Think marketing doesn't have much to do with mathematics? An unseen mathematical world is giving some companies a competitive edge in better understanding customers. Indeed, companies across all industries are now capturing data and creating rich profiles of customers to "predict" their wants, needs and future desires.


Mathematics has left the ivory tower of academia for a marketing department near you. Are you ready for this massive paradigm shift?
Let's be clear. I hate the phrase, "paradigm shift". The words are close to meaningless due to overuse.

However, in this rare instance, where the world of mathematics is invading the marketing kingdom, it makes sense to emphasize a new way of thinking that is radically changing the way marketers do business.

Marketers have always wanted to know more about customers–after all, better segmentation and targeting of a customer base helps improve marketing ROI and ultimately increases satisfaction as customers are not bombarded with irrelevant offers.

Fortunately for marketers, advances in technology (both applications and infrastructure) have made it easier to capture, manage and analyze data so as to piece together a more complete picture of customer behavior and of enterprise operations.

Case in point, an article from Business Week, published in 2006 titled, "Math Will Rock Your World", highlights companies such as Google, Aetna, Harrah's and others that are using mathematics via analytical applications to sort out "swelling oceans of data" and mine data for insights to better understand customers.

While arguably a bit dated, the Business Week article showcases how companies are using customer data to build profiles and formulate models of both customers and employees that they believe will allow them to simulate and predict how to, "sell us things, steer us clear of diseases, and ramp up (employee) productivity."

Other examples in the article show how companies are using advanced algorithms to make sense of unstructured data (emails, documents, call center notes), and optimize online advertising campaigns through the refinement and selection of keywords for search.

Using mathematics to better understand customers is serious business–just ask Netflix. According to a recent Wired magazine article, this online movie rental company is offering a $1 million dollar prize to any one person or team that can improve its current movie recommendation algorithm.

By opening access to one of the largest data sets available of online behavior–100 million customer movie ratings–Netflix is ultimately hoping to "crowdsource" improvements to Cinematch, its engine that essentially recommends, "If you liked this movie, you'll also like this one."

The Wired article details how different teams from across the globe have attempted to help Netflix improve its recommendation algorithm, and how difficult a challenge this is turning out to be. The contest is two years running and still a 10% predictive improvement remains elusive.

However, even minor improvements to Cinematch have thus far helped Netflix utilize more of its DVD inventory and improved customer loyalty as subscribers find movies of interest that perhaps they might have previously overlooked.

In another article, "Guessing the Online Customer's Next Want", Barney's New York is mentioned as a company that's seen dramatic marketing ROI improvement from using sophisticated analytical applications based on complex mathematics.
Through the use of technology, Barney's is able to collect and analyze the online behavior of its customers and then craft smarter and more appropriate responses to interested audiences.

For example, the article notes, "An e-mail message announcing sales might go to those Web site visitors who had purchased certain products or types of products in the past, but who had done so only when the items were on sale. In the simplest terms, if someone buys only when something is on sale, but never buys anything in December, then the e-mail sale flier might not be sent to that customer in December."

Just as in the early 1980s, when the financial industry was upended by the flight of quants from academia to Wall Street, marketers are starting to reap the brainpower of mathematicians, physicists and others as they codify their expertise and knowledge into sophisticated information technology systems and analytical applications. These innovative systems are helping marketers leverage information to better connect with customers and drive the business forward.

Paradigm shift? Absolutely. The world of marketing will likely never be the same again.
Questions:
* Are you seeing these trends in your particular industry? If so, how so?
* The companies mentioned above are starting to treat data as one of their most valuable assets. Is your company on that path?
* Are you concerned with the potential "dark side" of simulating and modeling customer behavior–i.e. privacy issues?
* What skill sets will marketers need in the future to be able to compete in this new world of mathematics and marketing?
I'd love to hear from you!