Data mining pushes marketing to a new level

Woman holding credit card.

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Tess Vigeland: If you're enjoying an end-of-summer escape this weekend, here's some fodder for the trip home. Did you book this little getaway online? Did you post about it on Facebook? Did you use a credit card to buy gas or a hotel or maybe groceries for your campsite? Well, if you did, you left an ocean of data in your wake -- and corporate America is using it right now to figure out how to sell you something. It's called "data mining."

Marketplace's Stacey Vanek Smith explores the $10 billion industry -- and what, exactly, it knows about us.


Stacey Vanek Smith: I'm grocery shopping at Albertsons, and, when I check out, I hand over my member ID card.

Vanek Smith to cashier: Can I give you my card?

I get a discount on my groceries, and Albertsons gets information on everything I just bought. Along with my receipt, the computer spits out a coupon for a dollar off Skinny Cow ice cream sandwiches, which I buy all the time. And Us Weekly, which, well, I'm just trying to stay well-informed.

Vanek Smith: Thank you.

Those smart coupons are just the tip of the $100 billion data mining industry. Every time you search for something online, swipe your credit card or pull up directions on your cell phone, that action creates a little module of data about you. Data compilers collect that information and sell it -- usually millions of records at a time to marketers who use it to target consumers.

Robert Grossman heads the National Center for Data Mining.

Robert Grossman: This allows better targeting with less effort that can be more widely used by more companies and hopefully increase their margins.

Collecting data is just the beginning, then someone needs to make sense of it. Someone like data analyst Peter Harvey, CEO of Intellidyn. A travel company, which was looking to sell high-end vacation packages to Asia, recently came to Harvey with data on millions of potential customers.

Peter Harvey: We pass 5,000 data elements across them and figure out which of them are most likely to travel.

The attributes of the Asian traveler?

Sound Montage: Wedding march, farmers, soldiers shouting, man singing "When I'm 64"

Turns out, if you're married, a farmer, ex-military and over 65, you want to go to Asia! Harvey says data mining can double or triple the response to an ad. And companies will be able to hone in on potential customers even more precisely as data gets more individualized. Sites like Google, Facebook and Foursquare track what you're buying, what you're looking to buy and where you are.

Andreas Weigend teaches data mining at Stanford.

Andreas Weigend: Traditionally, companies knew transaction data. They knew how many latte macchiatos were sold at this location. They didn't really know who they were sold to.

And now?

Weigend: The company could very well know who the person is based, for instance on his mobile phone's ID, and could have the coffee ready before the customer even orders it.

Virtually every large companies mines its data -- it's how Amazon and Netflix come up with those recommendations that entice you to buy another book, another movie. It's how iTunes knows that if you like this song...

"Slow Life" by Grizzly Bear (with Victoria Legrand)

It should try to sell you this song?

"Gold digger" by Kanye West

Intellidyn's Peter Harvey says our data is pushing advertising to a whole new level.

Peter Harvey: Marketing will move from static to dynamic. And then within dynamic, it will be the rate of change in how fast you can do it.

More like how fast you can make sense of it. Demand is booming for analysts who build the computer models that can synthesize all this data for marketers. Eventually, most of the ads you see will be tailored to you. Which sounds great, but what about our privacy?

Andreas Weigend says we lost that the minute we logged on.

Weigend: Maybe privacy was just a blip in history. It started when people moved to cities, where they had places to hide, and it ended with the Internet, when basically, there was no place to hide left.

My privacy in exchange for a dollar off ice cream sandwiches... Well, I guess it's a fair trade.

Vigeland: But is it really a fair trade?

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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