Contextual marketing is the buzzword of the day. It’s a hot one, right up there with personalisation and omnichannel retail. Most professional marketers understand contextual marketing as primarily a means of targeted advertising or matching adverts to the content against which they appear.

But it is best understood simply as an extension of one of the core tenets of marketing: that understanding a customer allows an organisation to sell to them more effectively.

The defining feature of contextual marketing is that the understanding in question relates to the transitory characteristics of an individual, such as their location, buying intention or the behaviour they are currently demonstrating.

Contextual marketing does not have to be digital, and there are antecedents in conventional marketing and merchandising. “Say you’re visiting the supermarket and you’re buying a roast chicken,” explains John Ross, CMO of Inmar, a US company that collects, analyses and sells retail data. “Roast chicken is takeout: you take it home and eat it. So I’ll put a display of two-litre Coca-Cola bottles next to the chicken roaster. Coca-Cola has nothing to do with chicken, but both are contextually appropriate given the shopper’s intent: assembling a ready-to-eat, picnic-style dinner.”

Similarly, retailer Home Depot sells a device called a post level, which is a spirit level specifically designed for driving wooden posts into the ground. “It is sold alongside two other items that would normally go in different departments: posts and mailboxes,” Ross explains. “Most people have never heard of a post level and don’t know that they need it,” he adds. By understanding the context of the customer, Home Depot can nevertheless make an easy upsell.

However, digital channels offer a wealth of information about a customer’s context at a given point in time. This information is rarely used in isolation. Just as personalised marketing incorporates older techniques such as market segmentation, so too could contextual information be used in conjunction with, for example, identity data such as an individual’s name or age. What distinguishes it from personalisation, however, is the use of time. 

Proponents say that “contextual marketing” promises to deliver ever greater customer understanding and therefore, according to Drucker, better marketing. But as this report explains, it also presents new operational challenges and exposes organisations to new risks. It is a time of great upheaval for the marketing professions, digital contextual marketing is yet another source of complexity which requires new skills, practices and processes. But if it is to be truly transformational, companies must learn from contextual insights to offer greater value to their customers.

What is contextual marketing?

“Contextual marketing is direct outreach based on geolocation and real-time activity information,” says Bill Brand, president of the US retailer HSN, which expanded from the old Home Shopping Network cable channel to the web, mobile, catalogues and outlet stores. “It’s the next step in a progression from mass marketing to segmentation, personalisation and finally contextual, or what I call in-the-moment marketing.”

Search engines are arguably one of the most prevalent sources of contextual information: a search engine “knows” that an individual is looking for a particular thing, right there and then. “For us, much of the customer’s context can be deduced from search terms,” says Olga Turishcheva, marketing and e-commerce director of Russian electronics retailer M.video.

Now, mobile technology allows companies to perceive the physical location of customers, as smartphone users often allow their GPS coordinates to be extracted from their devices (knowingly or otherwise). Common examples of contextual marketing are location-based offers and services. Swiss Federal Railways, Switzerland’s national rail operator, offers passengers mobile applications that use their location to improve their travelling experience. One feature detects when passengers are waiting at a station to change trains and offers them discounts at nearby shops and restaurants.

Social media are another rich source of contextual information. Gavin Heaton of Disruptor’s Handbook, a Sydney-based marketing consultancy, provides a recent example. “A guy in Sydney tweeted at 10 pm: ‘Does anyone know where I can find a bottle shop [off license/liquor store] open?’ One of the hotel chains tweeted back, saying: ‘There’s one just around the corner from where you are’.” In this case, there was no opportunity for a sale—the man wanted a drink, not a bed to sleep in—but there was a chance to nurture loyalty. “That kind of thing builds small amounts of brand preference over time,” says Mr Heaton.

An emerging application of social media for contextual marketing is to target customers based on the weather they are experiencing. A US broadcaster, The Weather Channel, announced a partnership with Twitter that would allow advertisers to target areas experiencing unusual weather patterns, such as a heatwave or a heavy storm. Lipton Iced Tea, for example, used Facebook to advertise its drink in areas with warm temperatures.

Some companies are experimenting with digital sensors embedded in their products to collect contextual information and are using this to nurture customer relationships. Diageo, the drinks manufacturer behind brands including Guinness, Tanqueray and J&B, has worked with a Norwegian printed electronics firm, Thinfilm, to develop prototype packaging for the Johnnie Walker Blue Label whisky that connects to smartphones when they are tapped against the bottle.

Diageo will be able to track bottle movements across the supply chain to the point of consumption and then detect if the bottle is still sealed or open. Subsequent communication can then change depending on what the consumer is doing.

For example, tapping the bottle while it is still in a store would reveal information about its lineage. Once it has been opened, it could provide tasting notes or a discount on the next bottle. “Until recently, a bottle has been a container for liquid,” says Venky Balakrishnan, global vice president of digital innovation at Diageo. “We see the possibility for the bottle to do something much more before, during and after purchase.”

The application of contextual marketing

The applications of contextual marketing are not constrained to business-to-consumer (B2C) relationships. Business-to-business (B2B) marketers are already proficient at using contextual information to detect where in the buying cycle a prospect may be. “Looking at the pricing sheet or going to the pricing page— that’s a big buying signal,” explains Glenn Gow, president of consultancy Crimson Marketing.

There is arguably more contextual information to use in B2B marketing. “In the B2C commerce space, you may be dealing with a one-time, price-sensitive buyer. Maybe you can offer free delivery, but there is less scope or history for using contextual insight,” says Andrea Fishman, a partner at professional services network PwC. “In B2B, knowing what the customer has done and how they’ve interacted with you, there is often rich insight to guide the type of offer or experience.” 

Mr Heaton agrees. “One of the first things you do in B2B account planning is to look at the organisational charts of the buyers that you’re trying to pitch to,” he explains. “You quickly see that there’s a key decision-maker: the CEO or CFO or someone at the top level. Then you’ve got directors and managers just below the decision-makers. Each needs different types of information, so you orchestrate your engagement through each role. Decision-making by committee is perfect for contextual marketing.”

With this much information available, one might expect contextual marketing to be a widespread practice, but this is not the case. “In my experience, less than 10% of organisations can sense even the most basic types of context about their customers,” says Alberto Alvarez-Morphy, founder and chief strategy officer at Digital Friks, a digital marketing agency based in Mexico.

One of the most pressing challenges associated with contextual marketing is privacy. To build as deep an understanding of the customer’s context as possible, marketers could be tempted to acquire more data than their customers—and regulators—are comfortable with. “Once you are looking at the context of the user, then you want to have more information about who they are and what they’ve done previously to understand their behaviour,” explains Alan Mitchell, strategy director of consultancy Ctrl-Shift, which specialises in the use of personal information.

“That sets marketers off on a quest to create the richest, deepest profile to provide targeted messages, and that’s where they run the risk of intrusion.” Whether contextual advertising causes individuals any harm is debatable, Mitchell concedes. But by using contextual information in a way that gives customers the sense they are being watched, the marketing industry risks losing the implicit permission to do so.

In Mitchell’s view, the key to using contextual information to make marketing more effective is to listen to the customer’s needs. “A lot of contextual marketing is based on the concept of relevance,” he explains. “But relevance is just a proxy for utility in the eyes of the individual.” What companies should aspire to is offering more relevant products, not just more relevant ads.

For this to work, companies should give customers more control over the use of their contextual information, Mitchell says. “If you allow me as an individual to communicate that I’m interested in a particular product at a particular time, and then you offer me that product, I have benefited from that transaction. This turns contextual marketing into a listening exercise.” 

By contrast, if customers feel that the use of their contextual information is detrimental or intrusive, they are less likely to allow it. The growing popularity of services such as AdBlock, which allows web surfers to switch off online advertisements, shows that customers are increasingly empowered to control their own digital lives. Similarly, customers may well unsubscribe from all email communication from a particular company if they believe their data privacy is not being respected.

Another challenge is effectively interpreting contextual information. This cannot emerge from contextual data alone, again Mitchell argues and requires some understanding of the lives of customers. For example, for shoppers who reveal one day that they are looking for a kettle, this is likely to be only a short-term state of affairs. Advertising kettles to them over the following six months is unlikely to lead to more sales. If they reveal they are looking for a mortgage, however, this information could be incorporated into a longer campaign.

Reacting to context

Once companies have successfully interpreted contextual information, they need to react effectively. Fortunately, not only do digital channels make it possible for marketers to understand a target’s context, but they also allow them to respond soon enough for that understanding to be useful. “In the past, marketing plans were set and the assets built months in advance,” says Witcher. “Today, I can have assets ready to go in within minutes.” But for this technical capability to be of value, companies must be able to provide relevant and engaging information.

This is a new and creative challenge for the marketing profession, according to Dietmar Dahmen, a former creative director of advertising agencies Ogilvy, DDB and BDDO and now an independent advisor and chief innovation officer at exc.io, a digital agency. “Ad agencies have always thought about what to say, not when to say it,” he explains. “They thought about the right message – the unique selling proposition – often for months. They gave less thought to the right circumstances, the right place, and the right time. They did not consider the individual selling proposition.” 

 The use of contextual information also challenges conventional marketing processes. One company currently wrestling with that particular challenge is cosmetics giant L’Oreal. “Our goal is to build strong direct consumer relationships,” says Asmita Dubey, chief marketing officer of the company’s Chinese division.

“Our global CMO has said that we have one billion consumers and that we want to move to the next billion. And the way we will reach that next billion will be digital.” The company uses a wide range of contextual marketing techniques, from advertising particular products against search terms on its e-commerce platforms to mobile apps that identify when customers are in a given department store.

Conclusion

The central principle of marketing is that knowing a customer better helps you to offer products and services they want. Understanding the context of a customer has always been a part of that, but recently the amount of contextual information available to marketers has multiplied. This offers marketers the possibility of a new depth of understanding. 

However, the ability to use that information relies on the customer’s consent—whether it is explicit or implicit. Customers are used to sharing information with businesses, but they expect value in return. Since the advent of AI machine-learning we now have hyper-personalisation software, which is wholly autonomous and offers send time optimisation. Relevant products sent at the right time delivers the highest ROI in marketing ever known.

For contextual marketing to be sustainable, it must, therefore, be used to improve the customer experience. This means improving not only how companies interact with customers but also the nature of the products and services they offer. In the short term, marketers must develop the technical, creative and marketing skills required to incorporate contextual information effectively and without unnerving their customers and jeopardising their prospects. For marketers already adapting to the rapid digitisation of their profession, this kind of change is now an expected component of doing business.

But in the longer term, they must also find ways to feed contextual insights about customer behaviour into the wider organisation to create products and services of greater value. This will not only encourage customers to give companies access to information about their current context but also will help those companies make more profitable use of that information. In these early days of digital contextual marketing, this is still very much a work in progress.