Personalization and Targeted Marketing, Part 2

Stephen DeAngelis

April 24, 2013

In the first segment of this two-part series on personalization and targeted marketing, I discussed the views of a number of analysts who believe that getting to know customers better and then providing them with tailored offers represents the future of advertising. Despite the almost unanimous opinion that personalization is going to be the differentiator that sets successful businesses apart, studies show that many companies have been sluggish to adapt their business models to include an effective digital path to purchase. One of the reasons for this delay may be that they don’t know where to begin or how to proceed. Joel Rubinson, who labels the way ahead “behavior marketing,” offers five cornerstones that will “equip your organization for behavior marketing.” [“From mind marketing to behavior marketing,” Joel Rubinson on Market Research, 14 March 2013] They are:

1. Build interactivity into your brand communications creative [endeavors]. TV advertising should encourage digital and second screen behaviors. Facebook stories should encourage return to the fan page, etc.
2. Build brand audiences so you have an annuity from your marketing investments. Encourage people to like and follow your brand, sign up for e-mails, and to download branded apps.
3. Create media targeting strategies that are based on behavior first and only use demos as a last resort for more scale.
4. Master mobile. It is not too soon to get ahead of the curve and soon will be too late. Mobile is likely to account for 10-20% of your total ad spend by 2020.
5. Build an insights and brand tracking strategy that converts digital and social behaviors into brand KPI metrics.

Many of the actions contained in Rubinson’s cornerstones involve what Laurent Faracci, the U.S. chief strategy and marketing officer for packaged-goods giant Reckitt Benckiser, labels “calls to action.” He states that if he had his way, “100% of our digital media would have a call to action.” [“Years After Ditching the Click, CPG Marketers Embrace Web Ads With ‘Calls to Action’,” by Jack Neff, Ad Age, 25 February 2013] As you can see, behavior marketing must embrace both previous and contemplated consumer behavior. Francesco Banfi, Andrea Ghizzoni, Eric Hazan, and Andrea Travasoni, analysts with McKinsey & Company, believe that corporate digital advertising budgets are “often allocated inefficiently. At best, consumer companies evenly distribute their advertising resources across all consumer segments. At worst, they spend the majority of their budgets on the consumer segments with the least conversion potential.” [“Digital intelligence: Profiles to profits in a new consumer landscape,” Telecom, Media, and High Tech Extranet, 10 April 2013] To optimize marketing spend, they recommend a much more refined approach. The McKinsey & Company approach is based on four key pillars. Their first pillar involves user profiling:

“A profiling algorithm that uses semantic analysis classifies the content of the Web sites that Internet users visit. The algorithm tracks their histories and profiles them using up to 200 variables based on the content of the Web sites they visited and their purchasing behavior. Specifically, each user is automatically scored on each area of interest based on his or her browsing behavior (e.g., daily visits to travel Web sites or time spent reading travel articles). Additionally, online purchases for each product are tracked for at least one month, including whether the user was exposed to online ads. The profiling algorithm makes it possible to create highly descriptive profiles based on analyzing click-through and conversion rate data, which include user interests and sociodemographic descriptors.”

Gabby Griffith agrees with the McKinsey analysts that the best way to provide a personalized digital path to purchase for consumers is “by gathering as much customer data as possible and building user profiles which can be updated as more data is received.” [“Personalisation of ecommerce,” eSeller, 18 March 2013] She warns, however, “This kind of use of data is viewed by some as an invasion of privacy so … be careful not to go too far. But done correctly, personalisation can lead to a better customer experience and improved conversion rates for ecommerce businesses.” The second pillar offered by the McKinsey analysts involves segment-product matching. They write:

“Using the relationship between product conversion rates and profiling variables, consumer companies can then employ a statistical algorithm to identify specific user segments for each product. These segments are defined by their appetites for and propensity to buy a certain product and are characterized by a well-defined and homogeneous profile. This makes it possible to create user microsegments that are potentially interested in a certain product.”

Analysts at the marketing firm Compete agree. They write, “More work is … needed to understand and personalize the mobile experience to different segments.” [“Aligning Mobile Marketing With Consumer Behavior,” Compete Pulse, 11 March 2013] Caspar Craven also agrees. He states that “knowing which segments of their target audience is engaging with what content, allows you to achieve three things.” They are:

  • Attribute the real value that marketing generates to the ‘sales’ process.
  • Segment their target audience and reach out to key targets with the right messages at the right time.
  • Build stronger relationships through enhanced client insights.

Craven adds, “We’re seeing much more sophisticated measurement, reporting and analysis coming through, and the plethora of tools will continue to increase.” Judi Hand, however, believes that segmentation doesn’t go far enough. [“Three Ways to Use Customer Data to Drive Marketing Relevance,” Customer Experience Blog, 12 March 2013] She writes:

“Adaptive marketing programs are in tune with customers because they use next-generation analytics to extract valuable insights from mountains of data. They gain ground by leveraging intelligence to segment customers and evaluate their engagement patterns as well as their total customer lifetime value. Marketing masters know that although segmentation has long been a key component of a successful strategy, it shouldn’t be the only analytical engine driving the effort. Customer engagement analytics and predictive models are also critical.”

The next pillar discussed by the McKinsey analysts involves targeted advertising. They write:

“Once the relationship between products and users has been identified, digital advertising can be pushed to only the most relevant segments using tailored messages. This approach optimizes advertising budget allocation and significantly increases ROI. McKinsey’s pilot shows that the solution can improve digital campaign ROI by 250 percent thanks to accurate targeting and ad tailoring.”

A 250% improvement in ROI is a big number and it makes you wonder why some companies have been slow to adapt a good digital path to purchase strategy. According to Hand, one of the reasons that a better ROI can be achieved through targeted marketing is that fragmentation of markets is no longer the barrier it used to be. She explains:

“The one-size-fits-all marketing approach is dead, and influential marketers are using psychographic profiles to develop value propositions that resonate with each customer type. But, how do they efficiently generate marketing materials that are as unique as their customers? They use adaptive engagement technologies to do it all for them—automatically. Gone are the days when markets were considered too fragmented to penetrate cost effectively. Smart marketers use technology-driven marketing solutions to automatically evaluate and create custom-tailored campaigns for each person’s unique needs. These solutions analyze customer data across all communication channels and dynamically generate customized content based on personal profiles and buying behavior. The most intelligent solutions shift strategies based on customer online activity, purchases, and other trigger events.”

The final pillar discussed by the McKinsey analysts is easy implementation. They explain:

“This solution can easily be integrated into ad servers. Once the algorithm is rolled out, targeted campaigns can be both continuously run and continuously improved – ensuring that only those Web users with the greatest potential for conversion will be targeted. Beyond advertising, this solution can be used to achieve other objectives, such as optimizing a merchant Web site so that it better fits visitor characteristics. Examples of this include customizing Web site layout, offering tailored promotions and prices, and displaying products to maximize sales conversion. Companies can even enrich their CRM databases to enhance their relevance by using Web behavior information to design more sophisticated multichannel campaigns.”

Although McKinsey’s algorithm is proprietary, the pillars they discuss are applicable to similar solutions offered by other companies. Hand, for example, pushes her TeleTech’s solution. She writes:

“True marketing powerhouses collect multichannel data (including social and mobile), deploy adaptive marketing technologies to extract customer insights, and automatically generate personalized content for each segment. While many companies get bogged down in building their own architecture to execute customer-centric marketing strategies, leaders leapfrog their competition by involving their IT partner and by working with customer experience companies to deploy all-in-one cloud solutions for the data-driven marketing of tomorrow.”

My company, Enterra Solutions, can also provide powerful digital path to purchase solutions for companies. I agree with Joel Rubinson that “paid advertising WILL change in fundamental ways in our digital, social, and mobile future.” The companies that will do best will be those that start now to understand as much as they can about this digital future.