On the power of randomization: Selling diapers to pregnant women

I posted before on how Priceline uses randomization to conceal the minimum price they would be willing to accept in the Name your own price channel. Here is another example on putting randomness to work. This one is from retail.

Whether we like it or not, retailers do accumulate a wealth of data about our purchasing patterns. Every time you use a credit card, coupon, or a loyalty card, transaction data is logged and stored. The data is obviously used to send you more coupons, ads and peddle new products. Now, how much can retailers learn from this data? It turns our quite a lot. As this article from the forthcoming NY Times magazine describes, Target can actually predict whether a woman is pregnant just by analyzing change in her shopping patterns.

Pregnancy is a sensitive matter, however, so when a week after shopping a bunch of coupons for maternity clothing and baby products arrives in mail, women can get upset. It also looks awful lot like spying – does not it? Lesson #1 – one has to be very careful with this kind of data. Lesson #2 – even if data suggests something, do not necessarily pursue the opportunity at full speed. Here is what Target does: they randomize. Put a coupon for wine glasses next to diapers and office furniture next to pacifiers. Combinations seem to be quite ironic. But it does seem to work – the same article reports substantial growth in maternity and baby product sales for Target after they started doing this.

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2 thoughts on “On the power of randomization: Selling diapers to pregnant women

  1. This is a very interesting point. I am currently in Customer Relationship Management and we analyze customer data all the time (everything from transaction history to demographic data). Sometimes this data can be very useful in predicting consumer behavior. However, we had not discussed the negative impacts of using this information. I know customers don’t like company’s that sell their data but targeting them in specific ways like this example with pregnancy could also make them uncomfortable. This is an important lesson in reminding marketers that the customer should be the focus. Their perspective of the company’s tactics could change their buying behavior just as much as soliciting coupons.

  2. This is a really interesting idea that has the potential to drastically change the way that marketing activities are conducted. If lots of companies can gain access to data this way they can target their consumers like never before. From a consumer perspective it does seem pretty strange but most changes do seem strange before they become the norm. I’m sure the idea of facebook sounded completely crazy before it became a phenomenon. The way that companies go about handling customer data will set the trend in this field and affect industry practices for years to come.
    It seems that Target’s practice of randomizing their coupons to deter consumers from being overwhelmed by the companies’ knowledge of their personal habits is a good way to approach this. However with articles like this in the news and growing awareness about companies’ acquisition of customer’s personal information I wouldn’t be surprised if the industry evolved so that all customers eventually expect extremely targeted coupons or reward programs.

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