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Saturday, May 4, 2013

Database Marketing--Big Brother on Steroids?

With each passing year, database marketing is getting increasingly sophisticated. Clever marketers are getting better every day and are reaping larger returns with lower expenditures. Our current era is unique as the low cost internet married with declining costs in computing power are coupled with vast arrays of digital information allowing marketers to aggregate and analyze enormous quantities of data.

If you say this out loud people nod and smile but do not really seem to grasp what is going on in database marketing. The best illustration that I have ever found was a remarkable article in the February 16, 2012 issue of “The New York Times Magazine”. In a piece entitled “How Companies Learn Your Secrets”, Charles Duhigg focused mostly on the giant retailer, Target.

Using a team of bright statisticians, Target engages in what is known as “predictive analytics.” Simply put, they examine sales data and combine it with other information to figure out who buys what and why.

The now famous story from this NYT Magazine article is that the statisticians discovered that pregnancy is a vital time for a woman to develop some lifetime shopping patterns. So, Target likes to find pregnant women and get them into their locations with increasing frequency.

The first screen Target looked at was breathtakingly simple.  They simply looked at their baby shower registry. Since they already told Target that they were pregnant, the analysts could do a deep dive on their buying habits.

Then, the last puzzle part fell in to place. Target soon realized that many other women who had the same shopping habits as those in the bridal registry were probably pregnant as well.

Pregnant women, for example, started to buy vitamin supplements, and switched to unscented lotions. Many bought large bags of cotton balls for the first time. With this knowledge Target began to send both groups pregnancy related coupons in the hope of making them customers for life.

The article then told an amazing story. In their hometown of Minneapolis a very angry gentlemen stormed in to a Target store wanting to see the manager. He told the manager that his daughter was getting many pregnancy related coupons from Target. “She is still in high school and you’re sending her coupons for baby clothes and cribs. Are you trying to encourage her to get pregnant?”

The manager did his diplomatic best to smooth things over with the irate Dad. A few days later he called the gentlemen to apologize again. The father stunned him by saying, “It turns out there’s been some activities in my house I haven’t been completely aware of”, said the father. “She’s due in August.”

It is a great story but the point is that the Target statistical team had figured out that the young lady was pregnant before her family did.

Think about this for a moment. A savvy marketer knows a great deal about you. Every time you get a special online deal, do you think millions are getting the same offer? Or, have they been tracking your multiple visits to their site in recent weeks and want to push you over the edge with an irresistible offer?

On the benign side, watch what Netflix does. I am a serious old film buff. Over the last several years I have rated over 3200 films for Netflix. They know what I like and don’t like. When Neflix recommends a film to me, I invariably watch it. With such a mega-deep profile of my tastes, they now have an unerring touch on what films of recent vintage that I will like.

Long term, this will have a profound effect on conventional advertising in some categories. By tracking our purchases and online visits, sophisticated marketers can put together highly effective models to forecast future purchases and dollar volumes as well.

This is far more cost effective than advertising where you do not get a pure play demographically most of the time. Clearly, this is one more nail in the coffin of conventional advertising. By shifting more emphasis on database management and marketing, companies will be in a good position to save money and simultaneously increase sales.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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