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The Future of Consumer Targeting

2009 September 23

Advertisers should spend more time thinking about catching terrorists.  I don’t mean to be glib; it’s just that the problems of targeting terrorists and targeting consumers are very similar.  Governments have developed technology and mathematical techniques that we will eventually  use in marketing.

Much of the methodology is classified, and would be prohibitively expensive even if it wasn’t, but even the most secret government technology usually ends up in the commercial sector eventually. (Radar and GPS are both good examples.)  So if you want to know the future of consumer targeting, counter-terrorism is a good place to look.

The Secret War on Terror

While troop surges, unmanned drones and high-level diplomatic efforts grab headlines, there is a more secretive and more effective battle going on behind the scenes.  This is not a war fought with guns or bombs, but with supercomputers and sophisticated mathematical techniques – James Bond with a slide rule, if you will.

The National Security Agency (NSA) leads this effort.  With its massive budget (more than twice that of the CIA), the NSA is the largest employer of research level mathematicians in the world and also probably the largest consumer of computing power.  Its mythical (but real) ECHELON program monitors and data mines virtually all electronic communication on the planet.

Whatever your political or moral feelings about the organization or its activity, there is much to learn from its efforts.

Common Types of Targeting

Like terrorists, consumers can be profiled in a number of ways.

Demographics: The most obvious method of identification is demographics.  Characteristics such as sex, age, education and occupation tell us a lot about a person.  Another advantage of demographics is that they are concrete.  Someone was born on a certain day, is male or female, has a certain job, etc.

Psychographics: How a person feels about certain things can tell us even more about their intentions.  Consumer research routinely monitors psychographic statements like “I like to be the life of the party” and “I wish I could spend more time with my family” just as the NSA monitors political statements.

Behavioral Analysis: One of the big benefits of Digital Media is that actual behaviors can be tracked online.  Rob Graham of Clickz.com provides an excellent taxonomy in his article.

Although the targeting methods above will remain important, the new digital reality will enable revolutionary techniques that will completely alter the perspective and practice of identifying potential consumers, their intentions and their ability to influence others.

Social Network Analysis

Who one associates with and the nature of that association can tell us a lot about their behavior as well as their influence among their peers.  Within 24 hours after the attacks of 9/11, the NSA had identified not only who the terrorists were, but also the structure of their relationships, who their leaders were, who influenced who, etc.

This was done with an enormous amount of data and some very sophisticated mathematical techniques.  Some, but not all of these methods are known and commercially available.  Applying Social Network Analysis (SNA) to Social Media data can yield amazing insights.

This type of inquiry goes far beyond the type of “tweet count” software that passes for analysis offered by many social “experts.”  It involves complex mathematics, tons of data, powerful computers and good judgment.  Using SNA, we can gauge relative power and influence using not “buzz” but the two primary metrics of that drive network characteristics and behavior: Degrees of Separation and Cluster Coefficient.

(For more on these metrics, see The Primary Forces that Drive Social Networks)

Network Centrality

For the purpose of consumer targeting, what we really want to know is who is central to the network and can therefore exercise influence.  Then we can make our marketing campaigns more efficient by directing our message to these extremely valuable people.

SNA offers three primary measures of centrality:

Degrees: How many links does this person have?  Malcolm Galdwell calls people who have high degree scores “connectors.” These people seem to know everybody.  They are “hail fellows, well met.”

Betweenness: What is the influence of this individual’s connections?  A CEO’s personal assistant would have a high betweeness score.  She doesn’t have a lot of connections herself, but she occupies a crucial place in the network and functions as a gatekeeper.

Closeness: How many short paths lead to this person? Smokers in offices would tend to have a high closeness scores.  Their influence is subtle, yet pervasive.  If you want to spread a rumor, tell a smoker.

Scores can then be combined to form an overall score.  (For a more complete explanation go here)

Targeting network central consumers would be an efficient way to get a message out, if they can be identified.  As I mentioned above, NSA’s methods are secret, but Valdis Krebs of orgnet.com did his own analysis based on publicly available information and came up with very impressive results for the 9-11 hijackers.

SNA is already actively used commercially for analyzing organizational structures.  It is only a matter of time before it can be scaled up for mass consumer analysis in a way which is economically feasible.

Why Computers Can’t Target Like Salespeople Can

Computers, as sophisticated as they have become, pale in comparison to the human brain.  Although some computers can perform trillions of computations per second and store terabytes of data, they fail in simple tasks.  For instance, a small child can catch a ball but a robot has difficulty performing simple spatial tasks.

Computers work fundamentally different than human brains.  They have central processing units that access data stored in memory.  That data is a prisoner to the way it is stored and accessing too much of it at once will crash the system.  You have to reboot and start all over again. So the amount of data a computer can store isn’t as much of an advantage as it might appear.

Our brains are fundamentally different because they can learn.  When we have experiences, pathways in our brain known as synapses are created.  It is within these connections that our knowledge lies – data isn’t actually stored anywhere.  We process information through our memories, not independent of them.  It’s a crucial difference.

Whenever a synapse is used, it is strengthened.  Therefore, we are most knowledgeable with what we are most familiar.  Moreover, we tend to associate things that we experienced simultaneously, as when a song reminds us of an event long passed.  New connections are built along on top of old ones, as with an old song in a new movie.  The relational databases in our brains can reprogram themselves to take into account our changing reality.

A good salesperson knows his target consumer, but also adapts that knowledge over time.  He learns with each sale, adapts and improves with each consumer interaction.  A bazaar owner in Istanbul might not be able to debate the merits of Adults 18-34, but knows the patterns of body language, timber of voice and a thousand other things that indicate a propensity to buy.  He has learned that over time and keeps learning as he interacts with his daily environment.

Computers can’t do any of this.  Or can they?

Neural Networks and Adaptive Targeting

Again, the latest counter-terrorism techniques can lend us insight into what the future holds.  An evolving method of terrorist targeting is the use of neural networks and this too will take on a larger role in marketing.  The details are mind-numbingly complex, but I’ll try to give a simple overview.

Consumers, like terrorists, change their behavior constantly.  Fads and trends spread from early adopters to more mainstream prospects, morphing brand structures along the way.

Neural Network Algorithms attempt to approximate the brain’s ability to learn.  A consumer action like clicking on a banner, registering on a site or making a purchase generates data.  This data can be passed through filters representing targeting characteristics.  (To visualize filters, think of the gates that horses run out of at the beginning of a race).

As data passes through the filters, trends are developed. (To extend the previous example, the horses run through some gates more than others).  As those trends are being established, the targeting algorithm adjusts (Mathematically speaking, the weighting of the multivariate model is altered as new data comes in).

Therefore, as consumers respond targeting adapts – in real time. Some of the technology is already used commercially for fraud protection.  Moreover, as consumer behavior increasingly goes online, the data stream becomes richer and therefore more amenable to complex analysis.

For a simple example, imagine marketing work boots.  One would assume that the target would be working men.  Then one day, someone’s daughter or sister (apparently with very big feet) can’t find her shoes and wears the work boots.  Her friends see her, think she looks cool and start responding to ads for work boots.  A salesperson would notice the change in trend very quickly and so would a neural network algorithm.  Conventional targeting methods would not.

The Future of Consumer Targeting

In the future, we will talk less about target groups and more about target methodologies.  Most likely, we won’t debate what the target should be, but how the targeting process should adapt to real world data.

What’s really exciting about the possibility of targeting in real time is that it suggests we can market in real time as well.  As our consumers respond, we will be able to create products that can fit their needs better, communicate those improvements and continue the cycle.

Through enhanced targeting technology, marketers will be able to more effectively perform their primary function as consumer insight professionals within their organizations.  In the course of promoting their products they will also be able to learn about the consumers who covet them.

– Greg

26 Responses leave one →
  1. Bruno M permalink
    September 24, 2009

    Hey Greg. Enjoyed your post, right on! Lets face it, most companies don’t have the resources to analyze and react to today’s data volumes. And even if they could, our ability to react manually is too slow to really leverage the nuances in the data. Faster data, shorter shelf-life. Adaptive learning methods, such as neural networks, can sit on top of CMS to deliver customized offerings and promotions to visitors in real-time. Machine learning algorithms will drive models that determine who sees what.

    In the future, web sites should operate in a continuous learning mode. Think of it as a continuous test of every aspect of your site. What cross sells are working? What Homepage images? Hey your Twitter data source indicates Prada shoes are popular at the hubs so serve Prada shoes to visitors coming from Twitter. And Test. What discounts can be offered to maximize order value? And at every step of the test your site is automatically tweaking itself and serving content as prescribed, updating revenue projections, prescribing courses of actions for the approval of humanoids…

    …or you could call me crazy! 🙂 Cheers.

    [Reply]

    Greg Reply:

    Bruno,

    It’s much more realistic than you think all of these technologies are commercially available and under intense use. The real problem is data, which is why so many companies can’t wait to give you a free browser, toolbar etc:-)

    In the future, he who owns the database, owns the world!

    – Greg

    [Reply]

  2. Girish Mahajan permalink
    September 24, 2009

    A very comprehensive post

    Completely agree with you. This is def the future of consumer targeting but it is hard to envisage a future where there would be more than a handful tech. specialist holding on to this kind of data.
    Also the scale of investment both in tech and skilled manpower (read analyst) will make it beyond the means of majority of marketers and agencies.
    But this is def something the industry should strive toward

    [Reply]

    Greg Reply:

    Girish,

    A lot of the technology is already used commercially on a smaller scale, so it will probably come more quickly than you think. There is a reason why everybody wants you to use their browser and toolbar.

    Also, you need to confirm your subscription if you want to receive the newsletter. Check your “junk” folder.

    – Greg

    [Reply]

  3. September 24, 2009

    Girish,

    There’s something marketers can do now, just like the Feds. Attract. Put out lures and watch what happens. This is faster than understanding. Understanding takes time and mental model building…and it’s always flawed. The question is by how much and under what circumstances. And the cognitive load of understanding and planning involves endless meetings about use of resources. Lots of overhead. Man and woman hours. All spent on theory.

    Check out the concept used in medicine and public health called Positive Deviance. Bad name, great working model that works. Gets right to solutioneering on a massive scale.

    So perhaps the future of marketing is to set up lures and bait and attract consumers. Not target them. Because aiming a magic bullet at something you don’t understand, something that moves in unpredictable ways…that’s very hard. But attracting? We do it with wild critters all the time. It’ll work on people. Check out any bar on “sexy people drink for less” night. Just kidding, but only a bit.

    Keep up the great blogging! Hybrid thinking is where it’s at. The nation hasn’t figured that out quite yet. Not most of the old farts, anyhow.

    eggdawg

    [Reply]

  4. September 24, 2009

    Very useful and comprehensive post. I am especially eager to see this filter down to smaller businesses, which may lack the scale and resources of their larger competitors but may lack the silos and bureaucracy, too.

    Excellent point about the value that good sales people add to their organizations. What is sometimes denigrated as intuition, gut feel or even guesswork is often genuine insight that companies ignore at their peril.

    By the way, in addition to radar and GPS, the internet itself is an example of defense technology that made its way to the commercial sector.

    [Reply]

    Greg Reply:

    Ron,
    Thanks. I think the technology will filter down to smaller business, in much the way that small businesses don’t buy TV optimizers, but still use them indirectly through service providers.

    I see your point about Arpanet being the precursor to the Internet. Government funding had a big part in computers as well. However, neither of those technologies were classified. Radar, during WWII was a state secret and GPS was (I believe) classified at one time. So that was really my point.

    – Greg

    [Reply]

  5. Girish Mahajan permalink
    September 26, 2009

    Good perspective Eggdawg. I’m not undermining any pov whether it is Gregs about tech and targeting or Eggdawg’s about putting in lures and baits. In an ideal world it would be great to have data and optimizer to back up spends, but really the good’ol “Create great stories to engage consumers” isn’t really a bad idea (for the time being) if we only talk from a perspective of Social media marketing (as opposed to ORM etc).
    But i guess with higher fragmentation and greater consumer resistance, better technology is definitely the answer for the future.
    Great work Greg! Really engaging blog.

    [Reply]

  6. September 28, 2009

    Thanks fo another thoughtful post, Greg. I wonder if we could get additive benefit, the best of the brain and the gut, by having salespeople interact more with our data crunchers. Just a thought.

    [Reply]

    Greg Reply:

    Charles,

    This is actually a fascinating area. To be honest, the Neurological stuff is a bit of a chore to plod through, but the pioneer in “Naturalistic Decision Making” is Gary Klein and he’s written a very readable book called “Sources of Power.”

    http://www.amazon.com/Sources-Power-People-Make-Decisions/dp/0262611465/ref=sr_1_1?ie=UTF8&s=books&qid=1254124742&sr=8-1

    – Greg

    [Reply]

  7. September 28, 2009

    Damn you, Greg. Like I needed to order another book. (Looks great so I did.)

    So here’s one back atcha. Looks like a digression. It’s actually a human analog, a way of staying human as we address commercial problems that involve humans (consumers) who care not one bit about our business agendas. New book called the Philosophical Baby.

    Good science. Undermines assumptions parents like me have made for years. Turns out that babies and kids are not incomplete human beings, they are complex processors capable of dealing with all kinds of stimulus and finding meaning and then learning from that. Toddlers now are taught sign language. Cuts down on the terrible twos because that’s when they have will power but not words. Now with signing they have both. Fewer temper tantrums. Perhaps we should teach signing to C-Suiters and Congress? Half kidding.

    There are implications here for how we view and treat consumers, with respect, and understanding they know far more about the context of their lives and their frames of decision-making than we ever will. Unless we embrace them in the process of, well, everything important.

    Again, thanks for the terrific blogging. Here’s to changing best practices that ain’t best anymore.

    – eggdawg

    [Reply]

    Greg Reply:

    Eggdawg,

    Thanks! My wife and I just had our first child a month ago. I’ll be sure to pick it up.

    – Greg

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  8. October 12, 2009

    At risk of interjecting the crass and commercial into this fine intellectual discussion, the future is now.

    I’m on the Advisory Board of a company, MaxPoint Interactive, that is targeting Prime Prospects with online media using a combination of off-line and online data to support proprietary geo targeting technology that’s 2.5X more granular than residential zip codes. Direct Marketing accurarcy with online efficiency.

    Results for beta and early commercial clients have been fantastic. Deliver a relevant message to the right people and don’t deliver the message to people who don’t care or can’t take action and you get cost-effective results.

    [Reply]

    Greg Reply:

    James,

    Good luck with it.

    – Greg

    [Reply]

  9. Rahul permalink
    October 16, 2009

    Good stuff Greg. The anology and the connect thereof makes it an interesting read. Informative. Add the comments and you have an useful insight.

    The SNA initiative, though a baby step now, is surely yielding me results.

    [Reply]

    Greg Reply:

    Thanks Rahul.

    For me, the SNA stuff is the most interesting, with application ranging from biology to organizations.

    – Greg

    [Reply]

  10. November 6, 2009

    Greg, that’s good stuff.
    Do you know of any commercial product (e.g. for marketers) using SNA principles already?

    Thanks

    [Reply]

    Greg Reply:

    Richard,

    No, but there are plenty of very sophisticated products for analyzing social networks in organizations. It seems to me that the only real difference is scale.

    – Greg

    [Reply]

  11. November 9, 2009

    This article is everything that is wrong with advertising today. The trying to be clever, comparing consumers to terrorists and targeting them. This game is simple and always has been. Give people quality content that will entertain them or give them something they find valuable. Seed it with sneezers and get involved in the online community. Remember, your customers are your wife, neighbor and kids. Simple Really.

    Dave

    [Reply]

    Greg Reply:

    I think you missed the point, but thanks for contributing anyway.

    – Greg

    [Reply]

  12. November 19, 2009

    Greg,

    Wonderful posts. After reading this one and the one on the primal forces of social networks I have a question. It appears in the primal forces post you talk about not needing to target the hubs, since they’ll be infiltrated (my word) by an idea as long as it’s in their environment. However, here you talk about how important it is to target the network hubs. Not all all meaning to be a noodge about it, but it does raise a question–which is the most effective strategy for spreading an idea/message/communication around?

    Is it case-dependent? Do we need to review each use case independently?

    Am I missing something obvious?

    Thanks again for the great material.

    Adam

    [Reply]

    Greg Reply:

    Adam,

    It’s a very good question and one I’ve struggled with myself. In the end, I think it is an efficiency question.

    Imagine you want to travel to some city in Europe. The most obvious place is to look at airport hubs such as Heathrow and Frankfurt. Once you know that those hubs exist, it’s much easier to get where you need to go.

    However, those hubs can be very expensive and time consuming. Discount airlines like Southwest and Ryan air have made a great business by avoiding the hubs. They can be much more efficient by exploiting inefficiencies in the network architecture.

    Barabasi took a different approach by looking at network stability in the face of a network attack, “scale free” networks ruled by power laws are amazingly resilient lose a great many nodes and even a few major hubs and continue to function.

    So hubs are very important, but not exclusive. Moreover, in the marketing arena identifying hubs is problematic. It’s not as simple as just flipping to the back of an airline magazine. So while it’s important to know that they’re there and very valuable to identify them, it’s also crucial that perfectly viable network paths aren’t being excluded.

    – Greg

    [Reply]

  13. raghuraman permalink
    December 27, 2009

    Greg,

    Thanks for the Good post and great learning.

    It works better if we know where, whom and how to target. Many campaigns fail miserably because they do not connect these three heads.

    At the end of the day connecting with the mind of the consumer is critical and i personally feel computers how faster in analysing the pattern can never go beyond the human mind.

    Thanks again and have a great year end and start of a new promising year

    Raghu

    [Reply]

    Greg Reply:

    Raghu,

    Thank you and all the best in the New Year!

    – Greg

    [Reply]

  14. September 28, 2012

    Consumer targetting has seen an improvement with the introduction of social networks as these companies have huge amounts of information about our private lives which they let advertisers use for a payment. For example popular social network Facebook lets advertisers choose country, hobbies, age, education and a host of other personal info. Then, they charge the advertisers for the number of clicks or views. Basically, they are letting users use Facebook for free but they are getting the revenue from advertisements using their private information.

    [Reply]

    Greg Reply:

    Very true!

    – Greg

    [Reply]

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