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What is Data Mining?

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by Madhuri Yerukala
Last modified: September 11th 2021

Data mining helps you find hidden information in large data sets, decide the value of information, and understand its relation to the organization. There's no doubt about it - Data Mining is not just the way of the future; it's the way of right now! Having been adopted in a variety of industries, you'll now find data mining being used everywhere. Even industries like retail, banking, etc., are utilizing data mining to increase customer experience and tailor unique offerings. With such a boom in the application of data mining, having the skills required to work with data isn't just valuable - it's all but a necessity.

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In this article, we'll learn what Data Mining is, how it works, Data Mining techniques, benefits, and many more.

What is Data Mining?

Data Mining is a process of identifying hidden patterns in large data sets or raw data. Utilizing a broad range of techniques, you can use this information to reduce costs, develop more effective marketing strategies, mitigate risks, and evaluate the probability of future events related to the business.

Data Mining is also termed Knowledge Discovery in Data (KDD). Mainly, it depends on significant data collection, warehousing, as well as computer processing. Using data mining, you can find answers to complex problems that cannot be addressed through easy query and reporting techniques. By using mathematical algorithms, data mining segments data and evaluates the business outcomes.

Now, let’s dive deeper into this article and learn the functionalities of various components of Data Mining Architecture.

Data Mining Architecture

The primary components of data mining architecture are listed below:

 

 Data Mining Architecture

 

Data sources

The actual data source is a data warehouse, World Wide Web (WWW), database, text files, and other documents. The World Wide Web (WWW) is the most significant source of data. The data in these sources might be in plain text, spreadsheet, or in other forms of data like video or photos.

Data Warehouse server or Database server

The original data ready to be processed is maintained by the Database server. Majorly handles data retrieval processes as per user requests.

Data Mining Engine

The significant component of data mining architecture is the data mining engine. It performs all kinds of data mining techniques like association, characterization, classification, regression, prediction, clustering, etc.

Pattern Evaluation in Data Mining

The modules' evaluation techniques are responsible for finding interesting patterns in the data, which could make data comparatively better quality. 

Graphical User Interface

After communicating data with engines and various pattern evaluation modules, it's necessary to share several components and make it user-friendly. Therefore, the need for a graphical user interface popularly known as GUI to effectively and efficiently use all the present components with the data mining system.

Knowledge Base

The critical part of a data mining engine is the Knowledge base, which is quite beneficial in leading the search for the result patterns. It also provides inputs for the data mining engine. The objective of a knowledge base is to make the result more reliable and accurate.

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How does Data Mining work?

Data mining involves analyzing large amounts of data to glean meaningful insights and trends. It helps in many ways like fraud detection, database marketing, credit risk management, spam email filtering, and more. Data mining comprises five steps. The first step of data mining is data collection.

 Companies collect data and store it in data warehouses. Next, they store and manage data in the cloud or in-house servers. Collecting and mapping data helps to understand the limits of data.

 Next, management teams, IT pros, and business analysts access the data and plan how to organize it. And then, the app sorts data based on user results, and finally, the end-user presents data in an easy-to-share format, such as a table or graph.

 Next, let’s understand the techniques used in data mining.

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 Data mining includes several techniques for solving a business problem or solving a problem. Here, in this section, we'll discuss a few data mining techniques to optimize business results.

  • Classification analysis

The most common technique used in data mining is classification analysis. It helps to identify relevant information about target variables and classify it into appropriate levels of detailed categories.

  • Association Rule Analysis

Association Rule Analysis helps you to identify exciting relations between several variables in large databases. This method allows you to identify hidden patterns within the data. This technique is highly recommended in the retail industry to examine and forecast customer behavior. 

  • Anomaly or Outlier Detection

Anomaly, or Outlier detection, is used in observing data items in a dataset that do not match an expected behavior or expected pattern. They provide critical and actionable information. This technique is mostly preferred in various domains, like fraud detection, intrusion detection, fault detection, system health monitoring, and more.

  • Clustering Analysis

Clustering Analysis is another common technique for grouping data objects, records, or cases that are in similarity. It won't perform any classification; instead, it separates datasets into subgroups for analysis.

  • Regression Analysis

Regression analysis helps to identify and analyze relationships among variables. If any of the independent variables is varied, you can understand the dependent variable's characteristic value. This means one variable will be dependent on another, but not vice versa. Generally, this technique is preferred for prediction and forecasting.

 All these techniques help to analyze data from different perspectives. Now you know to decide the right technique for summarising data into useful information for solving a variety of business problems like customer satisfaction. Increase revenue or reduce cost.

Data Mining Examples

The predictive capacity of data mining has changed the business strategies design. Below listed are some examples in the current industry.

  • Marketing: In marketing, data mining is used to explore large databases and improve market segmentation. It analyses various parameters like customers, age, gender, etc., to guess their behavior and direct personalized loyalty campaigns.

  • Retail: Supermarkets are well-known users of data mining techniques. It analyses the purchasing patterns of customers to identify product associations. Also detects the offers which are most valued by customers or increase sales at the checkout queue.

  • Banking: In identifying market risks, banks use data mining techniques. For credit ratings and anti-fraud systems to analyze customer purchasing patterns, card transactions, and more. It helps banks learn more about user online preferences to improve return on their marketing campaigns, sales performance, and manage regulatory compliance obligations.

Benefits of Data Mining

Data Mining is more effective when deployed strategically to serve a business goal. Data Mining has enormous benefits, as explained below:

  • Helps in predicting future trends

  • Identifies the most profitable customers and their preferential needs to strengthen relationships and maximize sales. 

  • Quick fraud detection

  • Helps in decision making

  • Signifies customer habits

  • identify gaps and errors in processes

  • Discovers time-variant associations between products and services to optimize sales and customer value. 

  • Increases Brand Loyalty

 Now that you understood Data Mining advantages, next, we’ll see a few disadvantages of using it.

Limitations of Data Mining

  • As data mining involves various patterns, it requires a skilled person to analyze and understand data output.

  • Data Mining violates user privacy by collecting information using market-based techniques and information technology. It lacks in the matters of security and safety of its users.

  • The main objective of data mining is to create relevant space for beneficial information. But while performing data collection, there is a possibility of collecting additional irrelevant information.

  • In data mining, the possibility of safety and security measures are minimal. And because of that, some can misuse this information. 

  • One of the possible limitations of this data mining system is that it can provide data accuracy with its limits.

Future of Data Mining

Data mining is a keystone of analytics, that helps you to develop the models that uncover connections within millions/billions of records. The demand for professionals skilled in data mining is expected to rise substantially by 20% in the next five years. This trend is expected to grow even more, as the companies in various fields are turning towards data to improve their sales, reduce inefficiencies, and uncover hidden patterns. The data mining specialist plays a significant role in the data science team, and thus this position is likely to be valued even more in the coming years at companies of all sizes.

Conclusion

Finally, the bottom line is that all the techniques and characteristics of data mining help to discover new creative things. And at the end of this discussion about what data mining is, one can determine its credibility and feasibility even better. We hope the information shared in the article is relevant and added value to your knowledge.

About Author

author
NameMadhuri Yerukala
Author Bio

Madhuri is a Senior Content Creator at MindMajix. She has written about a range of different topics on various technologies, which include, Splunk, Tensorflow, Selenium, and CEH. She spends most of her time researching on technology, and startups. Connect with her via LinkedIn and Twitter .