Optimizing Supply and Demand with Narrow Artificial Intelligence (AI)

Many a marketer has lamented, “I wish I knew exactly what my competitors are selling and where they’re successful.” The good news is that in many instances, the information to answer the query exists. The bad news; data sources needed for the query are often strewn across the internet, in trade association figures and sometimes third party databases.  Not to mention, the data could be siloed within your own company in various departmental datamarts.

A challenge like this calls for some really smart thinking and compute power. It’s also begging for an algorithm.

But what is an algorithm? Simply stated, an algorithm is a set of rules specifying how to solve a problem.  And while some algorithms incorporate randomness, they are usually instructions intended to move in steps. For example, a cake recipe is an algorithm of sorts, as performing steps out of order, or skipping steps won’t result in a very tasty fare.

And while some algorithms are quite simple in design, the real “beauty” of an algorithm emerges where complexity and scale predominate.  An article from the Financial Times, “Supply and Demand in the Sky” illustrates this point.

The Financial Times article mentions that in Europe, each airline knows how many passengers are flying its planes at any one time. This is, of course, because each airline has data from its own source systems such as reservations, resource scheduling, departure control etc. However, airlines have no information on how many passengers are flying competitor planes.  They can guess the answer based on routes and the maximum capacity (seats) of competitor airplanes, but they really don’t know.

Why all the fuss in knowing what the competition is up to? Rest assured, if you are an airline marketing executive trying to decide where to add another route, it’s definitely helpful to know if your competitor is flying full or nearly full airplanes.

But with multiple millions of investment dollars riding on your decision, an uneducated “guess” isn’t going to cut it. In this case, an algorithm designed by Phillipp Goedeking of Airconomy rides to the rescue!

Phillipp Goedeking has a PhD in biology, but his real love is taking a mathematical approach to complexity. To help airlines determine how many people fly from one city to another, Dr. Goedeking looked at flight frequencies and type of aircraft used and easily came up with the total number of seats available at any one time. So this number is the available “supply”, but what about “demand”?

To determine demand, Goedeking’s algorithm uses computational power from a bank of 150 computers to produce various demand estimates –essentially an educated guess. Then it matches these “guestimates” against thousands of sets of quantifiable transport data. The algorithm then refines its estimates by “comparing data through a very sophisticated trial and error process.”

Now, since airlines don’t share passenger data, it’s hard to know how close the algorithm’s “guestimates” are to truth. However airline interest in Goedeking’s algorithm suggests that he’s very close to the right answer.

Some key takeaways (there may be more) from the Financial Times article include:

  • Some business challenges exist that are too complex—or too time consuming for human intelligence
  • Well designed algorithms (with compute power) can help sort through complex data sets and choose best options from millions of opportunities
  • Some algorithms are designed to “learn”, improve and evolve over time
  • Some decisions are too costly to be left to educated guesses or gut decisions.  If you don’t know the answer, chances are someone like Phillipp Goedeking does

No algorithm, by itself, is sufficient to claim competitive advantage. Smart people and smarter processes also must be added to the mix. That said, data management capabilities and “intelligent” algorithms are a ticket towards helping some companies write their own future.

Mathematics and Marketing

math symbolsThink marketing doesn’t have much to do with mathematics?

Mathematics  is giving some companies a competitive edge in better understanding customers. Indeed, companies across all industries are now capturing data and creating rich profiles of customers to “predict” their wants, needs and future desires.  Mathematics has left the ivory tower of academia for a marketing department near you. Are you ready for this massive paradigm shift?

Let’s be clear as one who has worked for many global consulting companies,  I hate the phrase, “paradigm shift”. The words are close to meaningless due to overuse.

However, in this rare instance, where the world of mathematics is invading the marketing kingdom, it makes sense to emphasize a new way of thinking that is radically changing the way marketers do business.

Marketers have always wanted to know more about customers—after all, better segmentation and targeting of a customer base helps improve marketing ROI and ultimately increases satisfaction as customers are not bombarded with irrelevant offers.

Fortunately for marketers, advances in technology (both applications and infrastructure) have made it easier to capture, manage and analyze data so as to piece together a more complete picture of customer behavior and of enterprise operations.

Case in point, an article from Business Week titled, “Math Will Rock Your World”, highlights companies such as Google, Aetna, Harrah’s and others that are using mathematics via analytical applications to sort out “swelling oceans of data” and mine data for insights to better understand customers.

While arguably a bit dated, the Business Week article showcases how companies are using customer data to build profiles and formulate models of both customers and employees that they believe will allow them to simulate and predict how to, “sell us things, steer us clear of diseases, and ramp up (employee) productivity.”

Other examples in the article show how companies are using advanced algorithms to make sense of unstructured data (emails, documents, call center notes), and optimize online advertising campaigns through the refinement and selection of keywords for search.

Using mathematics to better understand customers is serious business—just ask Netflix.

A Wired magazine article discusses how this online movie rental company offered a $1 million dollar prize to any one person or team that can improve its movie recommendation algorithm by 10%. In fact, according to Netflix’s leaderboard, a team from Bellkor just won the prize!

By opening access to one of the largest data sets available of online behavior—100 million customer movie ratings—Netflix has “crowdsourced” improvements to Cinematch, its engine that essentially recommends, “If you liked this movie, you’ll also like this one.”

However, even though it has taken over two years for a team to finally win the Netflix prize, minor improvements along the way to Cinematch have helped Netflix utilize more of its DVD inventory and improved customer loyalty as subscribers find movies of interest that perhaps they might have previously overlooked.

In another article, “Guessing the Online Customer’s Next Want”, Barney’s New York is mentioned as a company that’s seen dramatic marketing ROI improvement from using sophisticated analytical applications based on complex mathematics.

Through the use of technology, Barney’s is able to collect and analyze the online behavior of its customers and then craft smarter and more appropriate responses to interested audiences.

For example, the article notes, “An e-mail message announcing sales might go to those Web site visitors who had purchased certain products or types of products in the past, but who had done so only when the items were on sale. In the simplest terms, if someone buys only when something is on sale, but never buys anything in December, then the e-mail sale flier might not be sent to that customer in December.”

Just as in the early 1980s, when the financial industry was upended by the flight of quants from academia to Wall Street, marketers are starting to reap the brainpower of mathematicians, physicists and others as they codify their expertise and knowledge into sophisticated information technology systems and analytical applications. These innovative systems are helping marketers leverage information to better connect with customers and drive the business forward.

Paradigm shift? Absolutely. The world of marketing will likely never be the same again.

Questions:
• Are you seeing these trends in your particular industry? If so, how so?
• The companies mentioned above are starting to treat data as one of their most valuable assets. Is your company on that path?
• Are you concerned with the potential “dark side” of simulating and modeling customer behavior—i.e. privacy issues?
• What skill sets will marketers need in the future to be able to compete in this new world of mathematics and marketing?

I’d love to hear from you!

Advanced Speech Technologies – Peril or Promise?

HAL 9000Enterprises are starting to deploy advanced speech technologies that can identify when a customer is angry, confused or even lying. By listening to call center feeds, these applications are often able to troubleshoot a given situation or route the call to a live agent with a specialization in solving critical problems.

But this nascent technology doesn’t always predict correctly—potentially causing even greater customer frustration. Are advanced speech technologies more peril than promise?

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Where Artificial Intelligence and Marketing Collide

AI image2When you think of the term ‘artificial intelligence (AI)’, what comes to mind? The Terminator or Hal 9000 in Stanley Kubrik’s 2001: A Space Odyssey? Marketers might be surprised to know that while visions of cyborgs are probably decades away, artificial intelligence is changing the way we sell to, market, and service customers – right now.

The field of artificial intelligence is often dismissed as the purview of pseudo–philosophers, science fiction writers, or hack–scientists with too much time on their hands. However, artificial intelligence applications and technologies are not confined to imaginary worlds. In fact, AI is helping companies across the globe create operational efficiencies, lowering costs, and improving the customer experience.  read more