Facebook: Personalized Marketing

What key structural changes have you seen over the last decade or two in marketing?

The first thing to say is that the heads of everyone in marketing are exploding, and that's okay. Marketing is going through a massive transformation. All the old rules that were taught in business school and taught at places like Procter and Gamble are on the challenge. Some are still relevant; some are less relevant, but there's a whole load of new tricks to be learned. Every CMO in the world is being pitched multiple times a day or a week on new technology or data that they should be using; otherwise, they're going to become obsolete. Most CEOs are unhappy with marketing because they know it could be doing more, but they do not quite know what it should be. Marketing is in massive flux. And yes, it is in the process of being reinvented. I do not have all the answers, but I will have a go at some of them.

To me, the fundamental change in marketing is the move from mass marketing to people-based marketing. What does that mean? That means in the past, for anyone who watched Mad Men or anything to do with advertising in the 60s, 70s, 80s, 90s or people who worked in agencies a couple of decades ago, it was all about the big idea. Thus, the brands would need to be defined maybe every year or a couple of times a year. That's a big piece of work; that'd be a big campaign. The CMO would brief a few agencies on what they want to do, “It's about this product. This is our brand strategy; what should the campaign be?”. The agencies would go away, have lots of brainstorming, storyboard a few ideas, and then present back to the CMO. The CMO, based on mostly judgements and maybe a few bits of panel research, would pick one of the Agencies, or one of the ideas have to be turned in production. The production would be a very fancy affair, going off to Hawaii with some celebrities and champagne and lobster and basically spending millions on producing one TV ad, then a bunch of additional ads would be made for outdoor, and print and what have you, and then the campaign would be run. And it was one message to everyone. There were some subtle variants on that. But broadly speaking, that's what marketing was. It was about getting an idea as brilliant you could and as well-executed as you could. And that message went to everyone. ROI on most marketing was relatively unknown. And that was accepted. But you could see that if you run a big campaign, sales went up. If you run a bad campaign or no campaign, sales went down. So, it was something companies had to do.

If you fast forward to the future, you could argue that you could be serving a different ad to every single person. Now that's technically complex. Most companies are not quite there, but they're on a journey in that direction. So, what does that mean and why? The reality is that every single person is different. And every single person's relationship with a brand or a company is different. They have different past purchases, potential purchases, price sensitivity, the timing of purchases, and media consumption. Regarding where they might see ads: some people are on Facebook, some on Instagram, some watch TV, some read print newspapers, some see outdoor ads, etc. They have different experiences with competitive brands, some are loyal to another brand, and you need to win them over. Some are already loyal to your brand. You just need to keep them and a whole lot of switches in between. They will have different potential lifetime value.

For every customer, you need to be able to say, “If I got this right, what kind of relationship will I have this customer? What kind of products and services will they buy or consume? And what's that worth to me? And what's the right path to take them down in terms of interactions? And how much will that path of interactions cost? And when you add up all the revenue and profit coming from that customer and subtract the cost of the marketing, what's the overall customer lifetime value?”

Now to do that by person with potentially a different ad served to every single person is a massive undertaking. I can safely say there is not a single company that's there, but there are many on a journey in that direction. So if you talk about the transition: step number one for any company is, organize your data about customers. When I say customers, I don’t just mean existing customers, but lapsed customers and potential customers. You gather all the data from your own databases and gather extra data that maybe you did not cover in the past. Who's been to your website? Who's in your loyalty scheme? Who's used your app? Who's been in your store? What aisle did they walk down? If on the website, what did they put in the basket? Did they call customer service? And so on. You then enhance it with useful third-party data. Third-party data may include household income, marital status, education level, number of kids, what car they drive, what they buy in the supermarket, etc.

Using a combination of your own data and that third-party data, most companies are already starting to organize that data well, and create more segments with more tailored campaigns. So the most sophisticated advertiser that I am aware of, they're already targeting thousands or tens of thousands of people with different ads per group, based on those factors that make people different, instead of targeting ads at tens of millions of people with the same ad.

Are there any regulatory barriers to this shift to personalized marketing?

There are all sorts of regulations. They're not barriers. They’re things to work within so that you do not break the law or spook consumers by bad behavior. The most famous of data regulation is GDPR, which is a European law on data. I think it's actually a very sensible law, which basically says that any company if they are gathering data from consumers, needs to (a) tell them they are gathering it, (b) let them have access to see what you stored about them, (c) tell them how you use it, (d) give them rights to tell you, yes, you can or cannot use it that way, and (e) give them the right to have it deleted if they do not want you to keep it. And most companies if not all companies are implementing those laws, because (a) they have to if they want to operate in Europe, but (b) it's kind of sensible.

That's how you maintain the trust of your customers. And so GDPR in many ways has become a law for the world because most big social media, or eCommerce companies are global or at least multinational. And if they operate anywhere in Europe, they will probably implement GDPR to their entire tech stack. That's the most influential law. My take on the laws elsewhere in the world is they either do not exist, or they're being created very similar to GDPR. For anyone who wants to understand the law and keep that knowledge management knowledge manageable, I would say learn about GDPR. But I would say that there are those five points I mentioned earlier and they do not prevent people-based marketing or data-driven marketing.

How do you explain the recent trends seen in TV ad spend versus digital? Digital has been growing over the last 5-7 years but TV spend has held up. I think people have been looking at views and spend, and that seems to be uncorrelated today where previously you would expect them to be following each other. How do you look at the correlation between TV spend and viewership and why has TV spend held up so much?

There are a few things I need to pull out of your question because (a) It is a complex question and (b) the answers are even more complex. It's not a simple black and white. The world is not quite as simple as digital versus TV, because you do have digital TV.

For example, Hulu or Roku are ads targeted in a digital way but affectively like traditional TV or virtually traditional ads. You have things like YouTube TV now that’s serving ads. But in essence, for YouTube customers who pay a subscription is $30 to $40 a month in the US. There are shades of grey. That's one of the ways TV companies have held off is by trying to expand audiences through digital TV and keeping up the ad revenue there.

The other thing I would say is that TV ad revenue is now under pressure in 2019. And in the US, the pressure started in 2018, as it is in decline, but, surprisingly, it did not happen three to five years earlier. In essence, for a long time, advertisers would realize they should be moving money from TV to digital, but digital looked very fragmented, and had a lot of brand risk associated with it. If you wanted to do one big, bold thing TV was still the biggest thing that you could do. On top of that, a lot of agencies who provided advice to CMOs and marketing teams would be encouraging TV because (a) they understood it better and (b) they made more money by doing mass-market campaigns on traditional TV. There was a mixture of inertia based on old school business models, and some pragmatic realities, it’s difficult to spend as much money with the same impact on digital.

Over the last few years, though, Google and Facebook in particular, but other digital properties have got bigger and bigger while the TV audience has been declining. Therefore, the argument that ‘the Internet is too fragmented, and TV is still really big’ is getting worse and worse. Further, YouTube, in particular, has done a much better job in the last year or two years of cleaning up its act when it comes to brand friendliness. So the last year they have deleted an enormous amount of unsavory content. Also, for content that might be questionable for brands but does not breach YouTube's quality guidelines, they have just stopped serving ads. By doing that, YouTube is now a much more acceptable platform to brands.

What that's done in the last few years, with Google, Facebook and others getting so big, advertisers are now moving that money over. That does not mean TV will die. But if you look at the ROI of TV advertising versus digital video advertising, in general, TV is a lot worse. Why is that? The CPMs, the price you pay, is typically higher. Then there's a whole load of waste in the system. For example, when you buy an audience on TV, let's say the Game of Thrones audience and the audience is 10 million people, that's 10 million people who watch Game of Thrones not 10 million people who watch the ads within Game of Thrones. This is because during the ads break, people are channel surfing, going to the toilet, grabbing a beer, going on Facebook, or whatever they're doing. Not many people are watching yet. So, my best guess is only about 30% of people are watching the ads, while the rest of are doing something else. So whatever CPM you're paying, you can triple it for the people who actually watch the ads, which makes inefficiencies even more glaring.

Also, what makes it wasteful is that TV advertising is mostly still targeted based on people who watch a program, not people's demographics, spending power, intent, etc. So if you're a niche brand, let's say you're BMW, and you're serving an ad on Game of Thrones. Let's say 10 million people watch Game of Thrones in reality; that means only 3 million people see the ad. However, what percentage of 3 million people are actually going to buy a BMW or a luxury car in the next three years. The answer is not many. Some of them will be too young, too old, do not have a driving license, or do not make decisions about buying a car because they have a company car. Also, many cannot afford a BMW. When you actually narrow it down, it's probably 10 or 20% of the audience that actually can afford a BMW and might buy a BMW. So, you're down from 10 million people to 300,000 people. Yet you're paying to serve an ad to all the rest. So the inefficiencies on TV become glaring. Now, if I were running a TV company, I would radically fix that and let advertisers target people based on how Facebook and Google allow targeting rather than who watches what program. They still have a structural problem that the ad sets are too expensive even after all of that. Nonetheless, it would be a good way to mitigate the risk.

Is that even possible for broadcasters to gather that data and get that targeting capability?

It should be possible. Yet it depends on the country as to the structure, but there are a lot of things blocking it such as, who does the selling of the ad inventory, who gets the right of refusal, the ability and availability of ad tech stacks to make it happen, and how things get sold. A lot of stuff gets sold in like upfronts very early in the year, and it's sold against programs, not demographics. There is, therefore, a lot of barriers. But if you think about it, if you take YouTube TV as an example, YouTube knows who's watching which program and they can change the ads based on who's watching which program. It does not always happen. When I was living in the US, I would be watching YouTube TV, and then I would watch MSNBC, and I would see ads for old people drugs, which I do not need because the ad was sold by MSNBC. In the future, MSNBC should probably give the ad sales to YouTube and say, "You can serve more relevant ads than I can, why don’t you do that?" I think for the TV companies, they either need to outsource ad targeting to Google, Facebook or similar companies or get their act together and sell to people based on demographics, purchase intent, etc. Rather than who watches what program.

Does this mean that with this shift to personalized marketing, these media-buying platforms will be auction-based?