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...

Busy street, empty shop, missed profits

True in part to my New Year resolution, I held a business meeting in an independent coffee shop today just next door to a Starbucks. The cafe was presented well and four staff were busy preparing for the lunchtime rush, at 11am. As my guests were late, I had a half hour overview of footfall on the street outside and in the restaurant. Six customers. Barely enough to form the queue in Starbucks or Pret-a-Manger just down the road. Plus one Italian girl who dropped off her CV. Some people stopped to look at the posters in the window and moved on. The owners seemed quite happy. When I left just after 1215, they were doing brisk trade. However, I have the impression that the business is not working hard enough. It could easily have managed 120 customers between 11 and 12, instead of 12. This is lost profit as the fixed overheads and staff costs are already in place. The owners are clearly busy - perhaps too busy to take time to look at the potential that their cafe has. What shou...

Sticks and stones do hurt

My 17 year-old son returned from a rock festival this week wearing a wristband proudly declaring him 0ver 18. He explained how easy it had been to use someone else's ID to get the identification and said it was ironic that he had not needed to show the over 18 band when buying alcohol. Today, Scottish retailer Abdul Qadar is complaining that public authorities are asking people to lie about their age when making test purchases. What trading standards officers may be forgetting is that the fact that retailers invest in a business premises and trade consistently from it make their job much, much easier. The alternative, a world of markets and itinerant traders, will be far harder to police. Mr Qadar's sense of injustice is fair. Those retailers, like Mr Qadar, who value their investment will seek to trade legally and will not sell alcohol to people under the age of 18. Asking children to lie about their age to local traders is a slander on all retailers.

nickshanagher

Search This Blog