The word “alternative” usually suggests the replacement of an element with something different, but when we talk about alternative data we should not think of a replacement, but rather of an integration.
It is not about using external data instead of the company’s internal data: it is about combining them together, enhancing one another, in any data-driven strategy, no matter the industry.
What is internal data?
Internal data is private or proprietary data that the organization owns, controls or collects.
The so-called First Party Data are all information owned by a company: they range from sales data to online users’ behavior of customers, from the location of the brand’s stores to the trend of marketing campaigns.
What is alternative data?
Alternative data is all the information gathered from non-traditional sources.
In recent years, the rise of social networks, blogs, reviews, mobile devices, satellites, sensors and websites has provided large amounts of structured, semi-structured and unstructured data: the so-called big data. All these types of data, when properly collected and analyzed, have the potential to help companies better understand their scenario and consequently make data-driven decisions.
Alternative data are different, according to the sector.
In the banking industry, for example, a lender can traditionally rely on an applicant’s credit score to assess risk for a specific loan. When the applicant has no credit history, however, alternative data illustrating the applicant’s history in fulfilling financial obligations turns out to be useful information. In this case, alternative data sources can also include the timely payment of the rent, a monthly mobile phone bill or the minimum amount required on credit card bills.
Traditional and alternative data: together, to bring more value
Traditional types of data are characterized by the reliability of their sources, but they deal with limited information and often fail to reflect or predict the evolution of a specific sector.
The analysis of alternative data is able to generate more insights, even more when it is integrated with traditional data: that’s where the best performances and therefore the most forward-looking strategic decisions come from.
Being able to interpret the digital traces left by people on the Internet and manage third-party data sources, while remaining compliant with users’ privacy needs, allows to obtain crucial information about any company, the kind of data that would be impossible to obtain directly from them.
When a system depends on several variables, and some of these do not depend on us, but rather on exogenous phenomena, understanding and properly describing all the factors involved is the first step to model its functioning correctly.
From the description we move on to the predictive phase: foreseeing what will happen to our whole system when one or more of these variables change.
From here, the next step is the prescription phase, to suggest to companies the best strategic decisions or even automate some actions according to the outputs of those models.
Alternative data is crucial for the most strategic decision making in the retail world: whether or not to open a new store in a shopping center.
Knowing in advance the potential of new customers in a particular place is a determining factor, but in order to do so it is necessary to rely on the analysis of third-party data, possibly from multiple sources, to obtain a more complete view.
Along with the entrances detected by the cameras – which are not always available due to privacy matters – and by the satellite data on parking spaces – which remain partial, because they take into account only cars – a true mine of information to draw upon is the number of telephones detected in the area.
Appropriately anonymized, the data from mobile phones hooked to cells near the shopping center are able to provide a faithful overview of the actual flow of people who frequent the shopping center.
Once you have identified the ideal place to open a new store, it is crucial to keep it at its maximum potential.
In addition to its direct sales actions, each company must also consider all the third party distributors: promptly intercepting any risk elements is an essential necessity to protect its business results.
Thanks to the application of Artificial Intelligence to alternative data, 3rdEye is able to anticipate the risk of any individual store selling the product, with a real-time analysis of customer sentiment for each category of interest (price, assortment, personnel , etc.)
In recent years we have been learning how Diversity and Inclusion – including and enhancing diversity within a work environment – are fundamental values for a healthy and thriving company.
“Different, together”: so simple it can be easily translated into other, even more operational, contexts.
In the case of data, combining traditional and alternative data accelerates a truly data-driven strategy, for the healthy growth of your company.