Dr. Koen Pauwels' Blogposts

Don’t Leave Big Data to Computer Scientists, Facebook, You Need Marketing and Psychology
July 5, 2014

Did you notice your Facebook Newsfeed got a lot more positive or negative? Or did you get the message 2 years ago you were being locked out of Facebook unless you proved to be real, i.e. not a robot? Then you probably were a subject in a Facebook Data Science experiment. The news broke this week: Facebook has been experimenting on millions of users without their informed consent. The company claims you gave your consent by agreeing to its Terms of Service, which state that data may be used to improve Facebook's products. Who is Facebook kidding? First, you and I did not agree to manipulation of our social media environment – instead we agreed to Facebook observing our natural interactions and analyzing its patterns. Second, how exactly does manipulating the mood of our newsfeed help Facebook “improve its products”? Instead, this is social science research, where getting answers to very interesting questions (how does your friends’ mood affect you?) should be balanced with the rights of human subjects whose feelings are being manipulated. But how can we achieve such balance?

We know the answer, and so should Facebook. Academics in biomedicine, marketing and psychology have wrestled with the issue of human subjects ethics for decades. Every researcher in these fields needs to get explicit prior permission from the university’s Ethics Board. Besides not (physically or emotionally) harming human subjects, informed consent is considered crucial in getting such permission. Instead, at Facebook’s data science team, "there's no review process, per se, and anyone on that team could run a test" according to Andrew Ledvina, a Facebook data scientist in 2012-2013 (http://online.wsj.com/articles/facebook-experiments-had-few-limits-1404344378?ru=yahoo%3Fmod%3Dyahoo_itp#).

Facebook says it has now adopted stricter guidelines and a panel of internal experts in fields such as privacy and data security. However, I suspect Facebook would be even better off by hiring PhDs that have learned human subjects ethics in their fields, i.e. biomedicine, marketing and psychology. Instead, the recruitment ads for their Product Science team ask for PhDs in ‘computer science, sociology, information, statistics, physics or related fields” (https://www.facebook.com/careers/department?req=a0IA000000CzAdDMAV). With all due respect to these fields, they typically don’t train their students in the ethical balancing act of manipulating people’s emotions. We need to channel less Saruman and more Gandalf in our care for the “subjects” we study.

For your comments and ideas, please contact Dr. Koen Pauwels at koen.pauwels@ozyegin.edu.tr.

The 4Ps Drive Organics, As Whole Foods Is Learning the Hard Way
May 15, 2014

This week saw bad earning news for Whole Foods, which lost 19% (over $3B) in market value and for the first time admitted it needs to lower prices to compete as it moved from niche to mainstream. Both Target and Walmart have substantially increased their organic assortment, and price it a lot lower. As one consumer put it: "I used to buy 75-85% of all of my groceries at Whole Foods, and now buy only 10 percent there, they are pricing themselves out of the market. I'm glad to see my local supermarkets get into selling organic produce.” (http://www.ibtimes.com/whole-foods-disappointing-q2-performance-reflects-shifting-grocery-industry-landscape-1582589)

Can we blame Whole Foods management? Decades of market research showed that organics were somehow a special case, in the sense that organic consumers did not care about price, even preferred a higher price gap with conventional products to signal purity and quality. Now it appears even organic-devoted consumers care about the 4Ps of product assortment (now offered at the local supermarket), price, place (the convenience of the local supermarket) and promotion (coupons and deals on organics). Who knew? Bezawada and Pauwels did. In their 2013 Journal of Marketing article (http://journals.ama.org/doi/abs/10.1509/jm.10.0229), they study scanner data in 56 categories to uncover long-term consumer response to temporary and permanent changes in organic price, product assortment and promotions at mass-market retailers. They find that permanent changes, such as the organic assortment and regular price improvements by Target and Walmart, bring retailers much more organic sales. In contrast with common wisdom, even “core” organic consumers are sensitive to these actions. Their category comparison yields specific advice as to where larger assortment, lower prices versus more and deeper promotions are most effective.

What have we learned? It may benefit managers to scan so-called ‘academic’ journals for relevant and important research on their industry. Also, most of common wisdom was based on surveys (what consumers say they will do) not on actual market data, i.e. what consumers actually do with their money at the point of purchase.

For your comments and ideas, please contact Dr. Koen Pauwels at koen.pauwels@ozyegin.edu.tr.



Will Facebook Really Lose 80% of Its Users by 2015-2017?

By now we have all heard about the (non peer-reviewed) study by Princeton faculty that Facebook would lose 80% of its users between 2015 and 2017 (http://arxiv.org/pdf/1401.4208v1.pdf) , and Facebook’s hilarious rebuttal that Princeton will run out of students by 2021 (http://www.engadget.com/2014/01/24/facebook-issues-princeton-rebuttal/).

It is always hard to predict human behavior (especially in the future J) and any dominant (social media) platform may well be history in a few years. However, I find no credible evidence for Facebook’s demise in the Princeton study because of two major flaws:
(1) It is far-fetched to compare a social media platform to a disease from which you naturally recover. In marketing, (first) adoption of a new product (such as microwaves) has been modeled as a disease, but that does not mean that microwave sales fall to zero once everyone has been infected. Instead, it is the competition with (better) alternatives that mostly drives the faith of products and social media platforms. MySpace was a specialist focused on music and got driven out by the more generalist Facebook. What will replace Facebook in your opinion?
(2) The study uses Google Trends data, interpreting a decline in search as a decline in interest. That may be accurate for the decline in gaining new souls, but tells us nothing about the billion existing users. Instead, it is far more important that many teens are abandoning Facebook, and that many 'older' people are intensifying Facebook use. This change in the composition of Facebook's active audience is far more interesting to model and use in predictions than any general decline in new interest.

What do you think about the study and its rebuttal?

For your comments and ideas, please contact Dr. Koen Pauwels at koen.pauwels@ozyegin.edu.tr.

Dr. Koen Pauwels is the most published and awarded researcher on return on marketing investment.  Dr. Pauwels' publications appeared in Harvard Business Review, Journal of Advertising Research, Journal of Brand Management, Journal of Marketing, Journal of Marketing Research, Journal of Product Innovation Management, Journal of Retailing, Journal of Service Research, Marketing Letters, Marketing Science and Management Science.