Digital intelligence: Profiles to profits in a new consumer landscape

For those seeking to deliver tailored customer experiences based on deep customer insights, digital data and new analytic tools are a treasure trove.

All telecoms operators would like to know more about the interests and behaviors of both current and prospective customers. In the past, their window into a customer’s world was little more than information gleaned from traditional sources like targeted surveys, voice/data usage patterns, and contract information. Now—thanks to the Internet and mobile technology—the amount of accessible information is astronomical, and the ability to paint detailed pictures of customers’ lives can lead to major marketing efficiency gains for telcos.

By spending smarter, companies can either boost revenues or maintain conversion rates at half of their advertising spend
The role of digital has become so profound that it is less about how much consumers incorporate it into their lives and more about how much individuals live their lives within the digital realm. When it comes to shopping, for example, digital is not just a tool that consumers reach for at the moment of transaction. Internet-connected devices have become the portals through which consumers engage during the entire end-to-end decision journey. This is true for many product categories and also for telecommunications. In the consideration and evaluation stages of the purchase journey, for example, shoppers heavily engage online resources. Online reviews have the greatest influence on purchases, and in many markets most sales are preceded by searching or researching online. And—after extensive pre-purchase research online—consumers stick with digital at the point of making the actual transaction. When it comes to buying telecoms services and mobile devices, for example, almost one-fourth of transactions take place online in numerous markets.

Many consumer companies are seeing the valuable efficiencies of digital marketing and are heavily shifting their advertising budgets from traditional media (e.g., radio, out-of-home) to digital media—in fact, this is the only growing segment in advertising. In 2010, less than one-fifth of money spent worldwide on advertising was directed toward digital channels. Just three years later, that share has grown to one-fourth, and some projections place digital’s share in overall advertising at nearly one-third in 2017 with double-digit growth expected.

Share of telecoms services and mobile-device purchases that take place online
Although digital offers more sophisticated measurability compared with other media, its potential has not yet been fully tapped. The most common digital advertising tools (e.g., display, affiliate networks, retargeting, IP-based advertising) do not entail one-to-one customer profiling to enable highly targeted campaigns. By spending customer-segment marketing dollars smarter, companies can either boost revenues without increasing their advertising budgets or maintain their conversion rates but at about half of their current advertising spend. They could, for example, optimize their advertising spend by displaying ads only to the right targets across the full range of Web sites they use to advertise. They could also boost their advertising effectiveness by creatively tailoring messages to user characteristics and profiles.

The digital advertising budget is often allocated inefficiently. At best, consumer companies evenly distribute their advertising resources across all consumer segments. At worst, they spend the majority of their budgets on the consumer segments with the least conversion potential. Lives lived in a digital world leave a trail of information that—if analyzed with sophisticated tools—can create unprecedented opportunities for microsegmenting and highly efficient targeting. Marketers can target the most promising segments for their digital business (one-to-one targeting) to significantly boost their digital marketing return on investment. To develop this level of efficient marketing specificity, McKinsey recently developed an innovative solution and tested it in a real pilot at a mobile operator. The approach is based on four key pillars:

Projected share of digital in overall advertising by 2017
User profiling. A profiling algorithm that uses semantic analysis classifies the content of the Web sites that Internet users visit. The algorithm tracks their histories and profiles them, using up to 200 variables based on the content of the Web sites they visited and their purchasing behavior. Specifically, each user is automatically scored on each area of interest based on his or her browsing behavior (e.g., daily visits to travel Web sites or time spent reading travel articles). Additionally, online purchases for each product are tracked for at least one month, including whether the user was exposed to online ads. The profiling algorithm makes it possible to create highly descriptive profiles based on analyzing click-through and conversion rate data, which include user interests and sociodemographic descriptors.
Segment-product matching. Using the relationship between product conversion rates and profiling variables, consumer companies can then employ a statistical algorithm to identify specific user segments for each product. These segments are defined by their appetites for and propensity to buy a certain product and are characterized by a well-defined and homogeneous profile. This makes it possible to create user microsegments that are potentially interested in a certain product.
Targeted advertising. Once the relationship between products and users has been identified, digital advertising can be pushed to only the most relevant segments, using tailored messages. This approach optimizes advertising budget allocation and significantly increases ROI. McKinsey’s pilot shows that the solution can improve digital campaign ROI by 250 percent thanks to accurate targeting and ad tailoring.
Easy implementation. This solution can easily be integrated into ad servers. Once the algorithm is rolled out, targeted campaigns can be both continuously run and continuously improved—ensuring that only those Web users with the greatest potential for conversion will be targeted. Beyond advertising, this solution can be used to achieve other objectives, such as optimizing a merchant Web site so that it better fits visitor characteristics. Examples of this include customizing Web site layout, offering tailored promotions and prices, and displaying products to maximize sales conversion. Companies can even enrich their CRM databases to enhance their relevance by using Web behavior information to design more sophisticated multichannel campaigns.
Overall, companies should consider inserting this methodology into a broader approach to their marketing strategy to maximize the ROI they are extracting from all digital advertising levers.