Saturday, April 12, 2008

"Pain points"

Why would a casino stop you from gambling?

Why would would an airline give a seat to a less profitable customer?

Turns out that the answer to both questions concern the rise of data base decisionmaking that is at the heart of my new book I just published called Super Crunchers: Why Thinking-By-Numbers is the New Way to be Smart.

Casino's like Harrah's are predicting "pain points" for individual customers -- how much they can lose at a setting and still come back for more. The pain point is an individualized prediction based on dozens of pieces of information about your demographics and gambling history. If you get close to your pain point, Harrah's might send out a "Luck Ambassador" to tap you on your shoulder and give a free steak dinner to make sure you don't lose too much money.

Airlines are doing the same thing. In the old days, if a flight was cancelled, an airline might book customers for the next flight on a first come, first serve basis. Later airlines started give priority to frequent fliers. Later yet, they started giving priority to the most profitable customer.

But now some airlines have started to predict their customers pain points. If you and I are bumpbed from a flight and there's only one seat left on the next flight, an airline might give that seat to the less profitable customer. Why? Because the airline might have estimated that the less profitable cusomter is closer to his or her pain point (say, she had three bad flights in the last year) and might stop using the airline. While you might be more profitable, the airline uses a massive dataset to estimate that you'll stick with them even if they bump you to a later flight. Welcome to the wonderful new world of data-driven decisionmaking.

No comments: