Outlier Analytics - Learning from Those on the Fringe


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Outlier Analytics - Learning from Those on the Fringe

  1. 1. Outlier Analytics – Learning From Those on the Fringe September |2010
  2. 2. Outlier Analytics – Learning From Those on the FringeWhile most companies focus their business intelligence efforts on the masses,those few examining outliers (consumers who don’t exhibit expected behavior) arefinding hidden gems of information they are using to develop new offerings…What?Unexpected events, extreme values, or disturbances are common occurrences inthe world of data analysis, occurrences which are labeled as outliers by thosepracticing in the field. Ask any statistician or a data miner what he or she woulddo with outliers (e.g. a customer makes 100 calls to a contact center in a week, or,a small business makes thousands of bank transfers in a month), you’ll usually getthe same answer – “I’d remove them from my analysis.”Although this practice of removing outliers is, in fact, the prescribed action whenit comes to conducting a traditional analysis aimed at understanding a givensituation or predicting future behavior, such an action prevents one from gaininginsights through these random outliers. It’s in these out of the norm behaviorsand relevant transactions where one can gather unique and interesting insight,allowing for innovation to blossom.We recommend companies immediately begin analyzing this data set in aseparate effort from their traditional ones. Such data can yield valuable findingswhich can result in an expansion of offerings, development of alternativetreatment methods, or even help see the future in terms of how customers maybehave one day.Why?Traditionalists in the business intelligence realm have naturally examined massconsumer behavior, hoping to identify certain facts that could help theircompanies acquire more, sell more, or retain more. The natural tendency hasbeen to ignore outliers, with the theory being that they hold little value in termsof trying to understand them, sell to them, or cater to them. But it’s really theseunique outliers that can pave the way for the future – the unique way in whichthey interact with or use the products and services of a company can help thatcompany identify how to push their boundaries in terms of innovation.Take 3M for instance; renowned for its uniqueness, 3M is a company that hasconstantly strived to cater to those people we normally deem as on the edge -from astronauts to war zone doctors, Hollywood make-up artists to mountainclimbers, this innovative company is defined by products that originated thanks tothese outlier consumer segments. Today, world-over, individuals across allsegments use such 3M products as high-strength bonding tape or scouring pads,products inspired by those that can be deemed as on the fringe.
  3. 3. Customer analytics efforts that focus on the behavior of outliers can helpcompanies identify how to excel in such a manner, resulting in service offeringscatering to such outliers’ needs. Take Bharti Airtel, for example, a mobile operatorfrom India that identified a segment of farmers with low voice traffic that werefrequently using certain value added services such as weather forecast. Incooperation with farmers associations, the company launched an innovativeservice package for farmers. The package, which includes critical information onseeds, fertilizers, market prices, and weather (temperature, rainfall, windconditions), also allows farmers to communicate with agriculture experts aboutcrop problems. Farmers can take photos of particular crop problems and sendthese photos to agriculture experts by using MMS service. Agriculture expertswith local market knowledge discuss and help to resolve the problems.But How?We recommend a four-step approach for identifying outlier customers,understanding their nature, and making the most out of the knowledge gained. Getting Most Out of the Outlier Analytics 1 2 3 4 Identify Outlier Analyze Comprehensive Understand the Create New Customers Behaviors Root Causes Offerings1. Identify Outlier Customers: In order to benefit from the behavior patterns ofoutliers, they first need to be identified. There are three main sub-categories ofoutlier behaviors: Exceptional Behavior: Extreme usages of a product or a service are considered in this category, behavior which is not expected from a traditional consumer. Examples of this include a customer who logs onto an internet banking account more than 30 times a day, or a small business that purchases hundreds of plane tickets in a week. Unexpected Behavior: Cross analysis of certain product or service usage with other descriptive dimensions may reveal such behaviors. If a customer who is not considered as a prospect for a certain product or a service (by looking at similar customers’ behaviors in a customer base) converts into a consumer, he/she can be considered as an unexpected behavior outlier. A very low value customer who signs onto a very expensive annually contracted product
  4. 4. or service bundle can be an example of such a case in the telecommunications industry. Untriggered Behavior: An unlikely behavior that emerges without any efforts of the company can be considered as an untriggered behavior outlier. A once upon a time subscriber who comes back years later to make a purchase can be considered as an example of this.Companies need to examine their own situation and marketplace facts tohypothesize about which scenarios to examine relative to the above behaviorcategories. Each company has its own set of scenarios to consider and devise, asthe varying market and sector factors dictate a company-specific examination beconducted.2. Analyze Outlier Customer’s Comprehensive Behaviors: After outliers areidentified under three sub-categories by looking from several perspectives, acustomer analysis base needs be established. Analysis on this base will revealpossible correlated behaviors of the outliers in other dimensions and also will beused to understand how customers deviate from the regular customer base in theremaining behavior dimensions. Comparisons should be made for the periodsbefore and after the outlier behaviors are observed.3. Understand the Root Cause: Since outliers deviate significantly from theregular customer base in terms of how they behave, information that is derivedfrom the observations will not be enough to answer why they deviated. In orderto understand the certain needs and motives that drive them, companies shouldconsider conducting various methods of market research to identify the rootcauses of the behavior. Understanding why certain customers interact with thecompany’s channels, products, or services in a given way can only be trulyunderstood through talking directly with said customers.4. Create New Offerings: As a final step, new offerings would need to bedeveloped to capitalize on the findings. Whether it’s the launching of a newpricing scheme, a new product, or a new channel of communication, benefits canonly be obtained through creating a unique offering meant to satisfy the needs ofthe unique outliers. As with all new offerings, they should be tested through pilotswith the outliers to ensure acceptance by the outlier sub-groups.What Next?Companies need to make the examination of outliers a common-part of theirbusiness intelligence practices. Business intelligence units need to work hand-in-hand with marketing, sales and product development units regarding the possiblebenefits of outlier analytics. Regular get-togethers and workshops should beplanned to ensure continuity of such practices.The effects of innovation derived from the insights from the outlier analyticsshould be measured and monitored as well in order to create momentum around
  5. 5. the practice. Once the benefits are realized of such efforts, the more likely it willbe that such types of analytics become a part of day-to-day business. About Forte Consultancy Group Forte Consultancy Group delivers fact-based solutions, balancing short and long term impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety of service offerings for numerous sectors, approached in three general phases – intelligence, design and implementation. For more information, please contact info@forteconsultancy.com Forte Consultancy Group | Istanbul Office www.forteconsultancy.com