One of the biggest challenges for consumer packaged good advertisers who market online is measuring whether or not their online advertising spend results in real purchases. These are companies with the largest advertising budgets in the world, companies like Procter and Gamble, Shiseido, L’Oreal, Pfizer, and Nestle.
The inability to measure online advertising performance has been a major challenge for social media companies like Facebook and Twitter who are competing with traditional media for budget.
Datalogix is a company that social media services are relying on to bridge the information gap between advertisements that users see online and purchases that they make offline.
If you joined a store rewards program or provided personal information like your zip code, telephone number or email, to a retail store, Datalogix takes that information and uses it to identify your social media accounts. In partnership with Facebook, they use the information you provided to target you and others like you in future advertisements.
Facebook and Datalogix measure the effectiveness of a campaign by segmenting customers into two groups, social media users who have seen the advertisements and those who have not. Segmentation allows them to measure the effectiveness of a campaign. If those that saw the advertisements return to the store to purchase the products advertised at a higher rate than those who did not see it, then it worked.
To understand how exactly this is measured, lets say you go to a retail store and purchase Asahi beer. During that purchase, you use the store “point card” that has your email address associated with it to get a discount. Datalogix is buying the transaction this data from your retailer. The pass your “point card” email address and transaction data to Facebook.
Facebook now knows exactly who purchased Asahi beer, when, why and how. Once Facebook has this user data they lease access to Kirin beer (a different company) so they can advertise to the same person (you) for $10.
Following so far?
The hook is when you go back to the store and start purchasing Kirin beer. Because you are still using your point card Facebook now knows based on all of the transaction data they have on you, that you never purchased Kirin before, and now you are buying $40 of Kirin beer every month. With this data, Facebook can now tell Kirin that their $10 advertisement resulted in a $30 return.
This technology is critical to the revenue growth of social media companies. The biggest complaint of advertisers on social networks is that it’s extremely difficult to measure the return on investment. In their alliance with retail data brokers like Datalogix social networks can now gain a larger chunk of media spend.
It is conceivable with this technology that online advertising budgets will become larger than traditional media advertising budgets. While a company can measure advertisement performance on TV by separating campaigns by the market, it doesn’t give the level of granularity of online advertising.
Bridging online advertising with offline is powerful because it allows marketers to target specific individuals using detailed actions. On a basic level, they can see the type of content you read or websites you visit and purchases you’ve made. Or a deeper level they can collect demographic data that you might not have given them offline, your sexual preference, your age, whether or not you have children and what you really buy at 2 AM on a Saturday morning.
If it sounds a little frightening, it is. Facebook and other social networks are never going to reveal the details of how you are being targeted, so you will never know what they know about you.
Datalogix and similar companies not only provide data to Facebook, they also capture data from Facebook and perform additional aggregations from other data sources making it difficult for Facebook to police. In other words, Facebook knows what data it provided to partners, but it doesn’t know how its partners are using that data to further profile you.
Social networks make an effort to protect your identity. For example, advertisements only use hashes of your email address to identify who you are, so the advertiser already has to have your email address to target you, to begin with.
How many retail stores have you given your email to?