Companies use data to make decisions about how to grow their business. For decades, businesses have used traditional data to predict their customers’ behavior. Conventional data includes data within the company, such as transactions, logs, and information about the software companies have used in the past decades. Historical data is structure-based, and alternative data is based on out-of-company databases.
Databases such as satellite data, social network data, and web-based data are generally unstructured and real-time. By using analytics on alternative data, business owners can gain more insights than what traditional sources provide. This data comes from various sources and offers practical ways for managers to make more accurate decisions.
The Importance of Using Alternative Data in Business
Today, companies are looking for new forms of data to respond to market changes. Using unique alternative data, businesses are expanding their data and developing analytical capabilities using machine learning and artificial intelligence. For example, the financial services industry is one sector that is heavily dependent on alternative data.
In 2020 alone, nearly 44 zettabytes of data were generated in this industry. At the same time, the volume and speed of new data products are constantly increasing. However, some estimates suggest that businesses operating in the industry use only half of the available market data.
Companies rely heavily on IT infrastructure, but they do not have the agility and flexibility to adapt to data analysis. The research results conducted by Deloitte show that companies operating in the financial industry, which is one of the leading industries in data modernization, face many challenges in using this data. Many companies may have a lot of data, but knowing how to leverage it and make use of alternative data to improve their business capabilities is lacking.
The Effects of Alternative Data on Business
Business intelligence is one of the essential features of a company in today’s world. Alternative data is one of the most important sources of information for businesses that have transformed the decision-making process. Yet, many businesses are not aware of the applications and effects of alternative data. By incorporating multiple variables and taking into account market constraints, companies can improve the quality of their choices. Alternative datasets can greatly help managers to have accurate evaluation and control over the processes and structures.
Deciding to enter/develop the market
Assessing consumer behavior using satellite data and credit card-based payments determines the policies and decisions of business owners to develop markets. Increasing competition and variety of companies’ products has become increasingly important. Using alternative data, companies can more accurately predict upcoming trends in different markets.
Organizational brand management
By carefully analyzing their potential customers’ cultural and linguistic factors, social media comments and reactions, companies can understand their customer and build a greater sense of trust. Using alternative data, companies can market their products to a market that they are unaware of. Alternative data can also provide real-time data to identify the brand of the company’s products.
Analyzing the competitors’ behavior in an industry
Using alternative data, companies can identify their competitors and predict their market behavior. They can understand whether they should develop their products or expand their sales in new markets. In this way, they have a better understanding to the roadmap of their competitors, and as such, can adopt a more refined strategy to generate alpha.
Alternative data has a significant impact on the performance of companies. Just as mentioned in the article, one of the challenges in getting companies to adopt a data strategy, let alone one that leverages alternative data can be tough. There is so much data that a company can use to gain an edge, yet making sense of all this data is another step.