"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Tuesday, April 17, 2012

Target Knows You’re Pregnant–And You Never Told Them

The United States has always been at the forefront of consumer marketing, and given the high rewards for a tiny percentage shift in market share, the stakes are high.  Communications technology, and in particular the software that allows everything that is transacted electronically – credit card purchases, email, Facebook posts, cell phone calls and texts, GPS positioning, surveillance camera records – to be captured, stored, and ultimately used to micro-target consumers.

This collection of raw data, however, is nothing if not organized to create useful consumer profiles.  In some cases this is easy.  Amazon routinely tracks your purchases, allowing them to predict which new books and music you might like.  Netflix has offered substantial prizes for the development of new ‘preference software’ so that it can suggest what movies might appeal to your tastes. 

However, these companies and others like them are not content with simply using user rankings.  The traditional way for Netflix was to build better film recommendations was to ask each user to rank hundreds films seen, thus building a personal profile.  This use of internal information was helpful, but confining.  However, if Amazon knew what online news sources you read, it would have additional external information about your preferences and would therefore be able to enhance your reader profile.

Data sharing is big business.  Facebook, Google, Yahoo, and other online companies that have access to vast amounts of information about you, sell this information to companies who want to sell to you.  People put all kinds of interesting things on Facebook.  One of my FB friends has had an ongoing post about remodeling his kitchen, information that Lowe’s would love to have.  They can see what kind of fixtures, lighting, tiling Mr. Fixit is using, get contact information from his profile, and send him direct mail about Moen sinks at discount prices. 

Hundreds of millions of emails are generated each hour, and Google through Gmail reads them all using algorithms to check for keyed items.  If you are writing a friend about Turkish rugs, either you will see an ad for Hartoonian Carpets or Hartoonian Carpets will have paid Google for the privilege of getting information about you so that they can contact you directly.

In a recent article in the New York Times, the author described the experience of  Target which has been successful in knowing you even better than your own family.  They have gotten so good at creating consumer profiles, using their own store data but increasingly relying on the other sources mentioned above, that they can not only tell who is pregnant, but what trimester they are in. 

http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?scp=1&sq=target%20store%20marketing%20pregnancy&st=Search

Pregnancy is particularly important for Target because it is one of the times when people break out of traditional buying habits.  Most purchases are done by rote – buying coffee and not tea; buying a particular brand of coffee; choosing the same cereals, etc. – but habit is broken at the time of key events, like divorce or pregnancy.

In the 1980s, a team of researchers at UCLA undertook a study of peoples’ most mundane purchases, like soap, toothpaste, trash bags and toilet paper. They learned that most shoppers paid almost no attention to how they bought these products, that the purchases occurred habitually, without any complex decision-making. Which meant it was hard for marketers, despite their displays and coupons and product promotions, to persuade shoppers to change.

But when some customers were going through a major life event, like graduating from college or getting a new job or moving to a new town, their shopping habits became flexible in ways that were both predictable and potential gold mines for retailers. The study found that when someone marries, he or she is more likely to start buying a new type of coffee. When a couple move into a new house, they’re more apt to purchase a different kind of cereal. When they divorce, there’s an increased chance they’ll start buying different brands of beer.

Consumers going through major life events often don’t notice, or care, that their shopping habits have shifted, but retailers notice, and they care quite a bit. At those unique moments, Andreasen wrote, customers are “vulnerable to intervention by marketers.” In other words, a precisely timed advertisement, sent to a recent divorcee or new homebuyer, can change someone’s shopping patterns for years.

And among life events, none are more important than the arrival of a baby. At that moment, new parents’ habits are more flexible than at almost any other time in their adult lives. If companies can identify pregnant shoppers, they can earn millions.

The issue for Target, however, was not to get to the consumer after she had her baby, but before.  Everyone has access to public birth records, but if Target could identify pregnant women early and market directly to them, they would have a significant competitive advantage:

Because birth records are usually public, the moment a couple have a new baby, they are almost instantaneously barraged with offers and incentives and advertisements from all sorts of companies. Which means that the key is to reach them earlier, before any other retailers know a baby is on the way. Specifically, the marketers said they wanted to send specially designed ads to women in their second trimester, which is when most expectant mothers begin buying all sorts of new things, like prenatal vitamins and maternity clothing. “Can you give us a list?” the marketers asked.

“We knew that if we could identify them in their second trimester, there’s a good chance we could capture them for years,” Pole told me. “As soon as we get them buying diapers from us, they’re going to start buying everything else too. If you’re rushing through the store, looking for bottles, and you pass orange juice, you’ll grab a carton. Oh, and there’s that new DVD I want. Soon, you’ll be buying cereal and paper towels from us, and keep coming back.”

How did they figure this out?  They used their own data and the resource-rich information from Google, Facebook and others.  A Target marketing executive explained that the start simply and internally:

“If you use a credit card or a coupon, or fill out a survey, or mail in a refund, or call the customer help line, or open an e-mail we’ve sent you or visit our Web site, we’ll record it and link it to your Guest ID,” Pole said. “We want to know everything we can.”

They then move on to collect external information:

Target can buy data about your ethnicity, job history, the magazines you read, if you’ve ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own.

However, this data will make no sense unless it is organized.  Specifically, what in a consumer’s buying habits will tell Target that she is pregnant and in particular what stage of pregnancy she is in.

The only problem is that identifying pregnant customers is harder than it sounds. Target has a baby-shower registry, and Pole [Target marketing analyst] started there, observing how shopping habits changed as a woman approached her due date, which women on the registry had willingly disclosed. He ran test after test, analyzing the data, and before long some useful patterns emerged.

Lotions, for example. Lots of people buy lotion, but one of Pole’s colleagues noticed that women on the baby registry were buying larger quantities of unscented lotion around the beginning of their second trimester. Another analyst noted that sometime in the first 20 weeks, pregnant women loaded up on supplements like calcium, magnesium and zinc. Many shoppers purchase soap and cotton balls, but when someone suddenly starts buying lots of scent-free soap and extra-big bags of cotton balls, in addition to hand sanitizers and washcloths, it signals they could be getting close to their delivery date.

As Pole’s computers crawled through the data, he was 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.

Target was so good at determining who is pregnant that they ran into trouble:

About a year after Pole created his pregnancy-prediction model, a man walked into a Target outside Minneapolis and demanded to see the manager. He was clutching coupons that had been sent to his daughter, and he was angry, according to an employee who participated in the conversation.

“My daughter got this in the mail!” he said. “She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”

As amazing as this all is, it is just the beginning.  A recent article by the BBC explored the new facial recognition technology http://www.bbc.co.uk/news/magazine-17733455:

The Affective Computing Research Group is working on computers that can read facial expressions and track basic states like confusion, liking or disliking. Wearable devices, such as electronic bracelets, can detect stress or excitement by measuring minimal changes in the sweat level.

"Emotion measurement technology will be soon ubiquitous," says research scientist Rana El Kaliouby. "It will allow people to communicate in new different ways. It's a kind of very sophisticated version of the 'Like' button on Facebook."

The applications of this technology are wide ranging. Medically, it could help people with autism spectrum disorders to read emotions; commercially, it could be used to evaluate ads by tracking viewers' emotional response. Developers also say it could have important implications for social movements like the Egyptian revolution.

I have written previously on this blog about how this assemblage of data, so seemingly innocuous when it comes to body lotion or nursing bras, can be used by government against its citizens.  You can’t have it both ways, for if more exacting privacy laws are enacted, commercial companies will have less access to your information, thus limiting their ability to micro-target and to offer you just what you always wanted even before you knew it.

There is little chance that this wave of data collection and information-sharing will stop or even slow significantly.  It is currently seen as a win-win-win situation.  Consumers love it because they not only see ads in which they are interested in, but they do not have to wade through commercial clutter.  Companies love it because they save millions on broadcast advertising and find just the customers they are looking for.  Governments love it because they not only have billions of bits of raw data, but pre-packaged profiles about everyone.

We are living in a truly revolutionary era where information-sharing is not only the rule, but the preferred mode of behavior.  As Facebook has amply shown, we want everyone to know everything about us from our babies to our vacations to our political obsessions to our new kitchens.  If we have an obsession it is not about safeguarding our private lives, it is about sharing them with as many people as possible.

Marketers and government agencies know this very well and are capitalizing on it.  Information-sharing is now the norm, not the exception.  While there are still many information troglodytes over 70 who jealously guard secrets about their kitchens, no one is interested in them.  They don’t buy much and are unlikely terrorists.

Marketing is an American invention and American genius.  New start-up ‘design’ companies are now linking market research, marketing, and product design – anticipating consumer preferences like Target, but immediately working with producers to change product design and advising them on how to market it.  The three best elements of American business – understanding the consumer, innovative product design, and canny marketing – will always keep it competitive; and our appetite for things only gets bigger.  

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