What Is It & How Can It Help Consumer Brands
and Investors?

“Alternative data refers to data used by investors to evaluate a company or investment that is not within their traditional data sources (financial statements, SEC filings, management presentations, press releases, etc.). Alternative data helps investors get more accurate, faster, or more granular insights and metrics into company performance than traditional data sources.”

Through increased availability and use of mobile handsets, digital banking, and low-cost satellite imagery, there has been exponential growth in digital footprints generated by people and companies. Satellites count cars in parking lots, handsets are beacons of their owners’ locations, and consumers leave digital trails with each credit card swipe. Corporations, investors, and startups use these new capabilities to better understand consumer behavior and business performance. Alternative data offers the ability to provide 360 degree visibility into their customer’s journey – both inside and outside their stores – as well as near real-time intelligence on how their competitors are performing.

Connecting the Dots

Companies are now privy to alternative information offered by hundreds of data providers, slicing and dicing everything from satellite images and credit card data, to cell phone geolocation tracking and weather patterns. Not surprisingly, firms are spending a greater share of their information budgets on alternative data; the survey of traders and portfolio managers found that nearly 30% of firms are spending more than $2.5 million dollars.

In particular, social media represents a vast universe of data. Survey respondents ranked social media as the number one source of breaking news, above wire services and third-party providers. Although alternative data isn’t necessarily the primary driver of investment decisions, more and more professionals are using it to add context to their decisions and enhance situational awareness to better manage risk or spot opportunities faster.

The optimal value of alternative data takes root in combining multiple points from a variety of sources so users can derive meaningful insights—and avoid the risk of false signals. Increasingly, traders and portfolio managers are turning to third-party experts to identify meaningful shifts and connect the dots across multiple sources.

Customizing Data Needs

The potential of alternative data is increasingly about giving investment professionals access to tools that allow them to pinpoint exactly what information is relevant to them. Third-party firms specializing in data discovery are able to spot patterns based on past events, cross-reference alternative data with traditional sources, and understand the relevance of news, trends, or events to specific segments of the market.

Transaction Data

Traditional tools for understanding customer behavior, such as surveys, are often limited, inefficient, and biased. Consumer transaction data provides hard, behavioral evidence of consumer preferences as manifest through their actual purchasing history.

While consumer transaction data (credit and debit card transactions) has long been used by brands to understand industry trends, only recently has alternative data been leveraged to power more granular insights for retailers, restaurants, e-commerce brands, and investors. For example, Taco Bell executives can see where else their customers dine, where they shop for clothing and which specialty retailers they frequent, all at the brand level.

Other capabilities include customer segmentation by online and offline spend. By understanding cross-channel differences in repeat purchase rates and customer lifetime value, companies can answer questions such as: How much should I spend to acquire an online customer vs. in-store customer? How are their overall brand preferences different from one another?

Regional dynamics can be observed down to the store level. A new fast casual concept can study customer migration in Dupont Circle in D.C. to decide where to open their next location, as well as to benchmark against other fast casual competitors in the same area. Domino’s and Pizza Hut can quantify their share of the pizza market down to city-level granularity and be alerted to when new competitors come into a market.

By observing an aggregate panel of anonymous consistent shoppers, business leaders can track their customers’ behavior as they discover new brands and frequent competitors. JC Penney executives may have data on what their customers are buying and how much their most loyal customers spend, but without the right data, they can’t answer more complex questions, such as: What happens to my most loyal customers’ spend after they sign up for Amazon Prime? When used correctly, data can transform how people make decisions about their business. Companies utilizing alternative data sources such as transaction data will lead their industries, connecting analytics to action and leveraging a competitive information advantage

Share

Tags: ,