How Cloud Computing Is Accelerating Context-Aware Coupons, Offers and Promotions

Retailers and marketers often face the challenge of getting coupons, offers and promotions delivered at the perfect time and in the right context to their customers.

The rapid advances in cyber foraging, contextual computing and cloud computing platforms are succeeding at revolutionizing this aspect of the retail shopping experience. Context-aware advertising platforms and strategies can also provide precise audience and segment-based messaging directly to customers while they are in the store or retail outlet.

What makes context-aware advertising so unique and well adapted to the cloud is the real-time data integration and contextual intelligence they use for tailoring and transmitting offers to customers. When a customer opts in to retailer’s contextually-based advertising system, they are periodically sent alerts, coupons, and offers on products of interest once they are in or near the store. Real-time offer engines chose which alerts, coupons or offers to send, when, and in which context. Cloud-based analytics and predictive modeling applications will be used for further fine-tuning of alerts, coupons and offers as well. The ROI of each campaign, even to a very specific audience, will be measurable. Companies investing in cloud-based contextual advertising systems include Apple, Google, Greystripe, Jumptap, Microsoft, Millennial Media, Velti and Yahoo.

Exploring the Framework of Me Marketing and Context-Aware Offers

A few years ago, a student in one of my MBA courses in international marketing did their dissertation on cyber foraging and contextual mobile applications’ potential use for streamlining business travel throughout Europe. As a network engineer for Cisco at the time, he viewed the world very systemically; instead of getting frustrated with long waits he would dissect the problem and look at the challenges from a system-centric view. The result was a great dissertation on cyber foraging and the potential use of Near Field Communications (NFC) and Radio Frequency Identification (RFID) as sensors to define contextual location and make business travel easier. One of the greatest benefits of teaching, even part-time, is the opportunity to learn so much from students.

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I’ve been following this area since, and when Gartner published Me Marketing: Get Ready for the Promise of Real-Time, Context-Aware Offers in Consumer Goods this month I immediately read it. Gartner is defining Me Marketing as real-time, context-aware offers in grocery stores. Given the abundance of data on transactions that occur in grocery stores, Gartner is predicting this will be the most popular and fastest-growing area of context-aware offers. The formula for Me Marketing is shown below:

The four steps of the Me Marketing formula are briefly described as follows:

  • Consumer Insight and Permission – The first step of the framework and the most difficult from a change management standpoint, this requires customers to opt in to receiving alerts, coupons, offers and promotions. The best retailers also have invested heavily in security and authentication technologies here too.
  • Delivery Mechanism and In-the-Moment Context – The real-time offer engine is used to determining which coupons, offers and promotions are best suited for a specific customer based on their shopping patterns, preferences and locations.
  • Select Best Offer – Next, the real-time offer engine next defines a very specific product or service offer based on location, previous purchase history, social media analysis, predictive and behavioral analysis, and previous learned patterns of purchasing.
  • Redemption – The purchase of the item offered. Initial pilots have shown that less frequent yet highly relevant, targeted offers have a higher redemption rate. It is encouraging to see that early tests of these systems show that spamming customers leads to immediate opt-outs and in some cases shopping competitors.

A Short Overview of Contextual Advertising and the Cloud

Cloud-based systems and applications are necessary for retailers to gain the full value that contextual advertising can provide. This includes the social context, with specific focus on aggregation and analysis of Social CRM, CRM, and social media content, in addition to behavioral analytics and sentiment analysis. It also includes the previous browsing, purchasing, returns and prices paid by product for each customer. Cloud-based integration architectures are necessary for making contextual advertising a reality in several hundred or even thousands of retail stores at the same time.

Geographical data and analysis is also essential. RFID has often been included in cyber foraging and contextual advertising pilots, in addition to NFC. As Global Positioning System (GPS) chip sets have dropped in price and become more accurate, companies including Google, Microsoft and Yahoo are basing their contextual advertising platforms on them. Finally the activity or task also needs to have a contextual definition.

Combining all three of these elements gives the context of the customer in the retail store. The figure below is from Three-Dimensional Context-Aware Tailoring of Information. This study also took into account how personas are used by companies building cloud-based contextual advertising systems. The taxonomies shown in the figure are used for building personas of customers.

How Cloud Computing Is Accelerating Context Aware Coupons, Offers and Promotions image context aware technology

There are many pilot projects and enterprise-wide system tests going on right now in the area of cloud-based contextual advertising. One of the more interesting is an application suite created entirely on Google App Engine, Android, and Cloud Services. The pilot is explained in the study Exploring Solutions for Mobile Companionship: A Design Research Approach to Context-Aware Management. The following figure shows a diagram of the suite. This pilot uses Cloud to Device Messaging (C2DM) which is part of the Android API to link the Google App Engine server and Android client. Google will most likely add more depth of support for C2DM as it plays a critical role in contextual system development.

How Cloud Computing Is Accelerating Context Aware Coupons, Offers and Promotions image context aware google ad platform

Benefits of a Cloud-based Contextual Advertising Platform

For the customer, cloud-based advertising systems over time will learn their preferences and eventually impact the demand planning and forecasting systems of retailers. This translates into the customer-centric benefits of products being out of stock less. In addition, customers will receive more relevant offers. The entire shopping experience will be more pleasant with expectations being met more often.

For the retailer, better management of product categories and more effective gross margin growth will be possible. Having real-time analytics of each coupon, offer and promotion will also give them immediate insights into which of their selling strategies are working or not.

For the manufacturer, the opportunity to finally understand how customers respond at the store level to promotions, programs including the results of co-op funds investment and pricing strategies will be known. The manufacturers who partner with retailers using these systems will also have the chance at attaining greater product differentiation as their coupons, offers and promotions will only go to the most relevant customers.

References:

Me Marketing: Get Ready for the Promise of Real-Time, Context-Aware Offers in Consumer Goods Published: 24 December 2012 Analyst(s): Don Scheibenreif, Dale Hagemeyer

Tor-Morten Grønli, Ghinea, G., & Bygstad, B. (2013). Exploring Solutions for Mobile Companionship: A Design Research Approach to Context-Aware Management. International Journal of Information Management, 33(1), 227. http://www.sciencedirect.com/science/article/pii/S0268401212001259

Tor-Morten Grønli, & Ghinea, G. (2010). Three-Dimensional Context-Aware Tailoring of Information. Online Information Review, 34(6), 892-906. http://www.emeraldinsight.com/journals.htm?articleid=1896452

Discuss This Article

Comments: 5

  • Great article, although aren’t we really on a path where companies are going to spend a ton of money on gathering and analyzing data only to blast people with generic coupons for products they were already going to buy? Or worse, try to be clever by trying to infer current intent from analyzing historic data… and end up generating an un-ending stream of false positives?

    And unless a consumer is pimping Velveeta in social media, why would Kraft want to give a loyal customer a bigger discount?

    While I think there are tons of ways to improve the retail experience (turn retail into a personalized exploratorium – make it fun), I’m really scratching my head when I think about the ROI of a light-sensor, big data $0.50 diaper coupon.

  • Hi Michael,

    Thanks for the kind words on this post and for sharing your insights, I appreciate it. You bring up several excellent points including a very important one regarding the ROI of this system. To your point, Gartner sees adoption happening fastest in grocery retailing, where they predict this approach to contextualized coupons, offers and promotions will increase promotional program effectiveness. I think from the retailer’s side, having the real-time offer engine gives them the flexibility of applying specific sets of promotional programs to specific customer types or personas in real-time. While an individual coupon would never deliver a strong ROI, the consolidated set of offers, over time, would stand a better chance.

    Just as WalMart knows through its intensive use of behavioral and predictive analytics, 16% of its customer base are Price Value Shoppers. This segment is responsible for a healthy percentage of their profitability who see the retailing giant as critical to their ability to make ends meet. Smaller less analytically-strong retailers are looking for the same.
    While the payoff on a transaction basis would take a long time, the insights gained into psychographic and behaviorally-modeled segments, especially for food retailers, would be significant. I tend to look a this from the standpoint of mid-tier to higher-end retailers who are selling highly differentiated products already. I think the strongest ROI is in understanding just what segments are out there that retailers have no idea exist right now and tailoring entire packages of coupons, offers and promotions for them. Over time a grocery retailer will end up with greater share of wallet and customer loyalty as well. For higher-end retailers who have price elastic products and are launching new models for example, this system could at least get a potential customers to evaluate and potentially purchase the new model or product being launched.

    It will be interesting to see how these pilots progress, especially comparing products that are commoditized with inelastic demand curves (paper, essential products, etc) with those that are highly elastic in demand (higher-end products). If these systems push customers for higher-end products to accept the price, the ROI could be improved as well.

    Thanks again and Happy new Year!

    Louis

  • I do think there is a fairly common rough mental model of what the long-term looks like, but the next few years will be interesting with a ton of money being spent trying to wring insight out of data when perhaps there should be more focus on the experience.

    I don’t have access to the Gartner story, but I’ve thought a fair bit about grocery and have downloaded and used a bunch of grocery apps. Most are pretty basic, but even the Safeway app – which is filled with coupons – is quite stressful to use. These are “personalized” offers, presumably based on my shopping history combined with store sales motivations. But I’m in the store, scrolling through lists of $0.30 coupons in a 4″ screen. I’m pretty sure just showing those discounts in the aisle is a better customer experience. If the argument is that different customers can be offered different discounts at different times in an effort to maximize contribution, then I think there will be a lot of very happy big data vendors and visionary marketing directors… not so many happy CFOs.

    I guess it all comes back to whether there will be innovation on the offer/experience side of the equation. I’ve noticed the use of “coupons, offers and promotions” which I read simply as “discount.” But as you get to higher price-point products, isn’t this sort of systemic discounting just a race to the bottom and ultimately ineffective against online retail?

    What if the focus were on what the customer is trying to do when they enter a grocery store (or electronics store, or car lot, etc.). How do you help them find the right bottle of wine to buy, how to feed their family for < $10, educate them in a fun way on new products… maybe have them vote on deals that run on the hour (gold box style), etc. Maybe you can protect margins, increase the size of the shopping basket and mount an effective defense against online in the process?

  • Hi Michael,
    All excellent points and if you would like to continue the conversation, please write me at lcolumbus at cincom dot com. I look forward to continuing our discussion.

    Happy New Year!

    Louis

  • Agreed, customer experience has to be the foundational element of any technology-based selling system.

    That is why I think these systems, nascent in their form right now, have a ways to go before widespread adoption. Trust is the currency they really have to trade in. And trust is the only way companies will get customers to adopt them. As far as pricing strategies by discounting go, the scenarios that would be the most powerful would be new product introductions and product phase-outs. Incenting customers to purchase new products through promotions (including price drops, bundling and up-sell of services bundled in as well) would be interesting to see from a pilot standpoint. Contextual advertising performance data will most likely drive terabytes of data for retailers to gain greater customer insights from as well.

    I agree with you, customer experience and convenience must be the top priority, and I look forward to speaking with you on how your company incorporates guidance to customers as well.

    Thank you,

    Louis

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