Big Data: Reinventing Marketing Using Big Data

Alex "Sandy" Pentland

Adam Smith and Karl Marx only had half of the story. Society isn’t made up of markets, classes, parties, or professions. It is made up of billions of individuals and interactions, and the details are important. There is no way to understand important phenomena like cascades, fads, and crash without individual-level data. The point of big data is to get beyond aggregate abstractions and gain a richer understanding of people’s behavior.

Many new customer and business insights come from combining this new way of thinking about data analytics with big data:

  1. Analysis of credit card records on 100 million Americans shows that everyone explores new products, but for different reasons. High-income individuals explore out of curiosity but rarely change their habits, while low- and middle-income individuals explore out of desire for improvement: The more they explore, the more they switch.
  2. Improving corporation internal operations: By comparing offline informal conversations (gathered through electronic sensor nametags) and formal conversations (memos, meetings), conversations between departments can be analyzed. This study showed that despite a plethora of formal conversations, few informal conversations were occurring with customer service until a product disaster happens.
  3. Tuning for productivity: In a call center, offline conversations between workers are discouraged to maximize productivity. However, preliminary analysis showed that the most gossipy workers were also the most productive. With the hypothesis that office gossip helped spread best practices, an experiment was conducted to increase offline conversations between workers by synchronizing their coffee breaks. Worker stress was reduced by 20%, and $15 million in annual savings were achieved through decreased average call time.
  4. Instant organizations: What incentives structure works for growth through word-of-mouth? Through an Internet grand challenge, a direct incentive (if you help me, you get an incentive) competed with pyramid scheme incentives (if you help me, you get an incentive; if you help recruit someone and that person helps me, that person gets an incentive, but you also get an incentive). The pyramid scheme grew much larger very quickly. This could be used to grow social CSR campaigns.
  5. Social incentives: A field experiment was performed to increase activity levels, which could have implications to fight obesity. Some individuals were randomized into the control group and given coupons for being active; other individuals were randomized into a social pressure group: Peers received coupons if the individual was active. Researchers found that the social pressure group was four times as cost effective in maintaining activity levels.
  6. Discovering connections: A company tracked geospatial data from cell phone locations of people in San Francisco to find clusters of bars and clubs frequented by the same people. They found that these communities based on behavior had very similar buying behaviors; this information allowed the company to earn four times the click-through rate of any other mobile advertising company. Using the same data, real estate planning could help design store placement based on where people travel, where they were before and after walking by the store, etc.
  7. Online social trading: eToro provides a trading platform where people can copy each other’s trading strategy, similar to a traditional investment club. By analyzing their trading records, Pentland found that isolated, individual trading was not profitable, but neither were overly social “echo chamber” trades that tended to create bubbles. In an experiment, those who were making isolated trades were asked to become more social, and those who were following too many trades were asked to become more independent. As a result, return on investments increased by 6%. The experiment yielded $1.6 million / day in hedging to platform owner eToro in addition to higher customer retention.

All this is made possible by the use of personal data. But who can be trusted with this data? New legislation includes EU Data Protection Rights and U.S. Consumer Privacy “Bill of Rights,” encompassing three essential rules:

  • You have to ask your customer for permission and show them what information is being collected about them.
  • You have to respect the conditions under which you ask for permission, and make sure contractors also respect those conditions.
  • You have to follow the consumer’s right to cancel. If they retract their consent to use their data, you need to respect it and delete that data.

Summary prepared by Joseph Davin (formerly Davies-Gavin), Clarence Lee, and Lingling Zhang, Harvard Business School

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Big Data

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