Increasing click-through rates with ad morphing — Glen Urban and John Hauser

MIT Sloan Professor Glen Urban

MIT Sloan Professor Glen Urban

MIT Sloan Professor John Hauser

MIT Sloan Professor John Hauser

From Fortune China

Everyone is trying to make their banner ads and new media more effective. In the banner area, 90% of the effort is spent on targeting. If you click on a link, you’ll get a particular ad. A whole industry has emerged focused on collecting click stream data and making recommendations.

But that is only half the picture. Equally important is the question of how you should talk to consumers once they are targeted. This is what ad morphing is all about.

For example, a car company may target a consumer whose click history indicates he is interested in buying a car. However, instead of just randomly sending him car ads, it can track the consumer’s online behavior to determine his preferred communication style. We also call this his cognitive or thinking style. Does the consumer want a picture of the car at a NASCAR race? Or would the consumer prefer to look at the technical aspects of the engine? Or does the consumer want a fashion shot of a driver pulling up to a country club? What will the consumer best respond to?

This is a multi-arm bandit problem because it’s like a slot machine with many arms. The advertiser needs to choose the ideal lever to pull to match the ad to the consumer’s thinking style. However, it’s more difficult with ads because there is uncertainty as to the consumer’s thinking style.

Our algorithm addresses this issue by monitoring click stream data to determine how a consumer makes decisions on the web. After enough information is gathered, the algorithm determines the consumer’s likely thinking styles and matches the optimal ad to our estimates of thinking styles – all in real time.

Partnering with companies like General Motors to test our algorithm, we found that morphing has tremendous potential to increase banner ads’ productivity. Companies work hard just to get a 1-2% improvement in click-throughs, but we found that morphing ads based on thinking styles can improve that rate up to 83%. We also found that morphing can lead to 30% better brand recognition. These are very significant effects.

While our algorithms (see our paper for the algorithms) can be implemented by any good programmer skilled in the art, morphing can challenge the budget. To use this tool, companies have to design more ads – ads that appeal to each of the various thinking styles of customers. There also may be cross-organizational issues, as the people who create those ads must coordinate with the analysts doing the targeting.

However, this is the only algorithm that we’re aware of that integrates thinking styles and morphing in real time. It’s very cutting edge, but it can help move the market to the next wave of action in banner advertising.

Also see the post in Chinese at Fortune China.

Glen Urban is the David Austin Professor in Management, Emeritus, Professor of Marketing, Emeritus, Dean Emeritus, and Chair of the MIT Center for Digital Business at the MIT Sloan School of Management. 

John Hauser is the Kirin Professor of Marketing and a Professor of Marketing at the MIT Sloan School of Management. 

Understanding the implications of consumer empowerment in health care — Renée Richardson Gosline

MIT Sloan Prof. Renée Richardson Gosline

From Huffington Post

The days of the passive patient and omnipotent Marcus Welby-like physician are long gone. Since the 1990s, consumer empowerment in health care has been increasing, most notably with the advent of direct-to-consumer advertising for prescription medicines. Then, the rise of digital media allowed consumers to search symptoms and create communities around common disease experiences. More recently, the ability to shop for health insurance through health care exchanges and obtain treatment at drug store clinics has led to a new age of consumer empowerment.

We’ve gone from a B-to-B model to a B-to-C model in health care. This shift in power to consumers has many implications when it comes to how we make decisions about our health care. Here are six ways that a behavioral lens can help us understand the implications of empowering consumers in health care:

1. Heuristics

Heuristics are very important. These mental shortcuts or “rules of thumb” allow us to make decisions efficiently. However, these judgments are subject to non-rational (or biased) influences in the marketplace. For example, a retail promotion like a drug store coupon can affect the price on which patients “anchor” their judgments about the appropriate cost of health care. And a retail clinic can affect the appeal of non-healthy alternatives with their location, like in the candy aisle. While this may not have been a big deal before, it is an important consideration in a B2C retail environment.

Read the full post at The Huffington Post.

Renée Richardson Gosline is an Assistant Professor of Marketing in the Management Science group at MIT’s Sloan School of Management. She teaches the MBA course in Branding.

3 steps for harnessing failure the right way — Anjali Sastry and Kara Penn

MIT Sloan Sr. Lecturer Anjali Sastry

From Fast Company

Think back to your last project. Was it set up to maximize learning? Did you uncover valuable insights along the way? Did you deliver what you set out to? And once it was over, did your team reflect, or did you move straight to the next thing?

A systematic method for managing your projects can set up your team for useful epiphanies at every step. In the end, it can help you to create better deliverables with more lasting and further-reaching impact.

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Why the battle of computer services companies is good news for businesses — Charles Kane

MIT Sloan Senior Lecturer Charles Kane

MIT Sloan Senior Lecturer Charles Kane

In the early days of computers, companies used a fee-for-shared-service model for technology. It was common to pay a company like IBM rent for use of its mainframe machines. As computers became smaller and less expensive, businesses began to purchase their own equipment and the computer rental model went the way of the dinosaur. Interestingly, we’re now seeing a return to that old model, but instead of computers, businesses are renting web and cloud infrastructure services for apps and storage.

This is great news for small- and medium-size companies, as building the data centers to run those services is exorbitantly expensive. By only purchasing the infrastructure cloud services that they need from large companies like Microsoft, Google and Amazon, they eliminate the risk of that huge financial investment.

Even better, we’ve seen recent price wars among those service providers. Some of them slashed their prices by as much as 85 percent this spring in an effort to attract and retain customers.

I sit on the board of several companies that are dependent on web services and have seen this decision to rent play out several times. A good example is Carbonite, which is launching its computer backup services across Europe and recently joined the ranks of Amazon customers for web services. The decision for Carbonite was simple: If it were to build its own data center, not only would it cost excessive funds, it would have to maintain it and then (all too soon) upgrade it. It would be akin to building its own telephone or cable company instead of simply renting what it needs from a provider like Verizon or Comcast.

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How Bob McDonald can (really) fix the VA’s health care system — Steven Spear

MIT Sloan Senior Lecturer Steven Spear

MIT Sloan Senior Lecturer Steven Spear

From Fortune , August 8, 2014

The former Procter & Gamble CEO recently confirmed to head the U.S. Department of Veterans Affairs must go beyond government reforms that Congress recently struck and address how the troubled agency measures performance.

On Thursday, President Obama signed into law a $16.3 billion measure to help overhaul the Department of Veterans Affairs, an agency that in recent months has been plagued with criticisms for long wait times for health care and manipulation of records. While the extra funds are substantial and may be necessary for a system that serves some 8.5 million veterans each year, it won’t be enough to fix the problems at one of the nation’s largest health providers.

Newly-confirmed Veterans Secretary Bob McDonald, a former CEO of Procter & Gamble, must create a new dynamic if the reforms are to succeed; he has to go beyond Congresses’ prescriptions and change the agency’s internal dynamics by focusing on what is measured, why it is measured, and what is done in response to the results.

One of the reasons for the VA’s current crop of problems has to do with the way the VA measures performance. The metrics that former administrators focused on pushed people in the direction of highlighting (sometimes exaggerating) what was going right and playing down what was going wrong.

Consequently, systemic problems — which might have been addressed early on before they caused harm — built up until they caused a crisis. It didn’t help that many of the metrics, such as wait times, were beyond the control and influence of the managers being evaluated, so there was even more incentive to game the system.

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