hand holding four aces and two die

By Scott Logie, MD, Insight at REaD Group

I recently sat down to play a great new board game with my wife and two statistician friends (there was also lots of wine, food and great chat involved). The game is Borel: https://www.playborel.com. The basic concept of the game is fairly simple: through a series of experiments using dice, cards and coins, it seeks to find whether intuition beats statistical reasoning. Of course, there are conditions applied so that there isn’t really enough time to be too statistical, but it works as a concept.

As an example, if you were to roll three six-sided dice six times, will any consecutive numbers be rolled? Basic stats suggest this should be a no, but when we did this experiment the first two numbers rolled were one, and then we rolled again and got another one.  We were so flabbergasted at this that we re-ran the experiment and immediately rolled two fives.  A triumph for intuition it has to be said.

It’s probably no bad thing that we don’t get to play fast and loose with money in this way. In business, the most important thing is to ensure we have adequate data to make decisions and to increase the probability of those decisions being correct.

Retail’s gut feel

Imagine looking for a new store location, but not considering the road network, the parking availability, the demographics of those who shop in the area, their disposable income and the likelihood of them buying the products you sell. That would be unthinkable: except that not so long ago, siting locations for stores was done very much on instinct. It’s only been in recent years that all these factors have come to play a part, thus ensuring that there is every probability that a new store will be in the most successful location possible.

Recently I watched an interview with one of Sports Direct’s directors. He said that their decision over which failing store groups they bid to take over was based on gut feel. While retail has a notoriously strong reputation for gut feel, I’m also pretty certain they have a formula: a way to evaluate the potential in a business to remove as much risk as possible and optimise the likelihood of success.

Note that many of these phrases are statistical by nature: every probability, remove risk, optimise success, increase the likelihood. We use stats every day, without thinking about it.  Can you guarantee success?, we are often asked.  No, but we can increase the probability of it happening.

Probability in marketing

As marketers, we don’t make huge decisions about investments in new stores or which companies to take over on a daily basis. But we do get measured on the success or otherwise of our campaigns, and of course we try to ensure that we weight the odds in our favour as best we can. Every day we use probability to ensure that we are delivering the right message to the right person at the right time.

Outbound communications, for example, are all about maximising returns: contacting the most relevant individuals with the minimum investment. To do this we use profiles, models and segmentations to help us understand as much as we can about our targets, remove those least likely to respond and find those who are more likely to want to buy our products.

Online, there are different ways to find the most relevant targets. Sometimes it is left to machines to help us do this, but in the background are similar algorithms, finding people (or cookies of people) who look like they browsed the same sites as those who clicked through.  Even the way we find these cookies uses statistics, using probabilistic matching to try and find the same person across numerous machines.

Making your marketing as good as it can be

As with all modelling, the more data we have, the more observations of an event, the more variables we can vary, then the better our decisions will be. Our mantra at REaD Group is that the more you know about an individual the better your marketing will be, which is why we are always looking for data to help us create a more complete picture of our customers’ customers. Sometimes that data is at the individual level and sometimes at the household or even the postcode they live in. In the end, though, it is all about probability and having a better chance of getting a response to a campaign.

One of the joys of Borel was that the number of observations was kept small, the number of variables was low and the time to make a decision was short. Hopefully by adding more data, building up more history and ensuring that more information is available, we can help our clients make better decisions by providing more information.

Incidentally, I won the game by the slimmest possible margin and my wife, who based everything on informed hunches, was right behind me. I’d love to think my stats background gave me the edge. But maybe we need to play again just to be sure.

This blog post originally appeared on Decision Marketing: https://www.decisionmarketing.co.uk/views/data-driven-decisions-are-better-than-a-hunch-right

 

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