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The Frightening Science of Prediction: How Target & 10 Others Make Money Predicting Your Next Life Event

6 Sep

If you are planning to go out tonight to play billiards at a bar in Montreal called Sharx, you might want to pay with cash. Predictive analytics from Canadian Tire demonstrated that Sharx customers are the more likely to default on credit than patrons of any other drinking establishment in Canada.

The analysis by Canadian Tire, now a decade old, marked the beginning of a wave of predictive analytics that now has companies trying to guess your next move — no matter how private it may be. Are you going to get married? Are you having a baby? Are you likely to get a divorce? Might you run into financial problems? Are you changing jobs or moving cities? Who are you going to vote for? Who are you likely to buy something from? What big purchase are you likely to make next? When will you get sick? How soon might you die?

If there is value in the answer to any of these questions, there is likely a company that is actively trying to predict the answer based on the data they have on you. As credit cards and loyalty cards have become omnipresent, more and more companies are now able to mine deeply personal data patterns to predict private behavior.  According to the New York Times, “Almost every major retailer, from grocery chains to investment banks to the U.S. Postal Service, has a ‘predictive analytics’ department devoted to understanding not just consumers’ shopping habits but also their personal habits, so as to more efficiently market to them.”

Here are 11 real examples of how companies are trying to predict your next life event:

1. Predicting Pregnancy (Target): Target uses a statistical model to score every female customer on the likelihood that they are pregnant. It can accurately predict when a shopper is pregnant early in the pregnancy and her rough due date. As reported in the New York Times, Target’s data scientist is “able to identify about 25 products that, when analyzed together, allowed him to assign each shopper a ‘pregnancy prediction’ score. More important, he could also estimate her due date to within a small window, so Target could send coupons timed to very specific stages of her pregnancy.” According to a Target data scientist who was quickly banned by the Company from talking to the press, “We knew that if we could identify them in their second trimester, there’s a good chance we could capture them for years . . . As soon as we get them buying diapers from us, they’re going to start buying everything else too.”

2. Predicting Divorce (Credit Card Companies): In the book Super Crunchers, a Yale professor describes how a major credit card provider uses purchase data to predict divorce, which in turn, helps the company predict potential future credit problems.

3.  Predicting Financial Problems (Canadian Tire): According to the Daily Beast: “Cardholders who purchased carbon-monoxide detectors, premium birdseed, and felt pads for the bottoms of their chair legs rarely missed a payment. On the other hand, those who bought cheap motor oil and visited a Montreal pool bar called ‘Sharx’ were a higher risk. ‘If you show us what you buy, we can tell you who you are, maybe even better than you know yourself,’ a former Canadian Tire exec said.”

4. Predicting Your Next Vote (Obama & Romney Campaigns): Both major parties maintain broad voter databases appended with detailed demographic information. Using psychographic profiling, they are able to predict who you will vote for, how likely you are to go to the polls, and the potential for them to change your vote. Using this data, they are able to drive targeted media strategies and send volunteers to the right doors to maximize impact on the election. As reported in the Washington Post, “If you use Spotify to listen to music, Tumblr to consume content or Buzzfeed to keep up on the latest in social media, you are almost certainly a vote for President Obama. If you buy things on eBay, play FarmVille or search the web with Bing, you tend to favor former Massachusetts governor Mitt Romney.”

5. Predicting When You Will Switch to Fedex (UPS): UPS uses data analytics to predict when customers are at risk of abandoning the company and switching to one of its competitors. Whenever a potential switcher is identified, the company tries to prevent the loss with a phone call from a salesperson.

6. Predicting How Influential You Are (The Palms): Third party companies like Klout have built complex algorithms for assessing the social media impact of an individual. If you complain online, it’s your Klout score that will often determine the response. But now, companies like The Palms and Gilt Groupe are using these social media influence predictors to differentiate between customers. According to AdAge, “The Palms’ chief marketing officer, Jason Gastwirth, is currently building out ‘The Klout Klub,’ which ‘will allow high-ranking influencers to experience Palms’ impressive set of amenities in hopes that these influencers will want to communicate their positive experience to their followers.’ The Palms is already pulling in data from Klout and referring to it as part of their reservations process.”

7. Predicting How Much Money You are Willing to Lose (Harrah’s): According to the Daily Beast, “With its ‘Total Rewards’ card, Harrah’s casinos track everything that players win and lose, in real time, and then analyze their demographic information to calculate their ‘pain point’—the maximum amount of money they’re likely to be willing to lose and still come back to the casino in the future. Players who get too close to their pain point are likely to be offered a free dinner that gets them off the casino floor.”

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View Your Google Cookie: See What Google Knows About You

31 Jul

When it comes to advertising, personal data can be incredibly valuable. And when it comes to personal data, few organizations know more about you than Google.

As you browse the web, Google tracks the sites in its sprawling ad network that you visit. As Google tracks your browsing patterns, it builds a profile of your inferred interests and demographic categories which are then stored in your Google cookie.

Here is how Google explains it: “For example, if a user browses many sports-related websites displaying AdSense ads or watches sports-related videos on YouTube, Google may associate a sports interest category with their cookie and show the user more sports-related ads. Similarly, if the sites that a user visits have a majority of female visitors (based on aggregated survey data on site visitation), we may associate the user’s cookie with the “female” demographic category.”

My cookie was quite accurate: it included valid generic categories such as music, business news, consumer electronics, enterprise technology, CRM, Air Travel, andMobile / Wireless. It also knew my gender and age band.

If you want to see what Google knows about you, you can view the contents of your cookie here.

Do Great Consumer Products Market Themselves?

18 Jul

Spotify. Dropbox. Foursquare. Instagram. Facebook. Flipboard. Pinterest. Twitter.

Everyone knows these insanely popular companies even though they’ve invested almost nothing in advertising. In each case, they built a strong brand by building a great product or service and letting their customers spread the word.

With their success, a new generation of entrepreneurs are rethinking their approach to marketing. It’s increasingly common to hear luminaries talk about marketing as a weakness: the notion that only weak products require marketing.

So, is it true? Do great consumer products market themselves?

Here are a few thoughts:

  • Marketing isn’t advertising: Too often, I hear smart people talk about marketing as if it is only advertising. Advertising is just one way to build a business. There is so much more to marketing: product management, design of referral programs, visual identity, messaging, competitive analysis, collection of customer feedback and ideas, choosing new markets and segments to target, picking company / product / service names, building awareness through savvy PR and promotion, etc. While companies with great products may not need advertising, marketing often plays an important role in the rapid growth of product awareness and usage.
  • Very few products sell themselves: What almost all of the companies featured at the beginning of this post have in common is that they are free Internet services that appeal to a mass market population. While it takes real work to get people to try a free site, application, or service, the barriers to broad adoption are much lower. Products that almost never sell themselves include things that cost money, enterprise products of all types, and niche products that require more work to find first-time buyers and where it is harder to build the powerful cyclone of hype that benefitted almost all of the companies listed above.
  • Media attention matters: There are many companies that have built great products and still remained obscure. What makes the companies featured here special is that they have benefitted enormously from media attention. They all drove frenzied levels of media hype before they even had revenue. While some of this stems from great products and strong growth, much of it comes from thoughtful media strategy, direct press engagement, and charismatic founders who are trained to tell a powerful story.


So, if you have the right kind of great free product, what can marketing do to drive such insane levels of adoption?

Here are a few general principles for marketing a great consumer product:

  • Make sure the consumer experience is awesome: Create mechanisms to understand the user experience, to get constant feedback, and to solicit ideas so that the product keeps getting better and better.
  • Make sure your message is clear: Make sure that the messages about your company, your product or service, the problems that you solve, and the experience of being a customer are clear, consistent, and compelling. Make sure that everyone in your company can tell the same great story.
  • Keep customers coming back for more: Create the right experience for every customer to drive engagement, up sell to paid versions (if that is your model), and minimize churn and abandonment. Measure all of these things and look at the impact of every change on the metrics that matter.

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Remarketing: How Online Ads Follow Your Every Move

28 Jun

Over the last decade, online display advertising has gradually become a little too relevant. It’s not uncommon to see ads for items that you have recently shopped for or sites that you have recently visited. Sometimes, these ads seem to stalk you, following you from website to website across the web as you browse, taunting you with images of specific items that you recently considered or decided to not to buy.

A few months ago, I came very close to purchasing a new desk from the web store of a national furniture chain. I placed the desk in my cart but after seeing tax and shipping decided not to complete the purchase. That’s when the marketers took over: ads for the item started appearing all over the web. I started receiving email reminders of my unfinished purchase. Two days later, I received a 15% off coupon that I could use on any item at their nearest store. I bought the desk and some other things that weren’t part of my original plan. Somehow, the marketers won.

These techniques aren’t exclusive to consumer marketing., for example, uses similar tactics to show ads to targeted enterprise prospects.

The key technique is “remarketing” — the process of showing targeted ads across multiple sites based on a prospect’s browsing or buying patterns.

How does remarketing work?

1. It starts with a cookie: When a sales prospect visits your site or clicks on an email, a single line of code drops a cookie to trigger the remarketing process. The marketer doesn’t need to know who you are or even have you in their database, they just need to drop a cookie and learn from your online behavior.

2. Consumers are segmented based on value: The cookie contains data to identify the type of prospect. If you add an item to your cart and abandon the purchase process, get ready to see lots of remarketing ads. Typically, marketers focus on categories of users and create remarketing paths that apply to thousands of users.

3. Marketers buy remarketing ads, clicks, or leads: Once the cookie is dropped, the advertiser can purchase ads on networks that span multiple sites. Either through a remarketing service or directly through the major ad networks themselves, the advertiser displays ads that are designed to lure the buyer back. The most sophisticated advertisers will feature the high-margin product that a prospect considered but abandoned. Ads can be purchased on Google or Bing or a number of remarketing-focused services.

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New Research: Only 40% of Your Marketing Budget is Wasted

2 Jun

Yes. Yes. Yes. We’ve all heard too many times the old adage that 50% of all marketing budgets are wasted. But now there is good news: new research shows that only 40% of the average marketing budget is wasted.

According to Advertising Age, new research concludes that “despite six years of obsessive investment in big data, marketing-mix models and other analytic tools, marketers are getting worse, not better, at directing their dollars.”

The research, included in a new book by Rex Briggs, argues that marketers focus too much on driving awareness and not enough on driving advocacy. In a world of social media, it’s never been more important to drive advocacy.

It also asserts that most modern media mix models do not reflect the complexity of the modern media world. As a result, advertisers over-invest in TV and price promotion and systematically underinvest in  social media. Recent analysis by Mary Meeker also suggests that this may be true: that print advertising in particular receives too much spend while social and mobile receive too little.

According to the analysis, “the underinvestment he finds in social media doesn’t broadly extend to digital. Since 2006, return on investment from branded-content efforts has skyrocketed, even as ROI from digital advertising has been flat to slightly down, despite a steady drop in digital ad prices. A big reason for the latter two trends has been publishers placing more ads and clutter on web pages, which he said has increased revenue per page but eroded impact and CPMs.”

Your Media Mix Will Change

30 May

I am amazed at how many advertising agencies still start every presentation with print advertising concepts. According to data presented by Mary Meeker today, print media represents just 7% of media consumption but 25% of advertising spending. Print remains expensive: it’s a surprisingly dominent component of most companies’ media mix.

In comparison, mobile-related media is now more than 10% of media consumption while mobile-related advertisng spending represents less than 1% of investment. Internet media represents 26% of media time but just 22% of media spending. While Internet and mobile adveritsing represent $30B+ in advertising spending, Mary Meeker believes that a rational media mix model that followed eyes to the new media platforms would shift an additional $20B in spending to Internet and mobile.

Why hasn’t this happened yet? I think every agency starts with Print because a big piece of paper is a perfect medium to express an idea, show words and supporting copy, and to highlight the best attributes of a new creative concept. It’s really hard to do all of this in a tiny mobilead. And new media options like promoted tweets or Groupon offers don’t highlight most of the things that an agency likes to do.

Another issue is that mobile marketing techniques haven’t reached the same level of effectiveness as other mechanisms. The same is true of social media marketing techniques. Mobile social media is a particularly deep black hole, and one that has been publically highlighted by Facebook during its IPO process. 

But all of this will rapidly change: mobile and social marketing is a focal point of investment and innovation, and as eyes move to these new platforms, it’s inevitable that marketing dollars will follow.

Mary Meeker: The Mobile Monetization Challenge

30 May

One of the biggest challenges for marketers is that eyes are drifting to mobile devices from traditional content and media channels faster than new marketing techniques are able to impress consumers of mobile applications, content, and media.

Mary Meeker – the famous Internet investment banker turned Kleiner Perkins VC partner – discussed the other end of this equation: “the mismatch between the growth in mobile usage and mobile monetization.”

According to Meeker, there are 1.1 billion mobile 3G subscribers around the world. Mobile data is one of the fastest technology adoption curves in history with 37% y/y growth. Still, there is just 18% worldwide penetration. This compares to 2.3 Billion global internet subscribers – a number which grew just 8% over the last year. And while there are 6.1 billion mobile phone subscriptions around the world, only 953 million of those today are smartphones – again showing lots of potential for growth.

As would be expected, mobile Internet traffic is growing at an amazingly fast pace: increasing 100% year over year to 10% of Internet traffic as of May of 2012.

When it comes to mobile commerce, mobile is just 8% of ecommerce today. The story for mobile advertising is even more dramatic: while 10% of media is now consumed on mobile devices, just 1% of advertising targets mobile platforms. In comparison, print advertising represents 25% of spending but just 7% of media time spent.

The Mobile Advertising Gap

Mary points out that this is an increasingly pressing issue as the media landscape rapidly reshapes itself. In India, for example, total mobile Internet usage has already surpassed desktop internet usage. For marketers, this is a problem: the industry has been much more effective at driving marketing impact through desktop Internet consumption than through mobile channels.

Part of the issue is the speed of the change: it’s hard for marketers to test and ramp new marketing techniques as fast as new platforms grow. Today, AllThingsD summarized Meeker’s argument that “Effective desktop CPMs are five times the price of mobile Internet CPMs in the U.S.: $3.50 versus $0.75. And companies like Pandora, Tencent and Zynga currently report that average revenue per user is as much as five times lower on mobile. Google’s and Facebook’s financials show mobile is constraining revenue growth.”

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