Data Mining | 14 mins read

Data Mining- Definition, Process, and More

data mining definition process and more
Lauren Christiansen

By Lauren Christiansen

What is Data Mining?

Businesses use data mining to transform raw data into valuable information. Mining software enables users to identify trends in large data quantities and utilize data analysis to extract valuable insights into customer behavior. Organizations increase their knowledge about consumer purchasing patterns to generate tailored marketing strategies and add to the bottom line.

A successful mining process depends on how much useful information an organization collects and procedures regarding internal data warehouses. Businesses utilize mining tools and data mining techniques to generate machine learning models. These models drive internal applications and tools such as digital assistants, customer recommendation engines, and fraud detection.

It requires the exploration and analysis of various data sets to pinpoint specific patterns. Different industries utilize data mining software to assess credit card risk, filter spam, understand customer opinions, and streamline internal operations.

  • Law enforcement uses data mining and analytics to predict and prevent crime
  • Retailers use it to increase sales
  • Healthcare industries use it to predict and prevent disease
  • 88% of the data collected by organizations goes to waste

Benefits of Data Mining

While most companies utilize some form of data collection and data analytics, they don't always know what they are doing. The data mining process enables an organization to reap the most benefit from big data to generate real-time business intelligence.

If companies use the correct statistical methods and analysis data, they can improve decision-making and problem-solving. Here are some of the top benefits of mining data-

1. Data Mining Improves Marketing Strategies

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Marketers utilize data mining to generate computer models. These models use predictive analytics to forecast which customers will positively respond to new advertisements. For example, grocery stores use data mining to see which customers purchase which items.

They then generate coupons and promotions tailored towards their customers' preferences. This allows an organization to sell the most applicable and profitable items to specific customer segments.

2. Banking Industry and Data Mining

Banks and other financial companies utilize data mining to protect themselves and their customers. They employ predictive analytics to assess credit card reports to know how much money to loan.

Data mining is also used to detect fraudulent purchases on credit cards. This strengthens relationships with consumers and increases brand loyalty. It also ensures compliance with regulators.

3. Researchers Use Data Mining

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Researchers use data mining to increase the amount of work they can do and prevent problems before they occur. For example, an organization can use data mining to quickly learn about customer purchasing patterns. It's easier to generate new campaigns and provide better customer service in a shorter time frame.

This frees up the organization to work on other projects that bring in more profit. Many companies hire qualified data science specialists who understand how to generate models and use data to extract insights. As a result, they don't have to do the work themselves.

4. Data Mining Helps to Identify Customer Segments

Data mining can help an organization separate customers by demographics and other segments. Business leaders drill down into different segments to understand who their customer is, where they come from, and what they want.

This enables an organization to generate the products/services customers need when they need them. Traditionally, businesses spent more time and money researching customer behavior. With modern computer science and mining tools, the process is much more accurate.

5. Data Mining Optimizes Decision-Making and Increases Revenue

While an organization must invest in data mining tools and artificial intelligence, the benefits both provide are well worth the cost.

Businesses can quickly collect unstructured data online or on a POS system and turn it into valuable information. They can optimize pricing strategies and learn more about the competition. Eventually, better decision-making helps to increase sales and improve customer brand loyalty.

6. Data Mining Predicts Patterns

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Data mining is part of a larger data management strategy to collect raw data and turn it into useful information. When an organization understands historical data, it can prepare for future circumstances. An analyst can use the drill down into each data set to break down purchases by different segments.

Reports and data visualization help business owners understand past purchasing patterns and what customers will buy in the future. They can use these insights to optimize inventory management, make investments, and manufacture new items or services.

  • Appropriate level and quality of data
  • Data cleanliness
  • Automation tools and machine learning techniques
  • Aligns with business objectives

Steps in Data Mining Process

To ensure a successful outcome, businesses need to follow a data mining strategy. Data mining is a complex process that involves data preparation, cleaning, integration, and transformation. If engineers do not perform one of these steps correctly, the entire process is compromised.

The key is to ensure data quality and accuracy, which requires the removal of duplicate or unnecessary information. A qualified specialist understands how important it is to maintain data integrity so an organization reaps the benefits of data mining. Here is how data mining works, step by step -

1. Data Mining Process - Pre-Processing

Technicians use pre-processing to improve the quality of unstructured data. They eliminate any duplicate or redundant information from large data sets.

This involves data cleaning, data integration, data transformation, and data reduction. The pre-processing stage controls the latter four stages. If specialists make a mistake during one of these four subset stages, they may compromise the quality of information and insights.

2. Data Mining Process Cleansing

Engineers detect and correct unreliable information from any unstructured data. Engineers can handle this problem in two different ways. If numeric values are missing, they may replace them with the mean value of the remainder of the data. If non-numeric values are missing, teams can input the most common values from this information data.

While not perfect, these techniques are better than leaving the information as is. Insights will be much more accurate, if not entirely so. Binning is a common technique to fix noisy data or data with large quantities of meaningless information. Binning allows an engineer to sort values into different bins, or categorize them. Typically, most noisy data involves outliers and inconsistencies.

3. Data Mining Process Integration

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Engineers combine different formats of data during the integration process. Data may come in the form of spreadsheets, text files, or from a database. It is a complicated process because the vast majority of data sources are different from one another.

An effective data mining tool is critical to optimize this process. Redundancy is another concern during data integration. Similar information is often available in different sources of data. It's important to eliminate any redundant information to optimize data integrity and data quality.

4. Data Mining Process Transformation

Teams turn raw information into usable and reliable information during the transformation process. This requires a specialist to consolidate all of the information. Consolidation will increase efficiency and enable an analyst to pinpoint trends later on.

While there are many strategies to transform data, most engineers use smoothing, aggregation, normalization, or discretization techniques.

5. Data Mining Process Reduction

Most companies collect much more data than they need. Engineers need to sort through all of these data sets to determine which portions to eliminate. It requires the specialist to select and sort valuable data while reducing the rest of it.

The top strategies to reduce data include dimensionality reduction, numerosity reduction, and data compression. Dimensionality reduction has one of the highest success rates and is most popular among experienced.

6. Data Mining Phase 2

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This is the second stage of the data mining process. The purpose is for engineers to identify trends and optimize knowledge discovery from the large quantities of information they have. It involves pattern evaluation and knowledge representation.

Engineers use data models to predict, classify, and cluster information. They also use time series analysis to assess how data behaves over periods.

7. Data Mining Process Pattern Evaluation

Every business wants to know more about their customers. What do they buy? When do they buy it? How do purchasing patterns vary among different demographics? Analysts use machine learning, neural networks, and other techniques to pinpoint patterns in customer data.

This helps to make the data understandable to business leaders and other users. It is how they extract meaningful insights to make better decisions, increase profits, and generate more sales.

5 Necessary Data Mining Techniques

Companies have different problems and varying business objectives. Engineers may use different data mining techniques depending on what business leaders ask for. It's virtually impossible to properly mine data unless there is a business strategy in place as a guide. In the real world, big data grows year after year.
Organizations collect so much information, but they rarely know what to do with it. They can't seem to extract meaningful insights and generate the necessary knowledge to optimize decision-making. A set of tools and strategies can help to streamline data collection, analysis, and mining. These include

1. Data Mining Technique Classification Analysis

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Engineers use analysis to extract valuable information from unstructured data. Analysts have the expertise to know which clusters or classes to use.

They employ algorithms to determine how to classify data sets. For example, Outlook email commonly segments information depending on whether it is legitimate or spam.

2. Data Mining Techniques Association Rule Learning

Analysts use association rule learning to pinpoint the relationship between different variables in a large data storage system. It finds unnoticeable patterns and trends within data that occur more often.
This technique is critical for engineers to learn about consumer purchasing patterns.

Retailers use association rule learning more than any other industry to analyze shopping basket data or design catalogs. IT departments also use this technique to program a platform to employ machine learning.

3. Data Mining Techniques Detect Outliers

Companies that ignore outlier data do so at their peril. While outliers are sometimes irrelevant, they can also provide valuable and surprising insights. Outlier detection techniques pinpoint anomalies that deviate from the common average in a set of data.

Industries use this technique for security reasons, to monitor application health, identify fraud, or pinpoint a disturbance in an ecosystem. Qualified analysts know how to extract this data and study it to understand its purpose.

4. Data Mining Techniques Clustering Analysis

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A sample of data objects is called a cluster. The individual pieces of data within each cluster are similar, which is why they are called a cluster. Analysts use cluster analysis to discover data clusters and find relationships between two separate data objects.

If two data sets are very similar to one another, they probably belong in the same cluster. Organizations use data clustering to generate profiles on customers and place them into segments.

5. Data Mining Techniques Regression Analysis

Engineers use regression analysis to pinpoint and assess the relationship between data sets. It helps an analyst understand more about a dependent variable and how it interacts with an independent variable.
It's important to note that only one variable is dependent on the other and not the other way around. Organizations use regression analysis to predict customer behavior and maintain a competitive edge.

5 Challenges in Data Mining

While the benefits of data mining are numerous, there are some challenges that come with the process. As technology continues to evolve, organizations must keep up to date with the latest data mining software and techniques.

With the large aunt of data available, businesses must do everything possible to create a data infrastructure that prioritizes security. Without the correct set of tools and expertise, it's more difficult to face these challenges.

1. Data Mining and Security Concerns

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Data collection requires a secure infrastructure to ensure data integrity. Organizations collect sensitive consumer information to generate profiles and pinpoint purchasing patterns. If hackers can access this information, an organization risks litigation, non-compliance, and even bankruptcy.

2. Data Mining and User Interface

Insights are only valuable if the user can understand them. Analysts must utilize a combination of data visualization, reports, and other techniques to present findings. The more research they conduct on the big data sets they collect, the better the data visualization and data mining will be.

The entire process should be collaborative so teams can streamline trend detection and data presentations. It's also critical to take advantage of historical information to improve the accuracy of findings.

3. Data Mining and Methodology

The wide variance in mining approaches and vast quantities of information available can make data mining difficult. Analysts also need to be well versed to handle noisy data, redundant data, and reduction techniques. They need to understand the correct algorithms and machine learning techniques to avoid compromised findings.

4. Data Mining and Complex Information

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Real-world information is complex and formatted in numerous ways. Collected data may include audio and video files, spatial information, or images. An analyst must have the expertise to manage and extract all of this information, regardless of format. If teams use the correct data mining tools and methodologies, they can optimize this process.

5. Data Mining and Performance

The quality of data mining depends on how effectively analysts use machine learning techniques and algorithms. Unfortunately, many of the latest techniques are not good enough to align with evolving business needs. Algorithms must be scalable so analysts can extract the correct data from large quantities of information in a system.

Data Mining Use Cases and Examples

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The digital age has changed the way companies advertise, talk to customers, and generate sales. While technology has certainly brought its share of problems, it has greatly increased knowledge in the business world.

Companies can now learn more about customers than ever before, tweak marketing campaigns for different demographics, and generate products they want. There is no more guesswork or trial and error if companies use data mining properly. Here are the top uses cases for data mining today

1. Groupon Uses Data Mining to Optimize Marketing

Groupon collects large quantities and then has to process them to extract valuable information. Each day, the organization extracts at least a terabyte of unstructured information and holds it within different systems. Groupon uses data mining to provide customers options that match their shopping preferences. The company analyzes customer information to pinpoint trends and deliver the preferences to their customers.

2. Air France Uses Data Mining to Improve Travel

Air France utilizes data mining to generate a complete 360-degree view for customers. They integrate information from customer searches for trips, their transactions, and flights. They utilize their knowledge from data mining to generate an entirely customized travel experience for all of their customers, including flight operations, the airport lounge, and social media information.

3. Bayer Uses Data Mining to Help Farmers

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It's been difficult for farmers to manage weeds since the dawn of farming. Bayer digital farming created an application with the help of data mining to help farmers identify weeds. They can download the app for free from their phones.

It uses a combination of artificial intelligence and machine learning to match the photos of weeds that farmers upload to weed photos in Bayer's data system. Farmers can now choose the correct seeds to plant, apply protection products to crops, and time harvests properly.

4. Dominoes Uses Data Mining to Create a Better Pizza

Dominos collects large quantities of data from POS systems, different franchises, social media, and online to know exactly what customers want to eat. This enables the pizza chain to streamline operational effectiveness, improve performance, and create better purchasing experiences for customers.

  • Information from 85,000 different data sources pours into Domino's database every day
  • Big data has transformed Dominos pizza into a digital e-commerce business rather than a quick servive restaurant business
  • Dominos pizza receives 55% of it's orders from online systems

Key Takeaways of Data Mining

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In conclusion, here is what to know about data mining

  • Data mining improves marketing strategies prevents fraud, helps companies identify segments of customers, improves decision-making, and helps to detect patterns.
  • The 7 steps of data mining include pre-processing of data, data cleaning, data integration, data transformation, data reduction, data mining phase two, and pattern evaluation.
  • The five data mining techniques include classification analysis, association rule learning, outlier detection, clustering analysis, and regression analysis.
  • The top challenges in data mining include security concerns, user interface difficulties, methodology challenges, and performance concerns. Groupon, Air France, Bayer, and Dominos have all used data mining to optimize decision-making, create new products, and improve customer relationships.