More Data, Less Privacy?

Data mining and analytics offer challenges and tradeoffs for companies.
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December 11, 2014

A few years ago, an irate father in Minnesota demanded to meet with the manager of his local Target store to discuss why his teenage daughter was getting coupons for maternity and baby products in the mail. The embarrassed manager apologized for the mix-up and called the father a few days later to make amends. This time, however, it was the father who apologized. It seems his daughter, he’d just found out, was indeed pregnant.

How did Target know something so personal so soon? The retailer followed the daughter’s data trail, of course.

Every credit-card purchase, tweet, Instagram post, Netflix selection—practically every encounter we have with technology—leaves a crumb for marketers to follow. Target, like all big retailers, tracks its customers’ shopping habits and stores purchase history with the relevant credit-card information and personal details, such as residency and e-mail addresses. Typically, this allows for more efficient and effective marketing: Coupons and special offers can be delivered to the customers who might want them. However, managing the best use of personal data can be tricky.

“When it comes to data-mining and analytics, there’s always a tradeoff,” says Carl Mela, T. Austin Finch Foundation Professor of business administration. “On the one hand, there are privacy issues; on the other hand, if you can offer the right product to the right consumer at the right time and the right price, that’s good for everyone involved.”

As Target has learned, striking the right balance is an ongoing challenge. Data collection today, says Mela, “knows no bounds.” Online and retail behavior aside, data-management firms also can cull information from public records to find out customers’ home values and driving records and their children’s ages. Once this information is aggregated, it is sold to companies interested in micro-targeting specific demographic groups.

It’s a practice as old as commerce itself, notes Gavan Fitzsimons, R. David Thomas Professor of marketing and psychology. “Seventy-five years ago, when a man needed a new navy suit, his tailor would already know the man’s measurements, how he liked his jacket cut, and that he already owned a pinstripe. Personal information resided with the local retailer, and that was true for the fishmonger and baker,” he says. “In many ways, we’ve come back to a much more personal consumer experience, and there are massive benefits to that.”

Small businesses now have access to market-research tools that would have been too costly or timeconsuming to use before. “The potential is incredible,” says Christine Moorman, T. Austin Finch Sr. Professor of business administration. “Now small firms can employ the same strategies that once gave large companies the advantage.” Anyone can get on the Web, for instance, and buy keywords on Google, use social media to create word-of-mouth buzz, and track sales in real time all over the world. “The Internet levels the field, which is good for competition,” she says.

To stay ahead, big businesses are tapping into new methods of data collection. Procter & Gamble opened an online store, not to bring in new revenue, says Moorman, but to see how their customers were searching for their products. Traditionally, they would have had to rely on large retailers like Walmart or CVS for this information. “Companies can see and learn much more about their customers in real time, and that gives them an opportunity to respond,” says Moorman.

Too much prying can backfire, however. Fitzsimons points to an infamous incident involving Amazon.com. The retail giant tracked consumers who were price-shopping on the Barnes & Noble website and offered those customers a lower price on the books they’d been considering. When the practice was unmasked, loyal customers were outraged that they were paying full price, while those who shopped around got discounts. “There was enough negative press that Amazon abandoned the practice and apologized,” says Fitzsimons.

In the age of big data, transparency is key to maintaining customer loyalty. “The customer is, to some extent, always at a disadvantage, but it’s important for the company to know that and not use it to their advantage,” says Moorman. “If a company violates the underlying trust in the relationship, then that relationship is over.” A company’s best customers likely will give up some personal information if asked because they like and trust the company anyway. “It’s the old term, ‘permission marketing,’ ” she adds, “and it still works.” Fitzsimons agrees. “I only give my loyalty card when I’m getting a deal,” he says. “That’s a conscious tradeoff for me. I’ll give you my data if you give me three bucks off the Coke.”

CALMING THE CREEPY FACTOR

Many consumers are wary of data collection, says Mela. People don’t know when their personal information is gathered, how it is being used, or when it is being sold, and that produces anxiety. Fitzsimons says the phenomenon is uniquely American. “You go to Norway, or almost any other place in the world, and there’s an assumption that you’re being monitored.”

But the fact is, technology for large-scale data collection has been around for more than twenty years—scanner panels at grocery stores, UPC codes, geo-trackers on grocery carts, CCTV surveillance. Cookies, the tracking files websites leave on digital devices, have been slowing browser speeds for years. Location-based targeting using cell-phone GPS technology is merely one more layer.

Even the most tech-savvy among us may be guilty of Orwellian fears. “When you download an app on your phone, do you check all the permissions?” asks Mela. Studies have shown that while older people tend to care more about permissions, they actually check less, while younger people care less but check the permissions clauses more. Gradually we’re all moving to the realization that, as Mela says, “everything is an Internet moment, and nothing is private.”

Which makes it all the more important for companies and marketers to establish best practices now to protect both retailers and consumers. Facebook, Amazon, and Google will not share their vast stores of individual data because they don’t want to risk alienating customers, leaking hackable information, or inviting government regulation. But there’s another reason, says Mela. “Competition. Why would a company want to give up [its] own sales data?”

“Data managers now are starting to say you may get pushback from customers,” says Fitzsimons. “But at the same time, there are new players jumping in with new tools for gathering data all the time. It’s a very complex space, and there isn’t a set of norms around using data.”

This year Moorman’s CMO survey, which collects and disseminates the opinions of top marketers, asked participants: Does your company use customer behavior data collected online for targeting purposes? Forty-one percent said yes. While that percentage may seem small, the figure includes a whole range of industries—banking, pharma, biotech, construction—not just retail. More important, a full 81 percent of those said they planned to increase the use of such data over time, while none said it planned to decrease the practice.

Despite the enthusiasm for marketing analytics, Moorman says there’s still a lag in how the companies use them. “The analytics are out ahead of decision-making, but I can’t say why at this point.” She speculates one reason might involve human resources: The CMO study asked companies if they had the right people to develop and use marketing analytics optimally, and most said no.

“Here in the U.S., we’re not producing as many students who can do both the statistics and also think creatively and strategically,” says Moorman. “The ability to think innovatively is essential, and if companies are going to use this information successfully, they need both skills working together.”

  • Louise Flynn is the associate editor at Duke Magazine.