A big-data algorithm predicts which consumers will leave a site without making a purchase and targets them with discounts, reports Adam Tanner in Forbes (4/14/14). This algorithm was developed by "a member of the card-counting team that outsmarted casinos portrayed in the Kevin Spacey movie, 21." It is offered by a company called Freshplum, which claims 99 percent accuracy in terms of identifying who won’t buy anything, and a "five-percent revenue lift" by offering them "a steeper discount than normal."
Ric Kostick, co-founder of 100% Pure, a cosmetics company, is among the online retailers using Freshplum’s algorithm: "After three months using Freshplum’s selective promotions, online sales increased as much as 13.52%." "What made it interesting to me is that they use figures like weather from where visitors arrive at the website," says Ric. "Where are they in the city? Are they in the outskirts? Are they in the inner city?" However, while the algorithm’s effectiveness seems impressive, some question its fairness.
Freshplum notes that it "does not charge anyone extra but promotes discounts to narrow categories such as specific geographic areas, repeat customers or those seen as unlikely to buy." Ric admits this can be sticky. "We don’t want to cross the line where we upset our customers, but we still want to capture the customers who are not going to buy," he says. Freshplum says recipients of its promotions "are 36% more likely to buy, leading to an average margin lift" of 6.4%. The company has 34 customers and $2.4 million in venture-capital backing.