What is 'Data Mining'

Data mining is a process used by companies to turn raw data into useful information. By using software to look for patterns in large batches of data, businesses can learn more about their customers and develop more effective marketing strategies as well as increase sales and decrease costs. Data mining depends on effective data collection and warehousing as well as computer processing.

BREAKING DOWN 'Data Mining'

Grocery stores are well-known users of data mining techniques. Many supermarkets offer free loyalty cards to customers that give them access to reduced prices not available to non-members. The cards make it easy for stores to track who is buying what, when they are buying it and at what price. The stores can then use this data, after analyzing it, for multiple purposes, such as offering customers coupons targeted to their buying habits and deciding when to put items on sale or when to sell them at full price. Data mining can be a cause for concern when only selected information, which is not representative of the overall sample group, is used to prove a certain hypothesis.

Data Warehousing and Mining Software

When companies centralize their data into one database or program, it is called data warehousing. With a data warehouse, an organization may spin off segments of the data for specific users to analyze and utilize. However, in other cases, analysts may start with the type of data they want and create a data warehouse based on those specs. Regardless of how businesses and other entities organize their data, they use it to support management's decision-making processes.

Data mining programs analyze relationships and patterns in data based on what users request. For example, data mining software can be used to create classes of information. To illustrate, imagine a restaurant wants to use data mining to determine when they should offer certain specials. It looks at the information it has collected and creates classes based on when customers visit and what they order.

In other cases, data miners find clusters of information based on logical relationships, or they look at associations and sequential patterns to draw conclusions about trends in consumer behavior.

The Five Steps of the Data Mining Process

The data mining process breaks down into five steps. First, organizations collect data and load it into their data warehouses. Next, they store and manage the data, either on in-house servers or the cloud. Business analysts, management teams and information technology professionals access the data and determine how they want to organize it. Then, application software sorts the data based on the user's results, and finally, the end user presents the data in an easy-to-share format, such as a graph or table.

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