Friday, September 21, 2012

Business Analytics at Work, Almost

Back in February, business analytics briefly broke into the mainstream consciousness thanks to an article in the New York Times Magazine called How Companies Learn Your Secrets by Charles Duhigg.

When I teach, I frequently use an example from this article. I get lots of email asking me for more information, so I figured I might as well post it here.

Breaking Habits

Duhigg's purpose is to show that human behavior is driven by habit. The key to changing behavior is understanding the underlying habits. 

He tells several stories where businesses use this information to drive positive results.

One of his stories happens to touch on predictive analytics.  

The setup is simple: back in 2002, marketers at Target had realized that shopping habits are disrupted with the arrival of a first-born. Bring expecting parents into stores, and you have an opportunity to cultivate new patterns. The result: new lifetime customers for all manners of product--not just baby items.

The key, then, was to identify people who might be pregnant. With the help of a team of statisticians, Target figured out that they could do just that.

Enter Analytics

Duhigg describes how Target tapped into their vast data reserves, and eventually came up with a market basket profile that was a good predictor of pregnancy. This profile could then be applied to their customer base to identify thousands of people who were likely to be expecting.

They were surprisingly effective. Duhigg tells the story of a gentleman berating a store manager for marketing baby products to his teenage daughter:

“She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”

The manager didn’t have any idea what the man was talking about. He looked at the mailer. Sure enough, it was addressed to the man’s daughter and contained advertisements for maternity clothing, nursery furniture and pictures of smiling infants. The manager apologized and then called a few days later to apologize again.

On the phone, though, the father was somewhat abashed. “I had a talk with my daughter,” he said. “It turns out there’s been some activities in my house I haven’t been completely aware of. She’s due in August. I owe you an apology.”
The analytics, it seems, did their job. But did they really?

Analytics and Business Strategy

This anecdote went viral when the Times published Duhigg's article. Ethical issues notwithstanding, it offered an updated version of the apocryphal  "beer and diapers" tale from the 1990's.

But there's more here than market basket analysis. This story illustrates a key aspect of predictive analytics: its important to engage with the owner of the business problem. In this case, it seems, that did not happen. Instead, someone made a tactical decision about how to act on analytics.

In this case,

  • A business analyst had already identified something important: pregnancy. 
  • An analytic modeler took things from there, and developed a way to identify pregnant shoppers. 
  • The analyst chose to mail to people identified by the analytic model.

This last step is where the fumble took place. Every analytic initiative must be connected to the owner of the business problem. This person may not be actively engaged in the analytics, but it is her job to decide what to do with the insights. Deciding how to act on analytics is a key part of the process. It involves communication, and requires the attention of executives who are responsible for business objectives.

The Book

Duhigg has now published a book on the same topic. You might want to check it out.  Just remember, this is not a book about analytics -- it's about habits.

The Power of Habit: Why We Do What We Do in Life and Business by Charles Duhigg.  (Random House, 2012)