Did you know that when a customer uses a loyalty card, your every purchase is being relentlessly analyzed by the retailer who is scheming ways to vacuum even more money out of your wallet? Let’s start this post with a story about big data and its data collection by the retailer Target.
Bulls-eye!
Back in the 1980s and 90s retailers, realized that expecting parents could be their greatest profit generators. A paper by a UCLA professor in 1984 found that major life events change people buying habits drastically and this became a pillar of modern marketing. Retailers quickly concluded that there is no greater disruption than the birth of a child. In 2010, a survey estimated that parents spend $6,800 on baby items before the child blow out its first set of candles on a birthday cake. Disney estimates that the new baby market is worth $36.3 billion. That is a big piece of cake!
So Target set its “target” on the marketing ‘bulls-eye’ on the back of expecting parents and joins the bandwagon. But Target does not want to compete with companies like Proctor & Gamble or Disney—they want to beat them. What do they do? In walks one of Target’s data analyitcs professionals.
While his friends were out doing normal kids things in North Dakota like playing at the park, this data guru was playing with computers. After receiving a few degrees in computer science and statistics, he found himself working at Target in the data analytics department. One day his boss walks in and asks if he can predict based on a customer’s buying habits if they are pregnant? It was the type of project he had been waiting for. Being the smart man that he is, he figured it out, and then some.
Some of you might remember a story a few years ago about a father becoming outraged at Target for sending his 17 year old daughter loads of baby related coupons even though he believed his daughter was not pregnant. Well, what the father did not know was that his daughter was in fact pregnant, Target’s data analytics just knew before he did. Thanks to their analytics team Target is able to predict which customers are pregnant based on their buying habits with surprising accuracy. Most of the time they are able to predict what trimester a customer is even in!
How do they do it?
A little over a decade ago, Target developed the concept of the Guest ID to use with their analytics department. Think of the Guest ID as the primary key used in a database management system like Access or Oracle. Everything relates back to this one primary key. It is relatively easy for Target to collect data on its customers, most of the time without them knowing.
Online cookies, mailed coupons, customer loyalty cards, and Target credit cards (like the REDcard), to name a few, are all used as methods to collect data on a customer. Almost every sale Target has ultimately relates back to a Guest ID number. Target can link about half of in-store sales, almost all of online sales, and about a quarter of online browsing to a single person! With all this information on hand and some smart people with the know-how, incredible conclusions can be made from customer data which can boost sales, lower costs, etc.
What to Take Away?
Data analytics is at the forefront of every business. The more data, the better because it is basic understanding that with vast amounts of data then, vast amounts of knowledge can be gained through its analysis. Without companies like Oracle or SAP, many common and now rudimentary businesses practices like POS analysis would be absent. Big data represents great power for companies but with great power comes great responsibility.
How would you react if your favorite retailer knew more about your significant other than you did? And, how does a company damage control that situation? That is a popular gripe marketing departments have against their data analytics departments. Furthermore, what is big data missing out on? This will be covered in Part 2.