“Half the money I spend on advertising is wasted; the trouble is, I don't know which half.” This famous quote from John Wanamaker, a department store owner in the 19th century and early 20th century, (as cited from BrainyQuote) highlights how a lack of data can cause advertisers and other marketers to essentially guess at the effectiveness at their efforts, thereby wasting resources.
Now, however, new marketing data collection techniques and the incorporation of data analytics in marketing can enable brands to more efficiently and effectively reach customers. However, the rise of data-driven marketing also creates risks around privacy and security. From data on customers’ purchases to their locations, marketers can hold a lot of sensitive data and thus need to figure out how to keep customer data secure.
In this article, we’ll take a deep dive into data-driven marketing, including the benefits of big data marketing, the risks of using customer-driven analytics and customer data protection methods.
What Is Data-Driven Marketing?
As the name implies, data-driven marketing involves the use of both external and internal data to inform marketing decisions, rather than guessing at what part of marketing spend is effective and what part is wasted.
In the past, business owners like Wanamaker had to essentially guess at what marketing efforts were effective. Even customers themselves might not have known exactly what drove them to make a purchase. For example, a retailer might have relied on mailing marketing materials in the past, but if a customer then made a purchase at the store, did they do so because of what they saw in the mail? Or did they not even look at the mail and happened to be passing by the store, which prompted them to shop there?
Over the past few decades, however, marketers have been getting better at leveraging marketing data as technologies improved. These improvements include both the rise of the internet, where customers’ online activity can automatically generate data, along with technologies that can help collect and analyze customer data.
For example, as Dataversity explains, data mining started in the 1990s due to “the evolution of database and Data Warehouse technologies. The new technologies allow organizations to store more data, while still analyzing it quickly and efficiently. As a result, businesses started predicting the potential needs of customers, based on an analysis of their historical purchasing patterns.”
Then in 2005, Dataversity notes, the term Big Data was coined by Roger Magoulas, the research director at O’Reilly Media, in reference to the huge amounts of data being generated in the world, particularly online.
In the time since, Big Data has only grown larger, and the use of marketing channels like email and social media make it much easier to collect marketing data. For example, when companies send out emails through email marketing platforms like Mailchimp, they can often track data like open rates, the number of clicks on links within emails, and more.
So if a company sends out a marketing email saying a new product is on sale, they can see whether customers actually click on the link to purchase the product or whether most people delete the email before even opening it. From there, the company can determine how to improve future emails, whether that’s doubling down on phrasing that was used when customers visited product pages or trying new subject lines if they couldn’t get customers to open the email.
Altogether, this information provides marketers with data analytics; instead of looking at raw data like the number of opens, for instance, data analytics provide some context, like showing that 10% of emails were opened on one day vs. 20% another day.
Benefits of Data-Driven Marketing
The rise of data-driven marketing can be of benefit to both businesses and consumers. From the perspective of a brand, having customer-driven analytics helps marketers:
More effectively direct their marketing spend toward areas that drive results, e.g., increased revenue
Find ways to increase marketing efficiency to get the most out of staff’s time
Better understand customers so they can market in a way that creates a better customer experience and can attract new ones, e.g., by discussing topics relevant to their target audience
Data-driven marketing also helps customers too. As brands gain more insight into customers, they can personalize marketing materials accordingly. For example, if you like to shop for sneakers online, what would be more helpful and exciting to you? An email about a general sale at a retailer, or an email about discounts on sneakers?
As brands learn what you like through marketing data, you can also more easily discover new products and services that you might not have come across on your own. The rise of predictive analytics, which Dataversity notes has been around since the 1940s but which has seen vast improvement in recent years, can help marketers predict what customers want to see, perhaps even before customers consciously know it themselves.
Online Marketing Privacy Issues
Although data-driven marketing offers several benefits for companies and their customers, the collection and use of customer data can create online marketing privacy issues.
For example, you may not mind if companies know you like to purchase sneakers, but perhaps you’ve been shopping online for health-related products. From there, every site you visit online seems to be excessively targeting you with similar ads for health-related products. For one, this targeting can be annoying, particularly if you’ve already purchased what you need. And if the reason you purchased those health-related products was for a sensitive, private manner, you may not feel comfortable with marketers having that information about you in their possession. That may be data that you would only want a healthcare provider to know.
Even worse, if a company loses customer data or suffers a data breach, that can be unsettling and potentially dangerous for customers. Anything from your personal browsing history to your passwords to your credit card data could potentially fall into the wrong hands if brands don’t know how to keep customer data secure.
How Do Companies Use Your Data?
Are you wondering how do companies use your data? The answer can vary significantly, depending on the company and settings you might choose, such as blocking cookies when visiting certain sites.
On one end of the scale, companies can use your data for highly specific activities like targeting ads based on your browsing history or past purchases, or personalizing emails based on similar data.
Companies might also create what’s known as a customer profile or customer persona, which may not specifically be based on your information, but which instead could be an amalgamation of different customers to inform marketers of different target audiences. For example, one customer profile or persona could be about recent college graduates and what they’re looking to buy, whereas others could be focused on the needs of parents with young children. These profiles then help marketers tailor content to these different groups accordingly.
How Do Marketers Access Customer Data?
Answering how do companies use your data can also vary based on the data marketing professionals collect on you. Digital marketing and privacy can vary widely. In some cases, data analytics in marketing are broad and relatively anonymized. Email open rates, for example, might not tell you much about specific customers. In other cases, marketers might be able to create a customer profile specific to an individual customer.
Some of the more common sources of customer data include:
● Customer service records: If a customer emails a complaint or contacts customer service in another way, those interactions could be recorded and tracked. For instance, a company could collect data on the ratio of sales-to-complaints for specific products to understand what works well for customers and what doesn’t after a purchase has been made.
● Customer surveys and feedback: Similar to customer service records, companies might collect specific data from customer surveys and feedback forms. If you fill out a survey rating your experience during a recent purchase from 1-10, for instance, that data could be used to improve customer experience for your next purchase.
● Social media interactions: Did you like a brand’s Instagram post? Or retweet them? Don’t expect these interactions to go unnoticed. Brands can use this data to improve the effectiveness of their social media marketing and potentially understand the types of marketing content you personally like to engage with.
● Email interactions: Brands can also track your interactions with their emails. While they might not know specifically which customers take which actions, they can often at least get a sense of what certain segments of their customers like to read and engage with.
● Third-party sources: The data marketing industry includes companies that sell customer data to other brands, who then use that information to improve their own marketing. For example, a credit card company might have access to information like customers’ spending patterns and aggregate that information to sell to other companies who want to know what you might be interested in buying. Third-party sources could potentially cross the line for online marketing privacy issues, but in many cases companies can legally buy and sell data.
How Do Marketers Keep Customer Data Secure?
Data has value to marketers, whether that’s to improve their marketing or to sell that data to other brands looking for insights. Yet marketers have a moral and sometimes legal obligation to keep data private and secure.
For example, the California Consumer Privacy Act gives consumers more control to opt-out of brands being able to sell their data. Even if marketers aren’t legally bound by any data privacy or security laws, they should still follow best practices for customer data protection to earn consumers’ trust, such as by:
Setting Security Standards
Smart companies limit data to those within the organization who actually need to use it. If anyone has access to customer data within your company, you don’t know how they’re using it and whether they’re keeping it safe. An employee without security training might store customer data in a cloud drive with an unsecure password, for instance, or they might fall for a phishing message that gives a cybercriminal access to personal data.
If marketers want customers to trust them with their data, and if companies want to follow compliance laws, they need to protect the privacy and security of marketing data.
Lean Data Collection
Another best practice for marketers is to practice lean data collection. As Mozilla, the company behind web browser Firefox, explains, “Staying lean and being smart about how you collect data can build trust with your users and ultimately help grow your business.”
Instead of trying to collect every piece of marketing data you possibly can, marketers should focus just on what they need to improve their marketing. Knowing what pages on your website customers visit can be more valuable than knowing the marital status of each of your customers, for instance. Plus, lean data collection means marketers can worry less about how to keep customer data secure, since there’s less to protect.
Establishing Data Backup and Recovery Plans
For companies storing marketing data, they need plans in place to back up and recover data if needed. For instance, if a hard drive fails, marketers don’t want to end up in a position where all the effort they put into collecting data was for naught.
But what if a company doesn’t have a data backup plan in place and already lost customer data, such as because of accidental deletion? If that happens, businesses should try to recover the data using data recovery software or taking a damaged device to a professional data recovery specialist.
That’s because marketers not only want to salvage the data they have, but from a security standpoint, you don’t want to assume data is fully deleted. While specific files may appear to have been wiped from your computer, that data can still exist in other forms on your device, which data recovery software can then put back together into a usable file. So instead of, say, discarding a device that someone could then restore the data on, marketers can regain control of that data themselves.
What’s Next for Data-Driven Marketing?
Data-driven marketing continues to advance with technologies like predictive analytics making it more feasible than ever before to deliver personalized, relevant marketing to customers, which can be win-win for companies and consumers. At the same time, however, both marketers and consumers are becoming more cognizant of security and privacy risks. Going forward, both parties will likely be more mindful of what data is being collected and how marketers keep data secure.