Fair Isaac is using behind-the-scenes mathematical formulas like the ones that drive its flagship credit scoring product, the FICO score, to help retailers tailor offers for the right customers at the right time.

Using millions of pieces of data, such as a customer's past purchase behavior, Fair Isaac's product predicts what a customer might buy next. Then retailers can create personalized deals for their customers that -- they hope -- increase sales and cultivate loyalty.

Jane Johnson, vice president of the retail practice at Fair Isaac, said the tool makes customers feel as if retailers know them. "We actually build out models across all of the product categories a retailer might have for every single customer," she said. This enables retailers to say "For Jane Johnson, you have the highest propensity to purchase in these five categories,'" and decide to send offers in those areas.

The result is far more efficient and effective than sending out a coupon book to all customers. A mass coupon mailing typically gets a 1 to 2 percent response rate, while individualized offers are successful 20 to 30 percent of the time, Johnson said.

Fair Isaac's service can also time the likelihood of a purchase. So the teen who received a new video game system for Christmas may find an e-mail suggesting a new video game or offering a deal on a second controller shortly after the holidays.

Sam's Club was the first retailer to use the service, called FICO Retail Action Manager. In August 2009, the warehouse club rolled out eValues, a discount program available for Plus and business members, who pay $60 more per year for a membership. eValues fashions discounts for individual warehouse club members based on purchasing patterns and other transaction data. Members learn about the deals by swiping their card at the eValues kiosk in the store or using a smartphone application.

Lori Mullins shops at Sam's Club to buy about $300 worth of pork, chicken and beef each week for her job caring for patients with Parkinson's disease in assisted living facilities. The menus are on a rotating schedule, and Mullins finds that when it's time to cook a roast or a pork tenderloin, Sam's Club offers her $2 off each piece of meat. When the paper towels need to be restocked, a coupon is usually waiting for her.

The discounts are tied to a member's warehouse card number and automatically taken at the cash register. So while Mullins printed out her offers at the kiosk to plan her next visit, she won't need to present the papers to receive the savings. Sam's Club estimates the average eValues user will save more than $200 per year. And the warehouse club attributes a 45 percent increase in Plus memberships from 2008 to 2009, and a 30 percent rise from 2009 to 2010 to eValues.

Best Buy, another Fair Isaac client, crafts e-mails for individual customers, deciding which products to highlight based on the data crunched by Fair Isaac's service. In one week, Best Buy used Retail Action Manager recommendations to send 18 million unique e-mails to customers, Fair Isaac said. "The retailer is trying to be as relevant as possible to its customers. Opting out is just a click away," Johnson said. Best Buy declined to comment on the program.

Consumers with privacy concerns can't control the data stores collect at the register. They can minimize what stores know by steering clear of store loyalty programs and e-mail lists and paying with cash. But many appreciate the service. "The benefit that consumers see and expect in terms of the retailers understanding their purchasing outweighs any concerns that they have," Johnson said.

The tool also helps stores decide how best to reach customers, who may have a strong preference for receiving text messages over snail mail, for example.

Implementing retail analytics requires powerful computer applications and "takes a fair amount of investment and energy," said Tom Davenport, an analytics expert and professor at Babson College in Wellesley, Mass. That's why the retailers that have embraced analytics -- Kroger, CVS, and U.K.-based grocer Tesco are names he mentioned -- are large and well-known.

Johnson said Fair Isaac is targeting top 50 U.S. retailers for Retail Action Manager, and says it works for expensive products such as electronics and furniture on down to cheaper necessities, such as groceries.

The software is part of Fair Isaac's marketing solutions segment, an increasingly important slice of its revenue pie. The company also makes products that help retailers detect and prevent fraud, improve inventory assortments, streamline operations, and decide which store credit card applicants are likely to pay their bills. The company's marketing solutions segment accounted for 11 percent of total revenue in its fiscal year ending in September 2010, up from 7 percent in 2008.

Kara McGuire • 612-673-7293