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Over the past couple years there have been few topics as hot as “bank fees”. The financial collapse of 2008 started a chain reaction that included lots of consumer outcry and intense regulatory scrutiny. As a result, banks got squeezed…hard. Whether they deserved it or not is a debate for others who are smarter and better informed than I am, but what even I can figure out is that when a business starts to lose money and has its revenue streams cut, it has to identify ways to stop the bleeding. In bank-speak, that means raising fees.

As a consumer, I don't like fees any more than anybody else does, but I also recognize that a business is in business to make money. Rather than curse the fates, or fees in this case, I did what I do best...I researched the issue.

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  • Ed Olesky
    Ed Olesky says #
    This was an excellent read Bob. I feel that the consumer should be heard and research is the way to make change happen. Reading yo

Shane Frederick (Associate Professor at Yale University’s School of Management) did a talk on Behavioral Economics at our recent research conference that got me thinking. But before we tap into the scary place that is my brain, let’s consider what behavioral economics is. Most of us with a formal business education have taken at least one if not several economics classes, during which we were exposed to market theories based on assumptions that sounded reasonable in principle but that really didn’t represent how things worked in real life. Behavioral economics, Shane started, is the study of economics when those assumptions are relaxed, and the relaxation of one of these assumptions, that people act rationally, is what got my attention.

One of the examples Shane used to make his point involved a pivotal point late in a 2009 football game between the New England Patriots and the Indianapolis Colts. Bill Belichick, the coach of the Patriots, decided to go for it on 4th and 2 deep in his own territory. The attempt failed, the Colts scored after the ensuring change of possession and won the game, and nearly everyone in the sports world pointed to Belichicks' seemingly insane decision.  But was it really insane? 

A former colleague of mine used to tell us to “torture the data until it confessed”. In other words, don’t just stop your investigation at the first finding. But rather, keep poking, prodding, flipping and coercing until you feel you’ve uncovered all the data has to give. Ah…images of Jack Bauer doing his thing flash through my mind just thinking about our own data “torture” sessions.

All kidding aside, what my colleague was really trying to say was spot on. I’m sure we’ve all known researchers who habitually stop at the first find. They rarely take the time to consider different ways of looking at data, of considering the message within.

thanksgiving turkey dinnerLater this month, those of us in the United States celebrate one of my favorite holidays, Thanksgiving. Officially, Thanksgiving is a post-harvest celebration that was brought to the Americas by European settlers in the 16th or 17th century (depending on which historian you believe). Unofficially, it's the day where families and friends gather to feast, take naps and watch football. Oh my, even as I type this my mouth is watering...turkey, potatoes, stuffing, cranberry sauce, peas and the like, with chasers of pumpkin, apple and other assorted pies. All delicious, but I particularly love eating turkey on Thanksgiving.

two_dollar_billMy seven year old son gets a $2 per week allowance. He doesn't really do anything to earn this money. Rather I give him (and his brother) an allowance to teach them how to save for things that they want. Implied, and in fact part of the bargain, is that they can't hassle me for Pokémon cards, or Wii games, or anything else they "need", because they have their own money. Well, about a month or two ago my seven year old mandated that I start paying him with a $2 bill. Yikes! Where was I going to get even one $2 bill, let alone one every week?

As we consider my situation, let's juxtapose something we've all been hearing for 10 plus years now. The brick and mortar (fill in the blank) is antiquated, and on its way to irrelevance. The Internet is the way that EVERYBODY is going to shop for and do EVERYTHING! Heck, I've heard it so many times and for so long that I agree with it, which is odd since the only items I consistently buy online are books, DVDs and music.

talking_webPrior to my current tour at TRC I was a partner at a small data mining boutique that had a simple objective: support the sales and marketing goals of our clients by helping them stem attrition. While the goal may have been simple, how we set out to do this was not. See, we took upwards of 30 months of time-series data on all of their customers and applied some mind-numbing statistical techniques that identified patterns in the data that preceded an eventual behavior. In most cases that behavior was a customer terminating their relationship with our client. Once our system identified the patterns that preceded attrition, we would then continue to feed it customer data each month and it would dutifully output a list of customers that were likely candidates to attrite. In addition, for each customer on this golden list we provided the prediction "trigger", or the thing that they did that was responsible for the system flagging them as a high-risk customer.

Quick. What kinds of data are needed for a successful segmentation?

Well, most clients I talk to about segmentation excitedly lead with the data they already have..."we have a TON of data...yes, yes, we can get it all...what's the rule for what data are good for segmentation and which aren't?...how do we tie it all together?...we really do have a lot, (sheepishly) do we really need it all?".  This focus on their data issue is quite understandable. Companies have spent a lot of time, money and resources getting their data house in order, and darn it they need to leverage it somehow. While, in fact, there really is a lot of valuable information in the data that many companies already have, it isn't always enough. In fact, I would argue that in some instances it only provides half the answer.

Tagged in: segmentation

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