Making money out of human behavioral patterns

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Businesses not only make money but also, predict sales exploiting customers’ behavioral patterns by asking the right questions. This science is called predictive analytics and HR departments use a similar strategy to find out which employee is going to quit in the next 3 months to acquire talents in future. Charles Duhigg in his book, The Power of Habit: Why we do what we do in life and business, emphasizes this point using examples as mentioned in the following quotes.

He’d become obsessed with the ways economists were using pattern analysis to explain human behavior. To a statistician, this data was a magic window for peering into customers’ preferences. Working at Target offered Pole a chance to study the most complicated of creatures—the American shopper—in its natural habitat. Pole’s mandate was to become a mathematical mind reader, deciphering shoppers’ habits to convince them to spend more. Pregnant women and new parents, after all, are the holy grail of retail. There is almost no more profitable, product-hungry, a price-insensitive group in existence. It’s not just diapers and wipes. People with infants are so tired that they’ll buy everything they need—juice and toilet paper, socks and magazines—wherever they purchase their bottles and formula. What’s more, if a new parent starts shopping at Target, they’ll keep coming back for years. Figuring out who was pregnant, in other words, could make Target millions of dollars. What better challenge for a statistical fortune-teller than not only getting inside shoppers’ minds but their bedrooms?

There are caveats to this process especially when it comes to dealing with customer data security and privacy.

By the time the project was done, Pole would learn some important lessons about the dangers of preying on people’s most intimate habits. He would learn, for example, that hiding what you know is sometimes as important as knowing it, and that not all women are enthusiastic about a computer program scrutinizing their reproductive plans. Not everyone, it turns out, thinks mathematical mind reading is cool. “I guess outsiders could say this is a little bit like Big Brother,” Pole told me. “That makes some people uncomfortable.”
By hiring psychologists who peddled vaguely scientific tactics they claimed could make customers spend more. Some of those methods are still in use today. If you walk into a Walmart, Home Depot, or your local shopping center and look closely, you’ll see retailing tricks that have been around for decades, each designed to exploit your shopping subconscious. The burst of subconscious virtuousness that comes from first buying butternut squash makes it easier to put a pint of ice cream in the cart later. The problem with these tactics, however, is that they treat each shopper exactly the same. They’re fairly primitive, one-size-fits-all solutions for triggering buying habits. In the past two decades, however, as the retail marketplace has become more and more competitive, chains such as Target began to understand they couldn’t rely on the same old bag of tricks. The only way to increase profits was to figure out each individual shopper’s habits and to market to people one by one, with personalized pitches designed to appeal to customers’ unique buying preferences. In part, this realization came from a growing awareness of how powerfully habits influence almost every shopping decision. A series of experiments convinced marketers that if they managed to understand a particular shopper’s habits, they could get them to buy almost anything.
What they discovered was that despite those lists, more than 50 percent of purchasing decisions occurred at the moment a customer saw a product on the shelf, because, despite shoppers’ best intentions, their habits were stronger than their written intentions. “Consumers sometimes act like creatures of habit, automatically repeating past behavior with little regard to current goals.”
The surprising aspect of these studies, however, was that even though everyone relied on habits to guide their purchases, each person’s habits were different. The habits were unique to each person. ”

The time has come where businesses have no other option other than prying on people’s habits and behavioral patterns to just survive let alone make profits.
Target wanted to take advantage of those individual quirks. But when millions of people walk through your doors every day, how do you keep track of their preferences and shopping patterns? You collect data. Enormous, almost inconceivably large amounts of data. Target can purchase data that indicates a shopper’s ethnicity, their job history, what magazines they read if they have ever declared bankruptcy, the year they bought (or lost) their house, where they went to college or graduate school, and whether they prefer certain brands of coffee, toilet paper, cereal, or applesauce. There are data peddlers such as InfiniGraph that “listen” to shoppers’ online conversations on message boards and Internet forums and track which products people mention favorably.
“It used to be that companies only knew what their customers wanted them to know,” “That world is far behind us. You’d be shocked how much information is out there—and every company buys it because it’s the only way to survive.” The company will guess what you habitually buy, and then try to convince you to get it at Target. The firm has the capacity to personalize the ads and coupons it sends to every customer, even though you’ll probably never re household,” Andreasen wrote, are life changes that make consumers more “vulnerable to intervention by marketers.” And what’s the biggest life event for most people? What causes the greatest disruption and “vulnerability to marketing interventions”? Having a baby. There’s almost no greater upheaval for most customers than the arrival of a child. As a result, new parents’ habits are more flexible at that moment than at almost any other period in an adult’s life. So for companies, pregnant women are gold mines. If exhausted moms and sleep-deprived dads start purchasing baby formula and diapers at Target, they’ll start buying their groceries, cleaning supplies, towels, underwear, and—well, the sky’s the limit—from Target as well. Because it’s easy. To a new parent, easy matters most of all.

Another strategy to make profits is to dress up the new in a familiar manner. Familiarity attracts customers to try out and buy new products.

And we found out that as long as a pregnant woman thinks she hasn’t been spied on, she’ll use the coupons. She just assumes that everyone else on her block got the same mailer for diapers and cribs. As long as we don’t spook her, it works.” The answer to Target and Pole’s question—how do you advertise to a pregnant woman without revealing that you know she’s pregnant?—was essentially the same one that DJs used to hook listeners on “Hey Ya!” Target started sandwiching the diaper coupons between nonpregnancy products that made the advertisements seem anonymous, familiar, comfortable. They camouflaged what they knew.
Whether selling a new song, a new food, or a new crib, the lesson is the same: If you dress a new something in old habits, it’s easier for the public to accept it. Someday soon, say predictive analytics experts, it will be possible for companies to know our tastes and predict our habits better than we know ourselves. However, knowing that someone might prefer a certain brand of peanut butter isn’t enough to get them to act on that preference. To market a new habit—be it groceries or aerobics—you must understand how to make the novel seem familiar.

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