How to make winning bets on what to sell

Nate Silver, whose new book The Signal and the Noise aims to help people make better predictions, is celebrated in America for his ability to predict the outcome of the presidential election.

However, a former professional poker player, Silver explains that his advantage comes because his competitors are television pundits and they are widely inaccurate in their views.

The views of TV pundits are shaped by their own biases and they get lost in the narrative. By which he means the pundits believe in the candidates whose stories they most like.

The FT last week started a series on Big Data, where companies are looking for advantage through better customer understanding, searching the internet for hidden patterns and trends to give them an edge.

How much data is out there? 2.6 zettabytes are generated every year. How big is a zettabyte? It is 1 billion terrabytes. How big is a terabyte? It is 650,000 high quality photos.

Should an independent shopkeeper worry about this? Yes and no. Yes, because the supermarkets and big suppliers will be spending lots of money investing in big data solutions and coming up with big data answers.

No, because the evidence assembled by Silver suggests that most predictions and forecasts miss the mark. “The volume of this information is increasing exponentially. But relatively little of this information is useful,” he writes.

Instead, what you have to do is to think probabilistically. It is a big word and means something like “use your common sense”. Silver provides some brilliant examples of how to behave – and a mathematical formula (Bayes’s theorem).

For example, what happens when you come home and find a mysterious pair of knickers in your husband’s underwear drawer? Most wives immediately assume 100 per cent that he is cheating on them. However, using the formula, the chances that he is cheating on you are shown to be 29 per cent.

Hold that thought. Silver moves on to discuss how a successful sports gambler operates and how to make money playing poker. These chapters are riveting: especially when you apply them to your business of retailing.

What are the odds of selling that outer of 24 packs of crisps? What are the odds of realising its profit potential? What factors come into play?

Silver used to make money at poker because there were lots of big fish (bad players) at the tables. Their losses helped him win more than $100,000 a year. However, once the big fish disappeared, he started losing so he cashed out his chips.

At 450 pages, The Signal and the Noise is an important book. It teaches people to be more careful about their decision making. “Information becomes knowledge only when it is placed in context,” Silver writes.

To do this well, you need to make lots of forecasts. Don’t bet your business on these forecasts at first. But the more forecasts you do, the more successful you will be. I strongly recommend this book to regular readers. It will make you humbler and better at your job.

Three secrets of great merchandising

Look at the ceiling and top wall of this McDonalds restaurant. There is a picture of two good looking healthy people having fun and some bright primary colours. Ask yourself what is the purpose of this picture? In the latest issue of Retail Newsagent in a feature on merchandising, Andrew Knight of RI tells its independent readers that they need to think about using sharp pictures of non-packaged products linked to people consuming goods. Perhaps this has been taken to the next level by the fast food chain - that is selling the feeling of being happy and healthy rather than the products. A second, related tip from the same feature is made by most contributors - it is vital to keep windows clean and clear of clutter. "I believe that less is more," says Roli Ranger, a retailer from Ascot, Berkshire. He has posters for promotions in between the windows that are regularly updated and discreet signs in the windows. Third, a highly visible well-stocked promotion at the entranc

Overcoming a price disadvantage

Planning for his speech at the Independent Achievers Academy last week, Theo Paphitis asked an assistant to buy a basket of six essentials from a Tesco, a Londis (independent operator in a symbol group) and a One Stop (Tesco's CTN/convenience chain). Tesco was cheapest by a big margin. Second came Londis. The most expensive was One Stop. Mr Paphitis understands the power of the supermarkets and he says the way to counter them is to focus on how to make the experience of shopping with you more relevant to shoppers or more enjoyable for them. John Heynan, sales director of Molson Coors, told Retail Newsagent at about the same time that occasional beer buyers will pay 13 per cent more for their beer in an independent convenience store, provided the retailer targets them appropriately. Tesco has carved itself out this 13 per cent head start. Looking at pricing, if Tesco is 100, then Tesco Express is 108, One Stop is 112, a good symbol group is 115 and non-affiliated independents

A sign of retail stress perhaps

It must have been four months since this window was broken in the Tesco Express on Pentonville Road and I simply cannot believe that it has not been fixed. This is the sort of lack of focus that independent shops usually get criticised for. The only purpose in sharing this image is to encourage those independents with high standards who are finding the going tough that they can do better than this.

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