2005 Aug 01

Marketing in a Data Rich World
David M. Raab
DM Review
August, 2005

Perhaps the greatest change facing marketers over the next ten years will be the increasing availability of customer information. In the past, most transactions were anonymous. Some were literally anonymous because they were cash purchases. More were effectively anonymous because customer information was not shared with any third parties. In the future, anonymity will be the exception. Ubiquitous video cameras, electronic access control, and passive devices such as RFID, location-aware cell phones, wireless toll- and fare-paying systems, and GPS-equipped automobile “black boxes” will track individuals throughout their daily lives.

Some of this data has long been captured but remained hidden within the system of origin. This veil of “practical obscurity” is being removed by government pressures for easy access in the name of national security. One major component of this surveillance apparatus, the REAL ID Act which transforms drivers licenses into a de facto national ID registry, has already passed into law. Proposed revisions to the USA PATRIOT Act, still being debated as this is written, would add federal authority to inspect business records of customer activity without judicial oversight.

Commercial pressures will do the rest. Companies will adopt the national ID as an convenient, reliable customer identifier. This will coincidentally make their data more salable because it will be easier to link with customer information from other sources. The value of such ID-enhanced data will in fact be high enough to justify offering incentives to consumers to provide it where using the national ID is not mandatory. This value will also encourage companies to design systems so customer data is easy to extract. The legal obligation to respond to any government requests will further encourage such designs. Given the government’s interest in having this data available, legislators are unlikely to enact privacy rules that deter collection. They may, however, adopt other privacy-related requirements that support surveillance. For example, allowing consumers to review their personal data leads firms to identify and assemble customer information in ways that also simplify government access.

Whether the government should have such surveillance capabilities is beyond the scope of this article. So is the question of whether a national ID system will be so vulnerable to penetration and identify fraud that it actually decreases national security. Continuous surveillance is already a fact of life and will only expand. Commercial access to surveillance data will soon follow. What will this mean for marketing systems?

On a technical level, these systems will need to handle vastly larger volumes of data. A single purchase transaction will be replaced by multiple Web visits, telephone calls and shopping trips, each with multiple details about items viewed and questions asked. The systems will store additional details about what else the customer had been doing, competitive activities in the market at that time, and maybe even the weather. Because this information will be used in part to make real-time decisions about customer treatments, high speed in acquiring and integrating the data will be as important as ability to handle high volume.

Real-time decisioning will become more important. Expanded data allows more accurate predictive models, which produce more profitable results, which justify greater investment in modeling and delivery systems. For example, knowing that someone has been checking out new car information for months and has suddenly made a flurry of showroom visits probably marks her as a serious buyer worthy of special attention. Knowing she has mostly looked at Hondas when you’re a Toyota dealer suggests you have to sell her on the brand more than the price. Knowing that she’s had a series of maintenance problems with her current vehicle tells you to stress reliability and your own service offerings. Taken together, such information could significantly increase close rates and profit margins. But these gains can only be achieved if businesses invest in the tools to gather and process the information and deliver the results to the point of contact in real time.

Marketing decisions in general will be more precise. Direct marketers have always been able to measure the results of specific promotions and use these to fine tune their efforts. Conventional marketers, lacking the same visibility, have relied on indirect measures and a good deal of blind faith in making their choices. Detailed customer information will let marketers know precisely which consumers saw which billboards and television ads–including those of competitors–and how they reacted. Marketers will also have access to many other bits of customer information that determine which treatments are appropriate. Even if the data is not perfectly accurate, it will be vastly more meaningful than what we have today. The result will likely be a substantial switch from mass to targeted media, as the ability to measure results allows marketers to identify the most productive contacts and justify paying a higher cost per impression for them. Reduced waste may or may not result in a decline in total advertising spending; it’s possible that prices will rise with demand for more targeted media and for access to the most profitable customers. It’s also likely that increased demand will encourage development of new targeted communications channels: personalized messages on billboards are already moving from science fiction to reality.

The 360 degree view of the customer will be replaced by an understanding of the entire customer experience. Retirement of the overworked “360 degree” cliche would be a blessing in itself. More important, the company-centric goal it presupposes–of knowing about every interaction between the company and each customer–would be replaced by a more meaningful objective of understanding life from the customer’s point of view. This should lead to major improvements in how companies design their products and processes, enabling them to truly meet customer needs rather than the companies’ own. In more concrete terms, understanding the customer’s full experience should help companies see how their offerings fit into the customer’s total requirements and then extend or modify those offerings to make them more valuable. To continue the car dealer example, the company might also find out that the buyer takes a family driving vacation each summer. They could then offer a minivan rental service as an alternative to buying a large vehicle that will be underutilized most of the year. Of course, the dealer would only do this if the combined profit on the minivan rental plus the smaller vehicle sale were higher than the profit from selling the van itself.

Finally, customer privacy preferences will themselves become a marketing element. Even though most of the new surveillance is involuntary, customers will have some choices about which data they share and how they are treated. Simply put, some people will find it uncomfortable to be reminded of how much you know about them. In those cases, it may be more productive to hide this information during interactions, even at the cost of less precisely tailored treatments. Marketing systems will have to identify consumer privacy preferences and adjust the interactions accordingly. These adjustments should extend beyond customer presentation to substantive differences in which data is collected and how it is used. In an age when the government can easily view any data a business collects, some consumers may actively prefer businesses that collect as little data as possible. Of course, patronizing (or running) such a business may itself attract government attention–one of the many new dilemmas posed by a total surveillance society.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.

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