Game theory: The Nobel Prize-winning idea that’s changing marketing

It’s not immediately obvious what three people sitting around a card table has to do with getting a better understanding of how effective your marketing tactics are. Or how it can help you speak to the people who need persuading, not those who have already been persuaded.

But this is the world of collaborative game theory, an idea whose versatility has influenced the way organ donation works, made dating more successful, and helped match foster parents to children in need of families. And now it’s marketing’s turn.

At this point you’d be forgiven if your internal monologue was sounding something like this: “Not another Very Important Big Idea. Please. We’re still trying to work out what to do with the last Very Important Big Idea. If only we could remember what it was…”  But game theory itself is not the Very Important Big Idea.

It’s the principle that underpins the ability to attribute true value to each touchpoint in the customer journey, from channels to the content you put on them. It’s been around since 1953. Oh, and it won its inventor, Lloyd Shapley, the Nobel Prize for economics. So it has longevity and credibility.

Two’s company, three’s the winning number

Back to the card players. Two players are at the table, playing against the house for money. They’re breaking even, not losing, but not really winning much. A third joins them and together they clean up. Question is, how do you fairly allocate the winnings? This is where collaborative game theory helps. It applies a value, called the Shapley Value after its inventor, to each player based on the value they bring to the game. That value determines what each gets. It’s recognized as the fairest, most equitable and logical way to ascribe value. And we can use this to ascribe value to what we do as marketers.

It’s done using attribution software – SAP Hybris Customer Attribution (formerly known as Abakus), to call it by its proper name – that can measure the true impact of your marketing activities. True impact here means generation of incremental sales, those sales that would have only ever happened because the customer saw an ad or watched a video or read a testimonial.

Now it’s possible to know which part of what you do influences and appeals to the incremental prospects. And that, of course, is where the growth lies.

The most promising thing about this prospect is that, unlike last click and first click attribution, you can look at the whole customer journey. Each channel can be assessed to see how effective it is at attracting incremental sales, and how well it works. For instance, you’re running a campaign across Facebook, YouTube and Instagram. You can measure the impact of each of these based on the metrics you want to use – engagement, likes, click throughs – to see if it’s doing what you want it to. Clever, accurate, and true.

It’s about the data AND what you do with it

Your internal monologue will, no doubt, have something to say about this. “Not more data,” it says. “We’ve got as much data we don’t know what to do with as we have Very Important Big Ideas and Next Big Things. We’re drowning in the stuff. Please don’t make us collect any more. There won’t be any room for actual people in here.”

Okay, okay – having the data and the knowledge is one thing. It’s what you do with the knowledge that will make the difference.

And there’s no point in just acquiring the knowledge for the sake of having it. So let’s look at how jet.com used attribution software to change the way its business operated. The online retailer, acquired by WalMart just a year after it was launched in 2015, is one of the fastest growing and most successful retail launches ever, and has established itself at the forefront of innovation. It knew that it wanted to increase new customers and reduce the cost of activating each one. So it looked closely at the true incremental value of its campaigns, publishers and platforms to build a picture of what attracted new customers, and then restructured its marketing plans to do more of it.

With a clear understanding of which campaigns delivered new customers, jet.com enjoyed a 23% increase in new customers and a 24% decrease in the cost of activating them. “We are able to better attribute the true credit to each of our marketing initiatives using SAP Hybris Customer Attribution, resulting in more efficient marketing spend and greater scale,” says Micah Moreau, jet.com’s senior director of marketing.

This is the application of cooperative game theory to help solve today’s marketing challenges. It’s real, dependable and, most significantly, gives us the most complete picture yet of how effective our activities are.

Whereas before that picture has only been partially visible under the dim light of first and last click attribution, game theory ups the wattage and reveals what’s really going on. Not bad for three card players round a table.