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Friday, September 5, 2014

Facebook's Social Experiment: A Marketer's Perspective 09-06

Facebook's Social Experiment: A Marketer's Perspective

Facebook's social experiment has angered many. But the social network may have learnt a thing or two about better customer segmentation and targeting.

Image: Shutterstock

Facebook’s social experiment , where about 700,000 users’ news feeds were secretly controlled to prioritize “sad” or “happy” status updates, is viewed by many as an unethical—and potentially illegal—manipulation. While Sheryl Sandberg, the social network’s second most powerful executive, did apologize for the “poorly communicated” research, there are so far no indications that Facebook will shy away from running similar experiments in the future.

But why do Facebook’s data scientists want to understand how positive or negative status updates influence users’ emotions? Why are they interested in knowing how families communicate on social networks, or what are the causes of loneliness?

The answers lie within Facebook’s business model: the company makes money primarily by hosting advertisements. According to its most recent earnings report, about 93% of the Menlo Park-based firm’s quarterly revenue of $2.9 billion came from advertising.

Compared to traditional advertising platforms, Facebook, which possesses a massive amount of data generated by its 1.32 billion monthly active users, is in a unique position to be able to pinpoint customers that companies want to reach. And “the amount of money they can then charge the advertiser would depend upon how well they were able to match the needs of the advertiser with the customers that the particular advertiser is interested in,” says Pradeep K. Chintagunta, the Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing at University of Chicago’s Booth School of Business,an expert on household purchase behaviors.

In this interview with CKGSB Knowledge, Chintagunta explains why consumers’ behaviors may change in different scenarios and at different points in time, and how firms like Facebook could translate those micro differences into effective marketing approaches.

Q. Why would companies like Facebook be interested in deeper understanding of user’s mood or behaviors?

 As a marketer, in some sense [your] fundamental responsibility is to actually try to figure out what it is that your target customers want. Facebook is in a special situation. It is a platform, and the platform essentially brings in both the end consumer, who is the consumer of products, as well as companies, who actually want to reach these customers. So playing that role of bringing together both the advertiser as well as the consumer is something they would like to do. In some sense, the amount of money they can then charge the advertiser would depend upon how well they were able to match the needs of the advertiser with the interests of the customers. So, facilitating that match is important. In order to facilitate that match, they need to understand what it is that these customers really want. I think a lot of what you see them do is trying to actually get a deeper understanding, so they can facilitate that match.

Q. The idea of segmentation and targeting is marketing 1.1. But it seems that we are taking this 10 steps ahead and slicing the audience into even thinner and thinner slivers. To what extent is this going to be feasible?

A. In terms of feasibility, I think that’s not too much a challenge these days with the technology available. I think where companies will start running into problems is when there is push-back from the customer and the customer says, ‘You know, it’s great that I’m on Facebook and I’m interacting with my friends and colleagues, etc. But for you to now come in and try to understand—or even worse—manipulate the way I might be feeling’, that’s where they would potentially run into problems. They have to be very careful about it.

The way I think about it though is that what they are trying to do now is go through the earlier phase where they are trying to understand how customers are going to behave based on these experiments. Once they have done these experiments and gotten a good understanding, potentially at that point, there might be less a need for them to engage in these kinds of activities than they are. By that time they have a better understanding. maybe that would be sufficient information for the advertiser to come in and do what they’d like to do.

At some level, the issue is what’s the most micro level at which you want to target. I think it is the case that all humans are very complex. We have different moods, we have different social groups, different kinds of interactions with people and we tend to behave differently at those times. For example, I’m now sitting in front of a camera and my behavior might be very different from the way I would behave with a group of friends at a bar drinking a beer. The issue is does understanding the differences in such behavior empower marketers better add value for the customer. And the answer to that is yes.

 I think understanding and then engaging in that level of targeting is actually a potentially a worthwhile exercise, because at the end, it’s making the customer get more out of the interaction as well. It’s not just the firm.

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