The Perils of Algorithm-Based Marketing

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If I told you this article was written by an algorithm (and you believed me), chances are you’d be creeped-out, suspicious of the content, and unable to muster much if any emotional response to it.

That’s a natural response. Yet companies don’t seem to be able to see algorithms from the consumer’s point of view. They think nothing of deploying algorithms as marketing tools. Instead, they should be looking for ways to inject humanity — and, yes, actual humans — into their efforts to reach out to customers.

I’ll explain why.

Originating in computer science, algorithms are simply sets of “if–then” rules. But a number of factors — easy-to-use predictive analytics and data-visualization tools, the proliferation of mobile devices, and companies’ ability to track and measure customer behaviors — have helped companies find an astonishing variety of ways to use algorithms, particularly in marketing.

Algorithms help marketers utilize customer-specific knowledge — demographics, previous behavior, fellow customers’ choices — to craft customized offers and deliver them, often in real time. They help companies track customers, cross-sell to them, and promote products. Banks use algorithms to suggest new products to customers, online retailers deploy them to set and change prices, and media companies rely on them to recommend and deliver streaming content and ads.

But despite the broad adoption and growth of algorithm marketing, companies should be cautious about it, for four reasons.

  • Algorithms aren’t sensitive enough to context. Effective marketing relies on messages that are attuned to the customer. Customer response, even for the most mundane of products, is sensitive to a host of ever-changing factors. On any given occasion, everything from personal factors such as how well a person has slept the night before, current mood, hunger, and previous choices, to environmental variables such as the weather, the presence of other people, background music, and even ceiling height can influence how a customer responds. Algorithms can use only a handful of variables, which means a lot of weight is inevitably placed on those variables, and often the contextual information that really matters, such as the person’s current physical and emotional condition or the physical environment in which the individual is tweeting, Facebooking, or buying online, isn’t considered.
  • They arouse suspicion and can easily backfire. In a climate where privacy concerns are perennially at the forefront of customers’ minds and trust is at a premium, customized marketing of any sort is risky. If customers feel the marketer knows too much about them, algorithm-based personalization can seem creepy or backfire badly. Something as innocuous as a customized Facebook feed highlighting the past year can generate tremendous grief for users in certain circumstances.
  • They encourage complacency. Having tools that capture exhaustive data about customers, quantify minute aspects of their behavior, and measure their responses can create a false sense that one knows customers really well and understands their motivations and triggers. At best, such complacency may limit marketing activities to those that can be measured easily and have worked in the past. At worst, it can lead to a completely inaccurate customer portrayal, ill-conceived marketing overtures, uninterested customers, and wasted resources.
  • They stifle customers’ emotional responses to marketing offers. By their nature, “if–then” rules imply a decision calculus (“If you are 35–45 and just paid 20% down with a mortgage, then you should purchase a home equity line of credit”). Marketing algorithms encourage analytical consumer decision making. Yet many customers make choices impulsively, are motivated by fun or a need for variety, and respond with spontaneous, emotional reactions. It is in these unscripted and impromptu interactions that the customer forges the strongest and most meaningful connections with brands. By shifting the customer into a more calculated and methodical mind-set, algorithm-based marketing minimizes opportunities for forming emotional bonds and limits the range of customer actions — to the marketer’s detriment.

How should marketers solve these problems? By injecting a strong dose of human into their customer interactions.

Marketers can “inject the human” into their offers and activities in many ways. Some approaches involve bringing in an actual human to interact with customers; others require making the algorithms work in more human-like ways.

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First, understand the context and make it part of the tailored offer. Effective marketing is a never-ending quest to understand the contextual drivers of customer response. Constantly testing the impact of different contextual factors through field experimentation and observational research is part of the solution. Translating this understanding to marketing programs may mean creating more-sophisticated algorithms having more rules and greater flexibility to apply those rules; in another important sense, however, it involves the creation of processes and activities where the marketer can react to a customer without the use of algorithms. Waitstaff empowered to offer a complimentary cocktail to a distraught customer, or trainers who can take the time and trouble to educate a new software buyer after understanding exactly how she will use it, produce value for customers that algorithms simply cannot. Fondue restaurant chain The Melting Pot takes just such an approach, empowering servers and managers to offer complimentary food and cocktails and do other things to deliver a superior customer experience.

Second, introduce unpredictability into marketing. Algorithms favor patterned marketing activities, such as coupons or catalogs that are sent every quarter, emails sent each week, or twice-a-day tweets. Such marketing loses its impact partly because it is so firmly structured that customers become habituated to these overtures and tune them out. Introducing randomness and surprise into marketing activity breaks the shackles of algorithms and goes a long way toward counteracting customer ennui. An unexpected call or a surprise new product announcement, or even a sale that fails to materialize when it should have, make the brand more authentic, human, and exciting. Unpredictability allows customers to seek variety and respond emotionally to the brand. TD Bank, a Canadian bank, turned its ATMs into “Automated Thinking Machines” last year, surprising thousands of customers with $20 bills, flowers, and merchandise, earning accolades and garnering significant attention on social media.

Third, encourage interaction with humans at key customer decision and experience points. To date, adequate technological substitutes for empathetic, competent, and empowered humans have not been discovered, which is why luxury brands, whether they are fashion labels, hotels, or automobiles, overwhelmingly favor human sales and service staff over technological methods. Within constraints of affordability, every marketer should thoughtfully consider where and how to incorporate human interactions into the customer experience. Hybrid approaches utilizing a combination of humans supported by expert algorithms for services such as financial planning, product recommendations, and building security are an effective way to “inject the human” into algorithm-based marketing activities.

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