When Small Segments Have Big Impacts

Ran across this story yesterday about some smart folks that discovered a statistical quirk in a lottery game in the state of Massachusetts.  The special quirk in this particular game is that the "consolation prizes', when no one wins the super-jackpot by matching all 6 numbers, swell to very attractive levels at times.  Such high levels, in fact, that the math works out to almost a certain profit if you buy enough tickets to cover enough number combos.

So this small group is using their findings to accumulate large winnings over time.  More than a million bucks for a few hours of "work" standing in a convenience store while the lottery machine spits out gobs of tickets (well, there's that not-so-small matter of investing well into the 6 figures for the tickets).

But what struck me most about this article, and why I am noting it here, is this quote from the director of the Massachusetts lottery:  "It’s a niche game for a different audience. You want to bring in as many players as possible. Some people chase a huge jackpot. Others are looking at odds."  He went on, "This [the particular lottery game] is generating income for us."

Sound familiar?  Perhaps you've heard the comment in your organization that you shouldn't worry about a customer segment that is unprofitable, because your state or product line is making money overall.  But this story is akin to an underwriting hole in your book, one being exploited by customers who are costing you money, and this lost profit must be funded by the rest of your customer base.  Raise their rates, if it's a pricing issue.  Close that loophole, if it's a rules or underwriting issue.