Predictive Analytics in Finance: Use Cases and Examples
Predictive analytics in finance Predictive analytics in finance

Morning Consult

November 29, 2022 at 5:00 am

What is predictive analytics?

The value of survey research lies not just in reflecting past and current action, but in providing foresight and context. Decisions are undeniably better when shaped by knowledge of what people think, why they think it and how these thoughts influence their actions. Predictive analytics pairs data with artificial intelligence (AI) to identify the likelihood of future outcomes based on historical data. Forward-looking metrics fuel the decisions you make today.

However, data that does not capture the accelerated pace at which the world is changing nullifies the applied AI. You need data that can benchmark results to real-world outcomes. 

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How predictive analytics helps finance teams

Predictive analytics provides a real-time, data mosaic of how consumers think and feel about your focus list of companies, as well as an understanding of key inflection points and trends across the peer group.

Here are four core areas that predictive analytics can strengthen your team and the company:

Consumer analytics

Consumer analytics is the system of data and applications that businesses use to make decisions based on customer behavior. What makes consumer analytics especially powerful is when they’re powered by predictive metrics with demographic depth. 

Predictive metrics track key indicators of what people are going to do, not what they’ve already done. This way, you can know the trends of both today and tomorrow, and how both will impact your investment thesis. 

Today’s leaders need the ability to see real-time category and brand change at scale, in connection with a deep understanding of consumers and market trends. This is where demographic depth comes into play. Ideally, your consumer analytics program will allow for visualizing customer views broken out by income levels and key labor markets in the U.S. These markets could include agriculture, manufacturing, financial services, retail, health care, hospitality and more.

The challenges of consumer analytics and overcoming them

Here’s the problem with most customer analytics: It’s difficult to know which datasets you have that are actually predictive and what they can predict. Teams usually have to do modeling on their own time to figure out what the data is signaling. But a strong intelligence provider can bring these datasets to life. When identifying the right partner, here are the three components we advise looking for: interactive brand metrics, economic trend tracking and competitor comparison.

1. Interactive brand metrics: Data visualization tools can help you quickly derive critical insights into a company’s brand market performance, with real-time results on key performance indicators, including:

  • Usage
  • Purchasing consideration
  • Brand favorability 
  • Brand awareness
  • Trust
  • Net promoter score
  • Employer admiration 
  • Buzz
  • Value 
  • Community impact

2. Economic trend tracking: What if you could segment your data findings by 100+ audiences? We would recommend finding a platform that allows you to slice and dice your core consumer audience data by more than 100 demographics, profiles and custom segments.

3. Competitor comparison: Ideally, your intelligence platform will allow you to compare your brand performance with competitors’ across brand metrics, economic, social media and news media metrics. Enhance your due diligence by tracking financial companies and sector-level performance across various brand metrics and economic indicators of sentiment, usage and purchase consideration.

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Revenue and cash flow forecasting

A cash flow forecast can be a vital tool for your business, helping you to identify when it’s time to invest or grow. You can make informed decisions and assess financial risks with an accurate vision of what your cash position looks like now and in the future. 

What considerations should go into this forecasting? Here are our key suggestions: 

  • Where can financial processes be automated with thoughtful upfront investments? For instance, would technology that increases processing speed of cash applications be worth the labor and startup costs?
  • Where should your company’s capital be invested for highest growth, based on nontraditional information sources (e.g., social media listening) as well as traditional economic databases?
  • What is the best mix of debt, equity and internal financing to help your company prepare for an uncertain future? 

When thinking about the questions above, predictive models are important tools to give you a 360-degree view into key considerations for thinking about cash flow and revenue. Macroeconomic trends, supply chain versus consumer demands and projections of significant events should all play a role.

Macroeconomic trend reporting

Macroeconomic trends influence consumers’ thinking, and ultimately your growth. Most of the macroeconomic trend reports are only released monthly, quarterly or annually — but you need them more frequently. Having daily consumer tracking for U.S. and global populations will help you spot trends as they’re happening — especially when those trends can be segmented by income, employment status and job role. 

Another critical macroeconomic factor to watch is the global supply chain. For those in consumer goods, knowing what’s happening right now can help you make financial decisions around your company’s own supply chain more efficiently, ensuring vendors have enough production time and reducing wasted time, labor and packaging.   

Lastly, projections of significant events, such as how a recession will impact customer demand, can give your team more time to recommend changes to investments and other assets before the bottom line is significantly affected. 

Thinking about the above factors, as well as adding in other considerations specific to your organization, can help shape the economic well-being, finances and purchasing power of your business.

Risk management in the financial industry

Another use case for predictive analytics tools is identifying potential risks in advance, analyzing them and then taking measures to mitigate or minimize the risk. When your organization makes any financial decision, there is always a measure of risk involved, even with the most careful planning For instance, it’s not always intuitive which datasets are predictive, which means a finance team has to do the modeling on their own time to determine what the numbers are signaling, if anything. Also, an organization’s tools and systems are not always well integrated, and it can take time and effort to track down the many variables. Even then, you can’t be sure you’ve captured them all.

That’s why having the right economic data, at the right time can mitigate financial risk. For example, is your organization well-positioned to respond to an unexpected global crisis? Tracking macroeconomic trends can help pinpoint what movements pose the greatest greatest risk to supply chain, getting items on shelves that customers want and where possible points of expansion or retraction may be needed. 

Predictive analytics in finance can also help pinpoint which growth direction will prove most profitable, and therefore where to invest your capital. Instead of wasting funds on transitory trends and fruitless endeavors, your team can recommend investments that position your organization as forward-thinking and modern, while also creating a stable, profitable future.

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Real-world examples of predictive analytics in finance

Here are a couple of examples of how predictive analytics can help finance professionals. 

How did Nike navigate changing consumer sentiment?

In 2020, Nike published a statement expressing concern about reports of forced labor among Uyghur Muslims in Xinjiang, the region of China where much of the world’s cotton gets picked and processed. Other retail giants, including fellow athletic brand Adidas and fast-fashion company H&M, did, too. 

In 2021 the U.S. and other Western countries imposed sanctions on China for the allegations in March. For Nike, the backlash was swift and strong. Within days, Chinese social media resurfaced (and blasted) the statement, celebrities cut ties with the company and the state media called for a boycott. How the propaganda would affect Chinese revenues, however, wasn’t immediately clear to investors — especially after Nike’s double digit growth (25%) in the spring of 2021, before the boycotts. Back then, the company insisted that any weakness was due to supply chain disruption. But Morning Consult’s economic indicators suggest a different story: the drop was actually demand-driven, caused by the geopolitical moment. 

Having these insights ahead of Q4 earnings — when Nike reported -6% growth YoY — can give investors an edge in understanding how geopolitics affects their positions, especially in usually opaque consumer data markets like China.

What led to a jump in popularity for Crocs?

Over the last year and a half, the Crocs brand has taken off, particularly as celebrities from Bad Bunny to PSY to Drew Barrymore partner with the foam clog company. All this explosive growth begs the question: Is it sustainable? 

To find out, Morning Consult plotted the percent change in CROX’s stock price against our own Purchase Consideration data. Then, we split our data into generation groups and noted the moments in time when major celebrity collaborations were released. Here’s how we might interpret these findings: Past performance suggests that rising purchase consideration is a good signal that the stock price might continue to grow. For our clients, this kind of predictive data can be critical.

How your finance team can access predictive analytics

You can access predictive analytics and more through the Morning Consult Intelligence platform. Our always-on survey technology captures key brand metrics and economic indicators every day, so that business leaders can make smarter, more informed decisions in real time. Here is a sample of what your organization can receive with Morning Consult.

On-demand access to key market data via API or platform

Access consumer research and global economic indicators on demand, using either the interactive platform or our proprietary API. No need to wait on a request to process critical information.

A real-time understanding of how external influences are impacting specific customer segments

On the platform, track consumer groups’ finances and economic behaviors as often as desired to inform your team’s strategic recommendations. For instance, if the global economy started recovering from a downturn, you could find out:

  • How is the recovery affecting consumers in the short- and long-term?
  • How much do they expect prices to rise in the coming year?
  • How are the ebbs and flows of the recovering economy impacting the behaviors of consumers of varying income levels and job roles? 
  • How are government benefit programs (or cessation of them) impacting their spending? 
  • How are they reacting to product shortages and price increases?

Foresight into how consumer demand will change across brands and regions

Receive reports on not only how consumers have behaved but also how they will behave — in six months, one year, five years, even a decade. This insight will empower your team to make the cuts, changes and expansions necessary to protect the company’s financial health and take advantage of openings in the market — before competitors catch on.

Hassle-free comparison of data on different geographic markets all in one platform

Morning Consult collects data in the same way across many brands in many countries. This means you can easily compare consumer spending in the United States, India and Japan, for example — and can access the data on a single, streamlined platform. There is no need to rely on different providers for data on different markets that can render comparison statistically unsound. 

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