Twelve years ago at the blog – – in 2024 the concept of persuadables is more relevant than ever, Red Lobster... not so much

This 2012 post its on one of the topics I've been meaning to bring into our election-year blogging. Persuasibility is one of if not the fundamental concept of marketing. The target audience of virtually all advertising is the persuadable segment of the audience. Given the large cash reserves of the Democratic party and the high stakes for this campaign, the question of how you identify persuadables and how best to reach them is going to be central to this race.

Now to review the basic concept:

Friday, August 3, 2012

A bit more on persuadables

Following up on the last post, persuadables are one of those ideas with a high utility to difficulty ratio. They aren't hard to understand but they come in handy. So I thought I'd tack on a simple but fairly realistic example.

You own a casual dining place, think Red Lobster. You're sending out good coupons -- a popular twenty dollar entree for  fifteen  (still leaving you a profit of about a few dollars) -- to a random selection of people in the area. You've seen an uptick in business associated with the offer and you're seeing new faces (always a good thing), but the mailings cost you a quarter a piece and with a response rate of about two percent, the campaign is costing you a lot of money.

So you hire a statistician who builds a logistic regression model that lets you rank recipients and you only mail people who are highly likely to respond. Your response rate is now ten percent. A while later, though, you notice that your number of customers since you started using the model is back down to pre-coupon levels and your profits are way down. What happened?

The explanation lies in the three primary kinds of people who got your coupon in the mail. The first group is non-responders. They cost you a quarter a piece. Next are people who normally wouldn't have gone to your restaurant but decided to because of the coupon. These are the ones you like; they bring in money and may go on to become regulars. Finally, there are people who used the coupon but would have come by even without it. Giving them a coupon represents five and a quarter in lost revenue.

Remember, the model was built to rank likelihood to respond and as a general rule, the people most likely to come by after receiving a coupon are the people who would have come by anyway. By mailing only to the top deciles, you effectively selected the worst possible customers to market to.

This may seem like an obvious mistake, but it's not that unusual. Most people  who've worked with marketing analytics can come up with a few examples, some of which came with hefty price tags.