Thursday, November 15, 2007

Demographics is useless

A version of this piece was published in Marketing in 2007

For more years now than any of us can remember, demographics has been a fundamental building block for marketers and the media folk who serve them.

Working on the assumption that people with similar age and social class exhibit similar behaviour, marketers use demographics as a shorthand – young/old, up/down market.

I’m hardly the first person to point out that this is a gross over-simplification of what we flatter ourselves to consider the most complex animal on the planet.  But demographic information is an aggregated view that’s intended describe a group’s characteristics – it’s not intended to predict an individual’s behaviour.

So herein lies the problem.

Whilst knowing that one group is more likely to buy our product than another allows us to target them and thereby increase our chances of success, we recognise that within that group there will be a substantial number who won’t respond to the message for one reason or another.

We’ve grown to live with this compromise – and entire media planning and trading systems have grown up around it.

There must be a better way.

Of course there already is, and the biggest exponent of it, Google, already makes more money in the UK than ITV.

Google’s success is based on relevance.

Advertising is bought against keywords – terms that users search for – and of course these keywords describe the interests of the searcher.  Each keyword has a bid price, dependent entirely on demand, and the whole system is automated from Google’s side.

The genius of all this is that consumers get ads that are directly relevant to their search, presented to them exactly when they’ve just indicated their interest in a topic.  And the content costs Google nothing.

It’s not surprising then that when Facebook launched an online advertising system, it looked to search for inspiration.

Their new advertising system imports many of the features that made Google successful – self-operation, combined with credit card payment that makes it easy for small businesses to participate.  An auction allows demand to influence pricing, and you can target around interests, based on groups that users belong to.

But it’s gone much further than this.  Social Ads allow ads to be served to friends of users of your site.  If I buy a book on your site (assuming I’ve arrived via Facebook’s beacon system), my friends can be shown an ad – “Andrew Walmsley rated this book 4/5 – buy it here” along with my picture to emphasise the personal connection.

And where only individuals could set up pages before, Facebook now allows companies to set up pages, forming the basis for promoting their products and services.  Reflecting this, users don’t ‘friend’ these pages, they become ‘fans’ – an important distinction.

So what have Facebook created?

Social media has challenged marketers, because there isn’t a clear role for brands in the space.  For many consumers, brands’ presence feels like an intrusion into personal space, so success in this area has principally been limited to entertainment brands.

Facebook have achieved three things.  They’ve found a distinctive way of carving out a place for businesses to coexist with people in a social network.  They’ve established a means of promoting brands that’s derived from the interactions (and transactions) of people.  And they’ve created a clever way of targeting people that reflects their interests and behaviour.

The great thing about the online media space is that nobody can be quite sure what use this is going to be to anyone.  Facebook have given us a big box of toys, and it’s up to us to figure out what to do with it.

Google and Facebook give us a glimpse of the future, and it’s a future where demographics will no longer be the means by which we understand audiences and no longer the currency by which we trade them.  There’s no place here for the compromise that demographics force on us, and it’ll change both advertisers’ and consumers’ expectations across the media world.