July 27, 2016

When Small Data Is More Profitable Than Big Data

Thanks to the power of the Internet and the increasing importance of big data, businesses like Dansk Supermarked are able to collect countless consumer data. But is that a good thing?

More About This Case

Dansk Supermarked, the largest supermarket chain in Denmark, recently partnered with a service provider called Infosys. By doing so, the firm was able to acquire an infinite amount of customer data, such as age, sex, location and occupation. This allowed the business to offer discounts specifically tailored to each individual’s needs. Talk about precision, right?

While this may seem to advantage Dansk Supermarked, there is also a downside to this phenomenon. Customers are increasingly exposed to risks pertaining to data security and privacy, which raises the following question: how do you find the balance between firms’ willingness to better satisfy their customers and consumers’ right to data privacy?

How should consumer data be used?

According to Ethan Song, CEO and Creative Director of Frank & Oak, customer data must be used intelligently. “Customer data does not need to be big, as long as it is relevant and judicious for both the company and the consumer.”

But what is judicious data?

This is what Tommaso Valletti and Jiahua Wu wanted to learn more about. These two economy professors at the Imperial College Business School of London created a study called “Big Data vs. Small Data”. In this study, they managed to come up with an econometric formula that allows companies to establish the best strategy when using consumer data in order to increase their profits. Here below are the three main insights of their study:

1. There is an inverse relation between the level of investment in big data and the level of tolerance of consumers in terms of using personal data.

In other words, the more enterprises use customer data, the less likely consumers are to disclose their personal information. 

2. Companies tend generally to invest too much on big data.

Why? Because they have the reflex to collect more than necessary.

3. They also seem to be more interested in investing more in small data, and less in big data.

This would suggest that firms are more interested in knowing their customers better, as opposed to knowing more about their customers.

In summary…

Valletti and Wu concluded that it is more effective for businesses to collect a limited amount of observations that aim to satisfy a specific objective rather than wanting to know everything about consumers. Sometimes less is indeed more.

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