The New York Times recently published an article titled How Companies Learn Your Secrets. The article, authored by Charles Duhigg, is a fascinating case study of what is possible when you track and then analyze the buying habits of your customers. It also looks at how to alter those buying habits for the company’s benefit.
The article details how Target learns about customers’ buying habits and then sends targeted coupons based on a customer’s current “life stage.” It started in 2002 when two colleagues from the marketing department stopped by Andrew Pole’s (a statistician) desk and asked an odd question: “If we wanted to figure out if a customer is pregnant, even if she didn’t want us to know, can you do that?” The story details how Pole has been able to answer that question, and others, simply by data mining individual customer purchase information and habits.
Target has effectively invested in research about how to use this data to accurately discern what life events are taking place in their customers’ lives. Then they experimented to determine which life events provide the best opportunities to alter a consumer’s habits. They have exploited those habits to the tune of tens of billions of dollars in increased revenue.
For example, Target can predict about as well as any over-the-counter pregnancy test which customers are pregnant and when their babies are due, completely based upon when and how much of which seemingly unrelated products they are buying. There is an interesting anecdote in the article about how one incredulous father found out his teenage daughter was pregnant by opening junk mail coupon offers from Target.
Target has also learned that revealing how much they know about a customer’s personal life can really creep customers out. The company has developed strategies to be more subtle with its offers so that they meet needs with perfectly matched offers that are mixed with intentionally irrelevant offers. This way, prospects think of serendipity instead of Big Brother. Target found, through testing, that as long as prospects don’t feel like they are being spied on, they will take advantage of offers that are specifically tailored to them based on things other people aren’t supposed to know.
The insurance industry gathers a tremendous amount of information about consumers. Until recently the tools that analyze this data have been expensive and complicated. That is starting to change as technology costs continue to drop. Being able to accurately profile prospects and customers will allow you to target your messages more specifically. Getting the right marketing message to the right person at the right time is key to building long-term profitability.
But how much profiling is too much? Just because you can do it doesn’t mean you should. Unfortunately, there is no easy answer to this question. Businesses of all types will want to take advantage of these new data mining tools, but should keep consumer perception in mind at the same time.