Targeted Marketing’s Cloudy Future

Stephen DeAngelis

July 31, 2018

John Wanamaker, the late department store magnate, once stated, “Half the money I spend on advertising is wasted. The trouble is I don’t know which half.” Targeted marketing was created to address concerns like those expressed by Wanamaker. Targeted marketing makes advertising more effective because it provides a better customer experience and greater return on investment. The philosophy behind targeted marketing is pretty simple. Dr. Chuck Hermans, a professor at Missouri State University, explains, “Not everyone is interested in, nor a good target for, every product or service offering. Marketing communications should be tailored to a particular audience.”[1] How specific should your audience be? Murali Nadarajah, Head of Big Data and Analytics for Xchanging, believes big data and cognitive computing systems can provide insights so granular that he calls it creating a “segment of one.”[2] Amish Tolia (@AmishTolia), co-founder and chief of strategy at Pear, adds, “Brands that can identify their ideal customers and market to their specific desire and needs are going to see the highest conversions.”[3] That all sounds great; but, a continuous string of data breaches, the rise of ad blockers, and concerns over privacy are causing some marketers to wonder what targeted marketing’s future might hold.

Challenges clouding targeted marketing’s future

Targeted marketing tactics are being examined on numerous fronts. The primary issue is not marketing it’s privacy. Greg Davies, Research director at Future Thinking, points to the Cambridge Analytica scandal as just the latest in a long list of episodes. “It’s not the first time data privacy has made the front page,” he writes, “and it’s safe to say it definitely won’t be the last. With GDPR upon us, the murky depths of data privacy have been thrust into the spotlight. This perfect storm of data-driven headlines means consumers are more aware than ever of the issues around the use of their personal data. Consequently, they’re becoming more sensitive towards the repercussions of its usage.”[4] The European Union’s tough General Data Protection Regulation went into effect in May. More recently, “California lawmakers gave consumers unprecedented protections for their data and imposed tough restrictions on the tech industry, potentially establishing a privacy template for the rest of the nation.”[5]

If you’re wondering how these tough new measures will affect targeted marketing, consultant Andrew Arnold (@DAndrewArnold) explains, “Before this regulation, brands could play quite fast and loose with consumer data. Now that they have to operate within these restrictions, their approaches to digital advertising must change. … The path forward will be creating and targeting customer segments without the use of personal data. Google is already doing this with its non-personalized ad targeting. Rather than using private, identifying data, it uses information such as current site content and location data.”[6] Davies is even less optimistic about the future of targeted marketing. He explains, “It seems highly likely more and more advertisers will defocus from personalization and look towards mass scale advertising methods like TV and radio once again.” Do tougher regulations really mean the end of targeted marketing? Probably not.

Targeted marketing in restrictive environments

If targeted marketing is to remain an effective marketing strategy, marketers will have to adjust both the data and methods they use. Arnold writes, “One of the ways to target ads while remaining GDPR compliant is to simply use the content on the website the consumer is viewing. Anyone who has ever scrolled past a news story they were reading to see ‘Other stories you might like’ or ‘Recommended for you’ has seen content recommendation in action.” Unfortunately, content marketing is less specific than personalized targeted marketing. Davies believes targeted marketing can be salvaged but the path forward begins with trust. He explains, “As the media landscape evolves, and as trust and transparency become core concerns, it’s hard to predict exactly what the next big thing will be. However, there’s one safe bet — ad formats that display an inherent ‘creepiness’ factor, such as retargeting, will likely become less commonplace. If consumers do not trust how their data is being used, they now hold the power to deny companies the insight that data provides.”

In order to avoid the creepiness factor, Georganna Simpson (@georganna_s) recommends targeting customers the way you would like to targeted.[7] At a recent conference, Simpson reports, TEC Direct President Charles Fetterly told the audience we suffer from “over-targeting.” He explained, “Just because we can target a certain way doesn’t mean we necessarily should.” Many conference participants agreed a combination of targeted and mass scale advertising would likely characterize marketing’s future. Harvin Furman, Senior Vice President at Starcom, told conference participants, “We think about about non-precise advertising waste a lot, but we should be focusing on value. We’ve lost touch of the value of incidental advertising.” In other words, brand exposure through mass scale advertising still has a place in world defined by personalization.

Simpson reports that Phil Schraeder, President and Chief Operating Officer at GumGum, told conference participants “the pendulum is swinging from one end to the other with targeting, and they are trying to find a happy medium.” Artificial intelligence (AI), which is widely used in targeted marketing, is helping GumGum find the happy medium. Simpson explains, “GumGum has a flavor of contextual targeting known as augmented advertising — content that augments a creative, as opposed to advertising that augments the content. It helps to not only deliver better, contextually relevant experiences, but also brand safe ones.” The happy medium will likely result in mass scale advertising to raise household brand awareness and individualized targeted marketing for specific products. Alex Verkhiver explains why personalized advertising still has a future. He writes, “Inferences that marketers make from aggregated purchases across a household don’t accurately reflect the behavior of its individual members, and marketers would be better off looking at the individuals within households, according to research from University of Cologne’s Hernán A. Bruno, Public University of Navarra’s Javier Cebollada, and Chicago Booth’s Pradeep K. Chintagunta. ‘Targeting policies based on household-level parameters can lead to sub-optimal marketing decisions,’ they write. … Their model sheds light on the concept of targeted marketing, prompting them to argue that analysts and marketers should consider not only household-level decisions but individual-level behavior.”[8] Despite its effectiveness, targeted marketing in the future is going to be trickier to pull off.

Summary

Arnold concludes, “Targeted advertising based on the collection and mining of data has always been a numbers game. … With the new consent requirements, more thought will need to be put into where to publish native content, and how to best target digital advertising efforts. … Brands and consumers can both benefit from such personalized effort and consideration.” Davies adds, “If targeted digital marketing is to survive it must develop in line with consumer sensibilities, and right now that means rebuilding trust. Advertisers must learn from the mistakes of the past and find the right balance that will engage audiences enough to opt in and to stay in. As long as it’s done sensitively, and consumers have the knowledge and ability to control what personal information is shared, targeted digital advertising will continue to be a useful tool in the advertiser’s arsenal.” AI platforms will undoubtedly play an important role as marketers try to figure out how best to proceed.

Footnotes
[1] Chuck Hermans, “Divide and Conquer: Segmentation, targeting and positioning,” Springfield News-Leader, 22 May 2016.
[2] Murali Nadarajah, “Machine Learning and the Great Data Analytics Shake-Up,” Information Management, 2 March 2016.
[3] Amish Tolia, “Take persona targeting to the next level,” iMedia, 3 February 2016.
[4] Greg Davies, “What’s next for targeted digital advertising?Fourth Source, 4 June 2018.
[5] Marc Vartabedian, “California Passes Sweeping Data-Privacy Bill,” The Wall Street Journal, 28 June 2018.
[6] Andrew Arnold, “How GDPR Will Impact Content Recommendation Engines,” Forbes, 27 May 2018.
[7] Georganna Simpson, “No more, no less: target as you like to be targeted,” Campaign US, 13 June 2018.
[8] Alex Verkhiver, “Why marketers should target individuals, not households,” Chicago Booth Review, 8 June 2018.