algorithms, whereas predictive analytics deals with applying business knowledge to the patterns that data mining finds to predict business outcomes. In essence, the distinction between data mining and predictive analytics is that the former conducts data exploration, while the latter asks the question: What comes next?

Although both data mining and predictive analytics involve the use of data to uncover insights and predict future outcomes, there are some key differences between them. Here's a list of some of them:

Data Mining

Predictive Analytics

Data mining is more exploratory and is used to find hidden patterns in data.

Predictive analytics is more focused on using known patterns to predict future outcomes.

Data mining relies heavily on statistics and math.

Predictive analytics emphasizes business knowledge.

Data mining looks for correlations in data.

Predictive analytics builds models to predict future events.

Data mining can be used for various purposes, such as fraud detection, market basket analysis, and risk management.

Predictive analytics is primarily used for revenue forecasting and customer churn prevention.

So, while data mining is concerned with uncovering hidden patterns in data, predictive analytics is focused on using those patterns to predict future business outcomes.

Bringing together data mining and predictive analytics has created what is referred to as predictive data mining. So, what is predictive data mining? It is a term coined to define data mining that primarily uses its output to forecast. Using predictive analytics in data mining, organizations create predictive models in their day-to-day operations and produce better results.

Some of the most widely used predictive data mining techniques are:

  • Regression analysis
  • Rule induction
  • Choice modeling
  • Network/Link Analysis
  • Decision trees
  • Memory-based reasoning
  • Neural networks.
data mining and predictive analytics

Effect of Predictive Analytics and Data Mining on Organizations

Predictive analytics and data mining can significantly impact organizations by helping them make better decisions, improve business processes, and create more effective marketing strategies. By analyzing large amounts of data to uncover hidden patterns and correlations, predictive analytics tools enable businesses to gain deeper insights into customer behavior, market trends, and other key factors impacting their bottom line.

The three main ways that predictive analytics and data mining impact an enterprise are:

1. A better understanding of consumer behavior, preferences, and market trends leads to increased sales

When businesses better understand their customers, they can create more targeted marketing campaigns and sell the right products and services to the right people at the right time. By using data mining and predictive analytics to analyze customer data, businesses can identify trends and patterns in customer behavior, determine what motivates them, and tailor their marketing messages accordingly.

2. Foreknowledge of possible challenges in the supply chain helps optimize production and distribution

Data mining and predictive analytics can also help businesses optimize their supply chains by providing valuable insights into areas such as manufacturing costs, product demand, and delivery times. By monitoring factors like inventory levels, shipping patterns, and consumer purchase trends, predictive analytics tools can identify potential challenges well in advance and take steps to address them.

3. Customer profile modeling can reduce an organization's exposure to risks

Data mining and predictive analytics can also be used to create customer profile models that help businesses identify which customers are most likely to default on their payments or file insurance claims. By understanding which customers pose the most significant risk, companies can take steps to mitigate those risks, such as offering lower interest rates or providing additional services.

Key Takeaways

Here are some key takeaways from this article:

  • Predictive analytics and data mining are two closely related fields that involve using large data sets to uncover hidden patterns and correlations.
  • Predictive analytics is focused on making predictions about future events, while data mining is focused on understanding past events.
  • Predictive analytics can significantly impact organizations by helping them make better decisions, improve business processes, and create more effective marketing strategies.
  • The three main ways that predictive analytics and data mining impact an enterprise are: increasing sales, optimizing production and distribution, and reducing an organization's exposure to risks.

Put It Forward provides an intelligent automation platform to help organizations accelerate data processes and receive actionable insights. Predictive analytics, as one of the core platform elements, is aimed to analyze large volumes of data, and identify user behavior patterns to make highly accurate predictions on key business results. All this helps business leaders operate with data faster and check the business insights before making important decisions.

Are you looking for a data integration tool enhanced with predictive analytics? Share your challenges and our experts will answer your questions!