What Is Propensity Marketing?
Propensity marketing is an approach to marketing that focuses on engaging consumers with the greatest propensity to take a desired action. By targeting consumers who are most likely to convert, propensity marketing has the potential to reduce media spend, boost conversion rates and improve campaign ROI.
Where Did The Term “Propensity Marketing” Come From?
“Propensity marketing” was coined during the Q4 2019 Procter & Gamble (P&G) earnings call and was credited for much of the CPG brand’s recent success. After building up an extensive database of consumer profiles, P&G was able to reduce their reliance on mass media advertising and instead utilize propensity marketing to reach and engage tightly defined consumer segments who performed as predicted by purchasing P&G products.
How Does Propensity Marketing Differ From Propensity Modeling?
Propensity modeling is the action of defining consumer segments with strong likelihoods of converting. Propensity marketing is the strategy of reaching and engaging with those identified consumers.
How Does Propensity Marketing Differ From Lookalike Marketing?
Propensity marketing and lookalike marketing are essentially synonyms.
- Lookalike Marketing: Brands using lookalike marketing to identify the historically best customers and target consumers who “look like” those best customers – in terms of demographics and online behaviors – with multichannel campaigns. With lookalike marketing, it’s assumed that consumers who look like past customers will have the greatest propensity to be high converters in the future.
- Propensity Marketing: Brands using propensity marketing identify consumer segments based on their propensity to take certain actions and target consumers who “look like” consumers from those segments. With propensity marketing, it’s assumed that “lookalike” consumers will have conversion rates similar to consumers originally placed within consumer segments.
What Data Is Required For Propensity Marketing?
Propensity marketing requires the analysis of multiple data sets, often including:
- First-Party Historical Data: Historical data helps identify the best customers, defined through conversions or retention, from a prior time period.
- Third-Party Data Sets: Often, third-party demographic and behavioral data overlays are used to learn more about the customers with the highest propensity to convert.
- Second-Party Data Sets: Second-party data sets are typically used to help with media targeting. These data sets match consumer segments with their lookalikes across digital channels.
Brands that have massive first-party data sets may be able to rely solely on their own data sets for complete consumer profiling and targeting.
What Are The Limitations Of Propensity Marketing?
Propensity marketing can be a powerful method of refining marketing strategies and controlling media spend while boosting conversion rates. However, propensity marketing is based primarily on historical actions. Because consumer mindsets and behaviors change over time, propensity-based consumer segments can miss the mark over time. Especially when regularly refined based on newer conversion rates, propensity marketing can result in narrow audiences that are difficult to scale. Marketers using propensity marketing should consider regularly testing audiences outside the lookalike groups to identify missed high-propensity consumer segments.
What Is The Best Way To Get Started With Propensity Marketing?
As explained during their Q4 2019 earnings call, P&G was able to launch a strong propensity marketing effort because they invested in building out an extensive first-party data set. To learn how you can launch a campaign designed to scale your subscriber database with targeted, opted-in audiences who will help you learn more about what consumers think and how they want to interact with your brand, contact Digital Media Solutions® today.