- We live in an uncertain world, where accurately predicting the future is nigh-on impossible.
- Companies that want to accelerate growth will use data and analytics to look at a range of likely outcomes to make data-informed decisions on where to place bets.
- Gain Theory has helped ambitious brands understand the likelihood of a range of outcomes, leading to more confident bets.
Navigating Probability in a Time of Flux
Uncertainty rules the roost. Covid, the state of the economy, demographics, trading patterns, logistics are all in a state of flux. To say nothing of environmental challenges likely to arise through changing consumption habits and government regulation. The slowest rate of change was last year and so using foresight capabilities to steer decision making has never been more important.
With so much change, brands need to plan for many different contingencies. And they need to recognise which signposts are the most important in signalling that one outcome has suddenly become more likely than others. By explicitly modelling the probability of different contingencies we can help translate this uncertainty into quantifiable risk.
The Direct and Indirect Impact of States of Flux
To focus on just one example, consider the economic situation. We know that the state of the economy has a fundamental impact on the ability of all companies to grow their business sustainably and profitably. The economy can have a direct impact, the less confident people are, the less money they have in their wallet, the more they’re likely to seek value, and vice versa. But the economic backdrop can also have an indirect effect, changing the impact that each marketing $ invested has as the economic situation changes.
We know that this indirect impact can be dramatic. In a recent analytics project, we found that the average uplift on sales of all marketing levers was worsened by almost 30% as key economic variables moved against them.
Using probability theory to determine potential outcomes and manage risk
Now, what does this mean going forward? Well, it depends on our expectations of where the economy will be over the next 12 months. Will it improve or worsen? If it improves, will it be a little or a lot? And what do we mean by “a lot”?
This is where foresight comes into its own. Using an approach grounded in probability theory we can determine how likely each potential outcome is. We’ve shown this for youth unemployment in the chart – we have a central projection (solid line) and a range of feasible outcomes either side of this.
The further we get from the central projection, the less likely the outcome. For example, looking at worsening unemployment we can see that while it is possible to jump to a rate of 15% by Q4 2022 it is not very likely. In fact, there is just a 2% chance that the outcome will be as bad as that. So, we shouldn’t spend too much time scenario planning around this.
But there are a lot of credible scenarios where youth unemployment could move by 1 or 2 points – from roughly 10% today to say 12% by mid 2022. There is a smaller chance that it will stay at current levels. What plans can we put in place now that means we’ll be ready for each eventuality. Business plans that have a ‘business as usual’ approach baked in will almost always lead to poor performance. Alternatively, plans that have uncertainty baked in will generally perform much better and the executives using these plans will have more control over their future.
Using these and similar techniques, Gain Theory is helping brands to navigate the future, using foresight to translate an uncertain world into more manageable contingencies.