Predictive vs. Prescriptive Analytics

From informing pricing strategies to driving tailored marketing campaigns, analytics play a crucial role in driving business decisions. But to provide value, analytics must appropriately turn data into actionable insights.

Predictive and prescriptive analytics are two key players in the realm of business intelligence. Both leverage data to inform business strategies, often using machine learning. But they serve different purposes. Predictive analytics forecasts what might happen in the future based on historical data, while prescriptive analytics goes a step further by recommending specific actions to achieve optimal outcomes.

Understanding the differences and similarities between predictive and prescriptive analytics is essential for any organization seeking to leverage data for competitive advantage.

Predictive analytics attempts to answer the question, “What might happen in the future?” By analyzing historical data, predictive models can identify patterns and predict future trends, behaviors, and outcomes. 

Examples of predictive analytics

A common example of predictive analytics is when streaming services use a subscriber’s past behavior to predict content they’ll want to watch next. Or a retailer might use predictive analytics to forecast holiday sales demand. By analyzing past sales data, the retailer can predict which products are most likely to sell out and adjust inventory levels accordingly.

Other examples of predictive analytics include pricing strategy creation, inventory forecasting, and credit scoring. The power of predictive analytics lies in its ability to anticipate customer demand, market movements, and potential risks — enabling businesses to prepare for the future.

Benefits of predictive analytics

The benefits of predictive data analysis are numerous. By using techniques like machine learning, regression models, and clustering, businesses can:

• Improve decision making: Anticipate customer behavior, forecast demand, and reduce risks.
• Optimize operations: Predict inventory needs, prevent equipment failures, and streamline supply chains.
• Enhance customer experience: Personalize marketing, predict customer churn, and boost engagement.

While predictive analytics helps you forecast future outcomes, prescriptive analytics takes things a step further by answering the question, “What should we do next?” Prescriptive analytics uses advanced AI and machine learning to recommend specific actions based on predicted outcomes. It is about finding the optimal strategy for reaching your business objectives.

The power of prescriptive analytics applies across various industries. For example:

• Healthcare: Hospitals use prescriptive analytics to recommend personalized treatment plans for patients, improving outcomes and reducing readmission rates.
• Finance: Financial institutions leverage prescriptive analytics to recommend optimal investment strategies, balancing risk and reward based on predicted market movements.
• Retail: Prescriptive analytics helps retailers recommend dynamic pricing and personalized offers based on individual customer preferences and predicted behaviors.

Prescriptive analytics goes one step further than predictive analytics. Rather than stopping at a future state forecast, it actually recommends actions to achieve the best possible results based on that forecast.

Let’s say a telecommunications company wants to understand its customer retention levels and develop future-looking retention strategies based on its findings. The company could feed its data first into a predictive analytics model, which might show an expected increase in customer churn. After discovering this, the company might then use prescriptive analytics to uncover tailored retention strategies, such as offering personalized discounts or proactively reaching out to specific at-risk customer segments to offer additional customer service.

To better understand the major differences between predictive analytics and prescriptive analytics, use the table below:

Consider business goals

When it comes to deciding between predictive and prescriptive analytics for your business — or both — start by considering your business goals. Are you looking to understand future trends and prepare for potential scenarios? Predictive analytics may be your best bet. Or, do you want the analytics to include specific recommendations for your next steps? In that case, prescriptive may be more appropriate. 

Extract value from your data

Your next consideration is value. When possible, combining both types of analytics maximizes the value of your data. By first predicting future outcomes and then implementing recommendations, you can drive informed, data-backed decisions.

Choosing the right approach depends on the complexity of your business needs and the level of automation you wish to achieve. Companies that effectively implement both strategies gain a competitive edge by anticipating and shaping the future rather than just reacting to it.

Both predictive and prescriptive analytics are valuable tools for helping your business make data-driven decisions. Predictive analytics helps you forecast future events, while prescriptive analytics provides actionable insights to ensure the best possible outcomes. By leveraging these powerful strategies together, you can turn raw data into actionable insights and make informed, forward-looking decisions that keep your business innovative and relevant in the market.

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