Monday, November 19, 2012

Privacy Invasion or Practicality - Behavior Prediction and Advertising

I enjoyed reading Superfreakonomics. Particularly, I found interesting the discussion of “Ian Horsley”’s model for using bank and demographic information to find those customers most likely to be terrorists. The success of this sort of endeavor has many interesting philosophical connotations – if our behavior is so reliable that government agencies or companies with access to sufficient data can readily predict what we will do, free will faces a significant challenge. However, another interesting implication of this form of behavior prediction is in its potential use for ad agencies and companies that want to target consumers.

As the New York Times reported earlier this year, Target had begun to analyze customers’ buying habits with the hope of predicting when female customers were pregnant. The article explains that “new parents are a retailer’s holy grail” because new parents are one of a limited set of groups that are at a point in their lives when they’re willing to change their shopping routines. Thus, new parents would be more easily convinced that Target was the only shop they needed. As Target quickly found, the method of finding new parents was very effective – almost too effective. The company sent ads forbaby supplies to a teenager, provoking an irate response from her father. A few days later, the father called back to apologize and tell the store that they had it right – they knew his daughter was pregnant before he did.

Of course, most customers understandably found that sort of aggressive advertising creepy and intrusive. This “creepy factor” seemed to discourage them from considering Target for their shopping needs somewhat. In response, Target scaled back their advertising efforts and instead sent more subtle advertisements to the pregnant women – interspersing baby items with regular items, for example, rather than sending them a book of coupons for baby formula only. Interestingly, this case seems to suggest that some of the fears about targeted advertising are self-regulating – if people feel like an advertiser is extending into their life too much or being too forward, they will respond negatively, which will force the advertiser to change their approach. (That said, in this case, this incentive only changes how the advertiser or company appears to the customer, and not how much information the company gathers. Conceivably, though, in other circumstances the incentive could be structured such that less information would be necessary for the more subtle approach, and thus less information would be gathered.)

It’s interesting to see this sort of method play out (perhaps less successfully) in other circumstances. Facebook ads are, theoretically, a great opportunity for targeted advertising – the host company already holds a wealth of information about the audience for ads. Yet Facebook does not seem to have taken full advantage of its advertising potential, or at least does not use its data nearly as well as Target. Too often it posts random but specific or worse, contradicting ads – on many occasions I have had an ad for a Jewish dating site, an atheist organization, and literal Bible belts – with Bible quotes on them. (My religion was set to Pastafarianism at this point, for the record.) Yet Facebook manages to demonstrate some of the potential benefits of targeted advertising for customers as well as companies – when the ads actually match the customers’ interests, like about tickets for his or her favorite band on sale, it provides potentially valuable information that overall increases utility for the customer. Understandably, our gut reaction to companies gathering private information about us (though obviously if we post it on the internet it’s not quite so private) might be concern about our privacy, risks of identity theft, and so on. Yet it seems that, given enough safeguards to protect information and a sufficiently subtle approach, targeted advertising could serve as a very useful tool for facilitating business between companies and customers that might not otherwise meet.

Of course, I’ll still find it a bit creepy every time Facebook perfectly anticipates my Domino’s craving with a well placed ad. But if I get $5 off and a yummy pizza, who cares?

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