Targeted Marketing: Understanding the Individual

Stephen DeAngelis

December 26, 2012

The website crowdsourcing.org, calls targeted marketing “the Holy Grail of marketing!!” It goes on to say:

“Targeted marketing can be key to a more successful business and making the promotions, pricing and services even more efficient. … Attracting new customers or new subscribers to existing services or launching a new service can be an expensive proposition. Giving the ability to service providers to target the right customers with promotions or additional services, it is essential to identify subscribers who are most likely to respond positively to a product.”

Of course, targeted marketing is well-suited to services as well as to products. Crowdsourcing.org was interested in the topic because it wanted readers to compete in a contest whose goal was “to score customers based on their likelihood to respond to a new product based on their usage of existing product.” The contest was apparently sponsored by the telecom industry which offered prizes worth $5000 (First prize ($1500), Second ($1000), Third ($800), Fourth ($600) & Fifth ($500), and an additional prize of $600 for the best PDF report). In the introduction to the contest, the site noted, “It is critical for companies to identify customers who are engaged with existing products or applications and target them for new and innovative product offerings.” It went on to say:

“Cementing your relationship with existing high value customers or new customers is critical to ensure he/she is satisfied with the services being provided. Also to engage them with promotions which are most relevant to them. Or target customers who are most likely to respond to the specific campaign or technology service being offered. Attracting new customers or new subscribers to existing services or launching a new service can be an expensive proposition. Giving the ability to service providers to target the right customers with promotions or additional services, it is essential to identify subscribers who are most likely to respond positively to a product.”

The results of the context were supposed to be announced in early December, but I couldn’t find where the results were published. If a scattergun marketing approach is used, attracting new customers “can be an expensive proposition.” Regardless, the vast majority of marketing today uses that approach. That is why companies are eager to discover a way to spend their marketing budgets more wisely. Companies, of course, are out to make a profit and the more efficiently they use their resources the better their chances of doing that become. Knowing their customer better is a big part of becoming more efficient. Jay Newman writes, “Considering the many different options consumers have in making their purchasing choices, one little blip in their experience can make all the difference in generating a loyal customer versus one who turns to your competitors.” [“Supply chains & cloud: A natural fit to understanding the individual consumer,” Thoughts on Cloud, 5 November 2012] He continues:

“Analytics also can help manufacturers optimize cloud-based supply chains and improve business efficiency. In addition to saving costs, analytics can uncover insights and trends that manufacturers can use to better serve customers, locally and globally. And it’s this analytic insight that can reveal trends marketers can use to better serve customers, as well as ensure products featured on their Web sites are kept in stock – ensuring a positive shopping experience for the individual consumer.”

In other words, targeted marketing is meant to establish a win-win situation for both companies and consumers. Nevertheless, the subject is not without controversy. The reason, of course, is that getting to know an individual consumer means collecting data on that individual. Such activities inevitably raise privacy concerns. A typical response was seen when MasterCard announced that it would start using its cache of data to help companies to better target their marketing. [“MasterCard mines data for marketers,” by Emily Steel, Financial Times, 17 October 2012] Steel reports:

“MasterCard is analysing transaction data to help marketers direct targeted advertising at consumers, after launching a controversial initiative to make money from its vast database of retail purchases. This year the credit card network, which processes 34bn purchases each year, began to help marketers target customers who are more likely to buy their products and services. MasterCard first explored the possibility of using customer data for targeted advertising last year, but delayed those plans because of legal and regulatory concerns over how financial services companies use the customer data they have collected. … ‘The foundation of all of our solutions is transaction data,’ Susan Grossman, MasterCard’s senior vice-president of media solutions, said during the pitch, which has been viewed by the Financial Times. MasterCard, which confirmed that it launched the initiative in February, told the FT it was ‘committed to protecting individual privacy’. It said the information it sells to marketers is anonymous and is aggregated into groups of potential customers – rather than broken out individually.”

Anonymizing data has been the preferred method of protecting individual privacy by most companies that analyze big data. Steel states that MasterCard does this by sharing only transactional data, which doesn’t include “cardholders’ names or other personal details.” With billions of dollars being spent each year on marketing, it is understandable why companies want to get more bang for their marketing buck. They see big data analytics as the best way to do that. Steel continues:

“As people spend more time in front of computers and mobile phones, companies are amassing vast profiles about people’s activities both online and away from a screen. Facebook, for example, is working with Datalogix, a data company, to track whether people buy products after viewing an ad on the social networking site. Other credit card companies have [also] explored using data for marketing.”

The ideal situation, for both companies and consumers, is to enter into a mutually agreed upon relationship concerning the collection, analysis, and use of data. Steel reports that “Visa sells retailers the ability to send text messages to consumers based on their previous credit card transactions – but those targeted agree to receive the ads in return for discounts and other incentives.” But not all data brokers use that policy. That is why, Steel reports, “The fast-growing industry is raising concern among federal regulators and policy makers.” She notes that Senator John Rockefeller, chairman of the Senate Commerce Committee, wrote one large data broker and warned, “The digital footprint [consumers] will inevitably leave behind will become more specific and potentially damaging, if used improperly.” Ethical companies are working hard to ensure that doesn’t happen.

 

Nevertheless they are concerned that privacy concerns could eventually limit the kind and amount of data they can use in their efforts to understand their customers better. And they are fighting back at attempts to limit such data. One of their big concerns is “do not track” options available on the latest browsers. A number of companies were irate when Microsoft made that the default option for Microsoft Explorer. Natasha Singer reports that “executives from Dell, I.B.M., Intel, Visa, Verizon, Wal-Mart and other major corporations” wrote an “incensed open letter from the board of the Association of National Advertisers to Steve Ballmer, the C.E.O. of Microsoft, and two other company officials. Microsoft” claiming they “had committed a grievous infraction” by making “do not track” the default option. [“Do Not Track? Advertisers Say ‘Don’t Tread on Us’,” New York Times, 13 October 2012] Singer continues:

“What is really at stake here is the future of the surveillance economy. The advent of Do Not Track threatens the barter system wherein consumers allow sites and third-party ad networks to collect information about their online activities in exchange for open access to maps, e-mail, games, music, social networks and whatnot. Marketers have been fighting to preserve this arrangement, saying that collecting consumer data powers effective advertising tailored to a user’s tastes. In turn, according to this argument, those tailored ads enable smaller sites to thrive and provide rich content.”

There is clearly a symbiotic relationship that needs to be fostered. Mike Zaneis, the general counsel for the Interactive Advertising Bureau, an industry group, told Singer, “If we do away with this relevant advertising, we are going to make the Internet less diverse, less economically successful, and frankly, less interesting.” On the other hand, Singer reports, “Privacy advocates argue that in a digital ecosystem where there may be dozens of third-party entities on an individual Web page, compiling and storing information about what a user reads, searches for, clicks on or buys, consumers should understand data mining’s potential costs to them and have the ability to opt out.” She claims, “The two sides seem to have reached an impasse.” That’s not a good situation.