A Brief History of Optimization

cardsThe practice of marketing optimization is founded upon a number of disciplines – some old, some new, and some emerging. Like marketing optimization, many of its foundation disciplines are sciences that have historically been developed to reduce risk while maximizing the chances for success.

Whether ‘success’ is winning at cards, winning a war or maximizing conversion in a PPC campaign, ‘optimization’ put simply is the practice of finding optimal methods for driving objectives. Probability theory, management science, statistics, economic theory, experimental design and technology all converge in marketing optimization to provide marketers with the tools and processes for finding optimal methods for executing the marketing function such that risk is reduced and the chances of success are maximized.

Probability Theory
Some of the first excursions into probability theory sprung from the study of gambling and games of chance. Thought to be the first mathematician to study gambling more than 500 years ago, Girolamo Cardano (1501-1576) took the first steps toward developing predictive models for risk reduction. Like us, our optimization predecessors sought to understand the relationships between all the possible outcomes and the favorable outcomes.

Probability theory today includes the study of all sorts of phenomenon (including the way consumers make choices) in which some initial starting point is known, there are many possible paths for the process to take, but that some possibilities are more probable than others. In our to quest to find the most probable paths to increased conversion and long-term customer loyalty, we marketers rely on probability theory more and more each day.

Management Science

The practice of optimization of course owes a great deal to developments in management science, or the discipline of applying analytical models like mathematics to make better business decisions. From Frederick Taylor’s famous time and motion studies to the strides in operations research made by the British and US military during the war years, the search for process improvement plays a significant role in marketing optimization.

Experimental Design
The discipline of marketing optimization includes a strong emphasis on rigorous experimental design and owes a great dealt to Fischer’s groundbreaking work in the Design of Experiments. Fischer was the first statistician to adopt a formal mathematical methodology for experimental design in order to study the effect of a process (AKA: message) on an experimental unit (AKA: consumer). Today’s multivariate testing discipline does exactly that, studying the effects of various creative treatments on consumer purchase behavior.

Economic Theory
We hear a lot about various methodologies used to develop the algorithms for automated marketing optimization. A good methodology is rooted in economic theory, or models that analyze the way people purchase decisions in certain contexts (on the Internet, in a direct mail campaign) and study the relationships between the creative messages and treatments and life time customer value.

Technology

It’s nearly impossible to overstate the impact of technology on the modern marketing function. The arrival of the Internet especially has made an indelible mark on the way we hawk our wares and has forever changed the way consumers interact with business.

Rapid growth in deeper understanding of consumer choices as well as the rapid dissemination of new technologies has impacted the marketing function in two critical ways:

  • It’s given consumers more avenues – more channels – for interacting with business, and
  • It’s given marketers more tools and technologies to inform their marketing decisions.

Technology enables and automates the application of the sciences described above such that today’s marketing problems are solved much faster and more reliably. Technology now automates the process of structuring experiments (experimental design), optimization algorithms automate the process of finding the most probable paths to success (probability and economic theory), and analytical tools provide a dearth of information to help us make better business decisions (management science).

The art of marketing began as the simple practice of getting more folks to open their wallets more often – perhaps nothing more complicated than placing a charismatic speaker on a soapbox in the town square. Today’s marketing discipline has evolved into the practice of properly combining the increasing number of levers at your disposal to find optimal methods for driving complex objectives. Optimization in today’s context requires us as marketers to understand and leverage the foundation disciplines described above and to apply those disciplines to more effectively manage profitable customer relationships.

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