Monday, 15 October 2012

Coupon promotions in uncertain times, how Risk Intelligence can help

News that coupon redemption is increasing and moving up the social and economic scales may call to mind that coupons have been known to have been ‘too successful’, on this the 20th anniversary of the Hoover Free Flights fiasco. Those with long memories will recall when Hoover's free flights promotion was launched to a wide-eyed British public in August 1992, it seemed too good to be true. Over the next 21 months, many Hoover customers discovered it was. It ended up costing the company £48m…

Anticipating coupon redemption-rates is but one of the uncertainties a NAM needs to be able to factor into the day-job and sleep nights.

There is a special kind of intelligence for dealing with risk and uncertainty. It doesn’t correlate with IQ and most psychologists fail to spot it  because it is found in a disparate group of people such as weather forecasters, professional gamblers and hedge-fund managers…

A new book, Risk Intelligence: How to live with uncertainty by Dylan Evans , can be a NAM’s guide to the twilight zone of probabilities and speculation, a DIY tool to making decisions in all aspects of the role.

Four Steps to Calculating Probability
Essentially, risk intelligence is about having the right amount of certainty, and Dylan outlines four mental steps in estimating a probability and when assessing the truth or falsehood of a statement:
  1. First take stock of what you know about the issue (identify the bits of information you already possess that may bear on the issue)
  2. Next, for each bit of information, decide (a) whether it makes the statement more or less likely, and (b) by how much it affects the probability that you are correct
  3. The outcome of the process should be a hunch or feeling, the strength of which varies according to your degree of belief
  4. Finally, translate this feeling into a number that expresses that degree of certainty (use % i.e. 65% certain that this is the way forward)
It helps to distinguish Risk Intelligence, a purely intellectual ability, from Risk Appetite, an emotional trait, more to do with how comfortable you are with taking risks. Risk Appetite governs how much risk you want to take, while risk intelligence involves being aware of how much risk you are actually taking… 

The book goes on to help readers improve their risk intelligence, think by numbers, make use of probabilities (the 100 percent rule), and even evaluate betting odds... In fact, with the right degree of application, the book will point you at everything a NAM needs to help cope with unprecedented times, or even anticipate the outcome of promotions…

In short, it debugs the process of using numbers and probabilities to clarify your thinking, helping you to risk excelling in the day-job, while others are unaware of the risk they are actually taking by awaiting a return to the ‘risk-free’ days of twenty years ago..

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