Using customer data - and abusing - electronically collecting customer data for marketing - Brief Article

Home Channel News, Sept 3, 2001 by John Forrester

The Internet has raised the debate over data privacy to a fever pitch, but this issue is not new. Companies like American Express and Sears have long been collecting customer data to better understand, anticipate and meet customer needs. They pioneered customer relationship management, recognizing that assimilating large amounts of customer data afforded marketers a competitive edge and enabled financial analysts to conduct more thorough credit analyses and mitigate risks. At the same time, however, many companies realized that they could sell their customer data to non-competing third parties without jeopardizing their own commercial efforts. Therein lies the rub.

Most customers appreciate a vendor's efforts to better understand their needs because the results are often better products and service. In the business-to-consumer environment, for example, Amazon.com uses transaction histories to suggest to returning customers products by a previously purchased artist or artists of the same genre. Interested customers can then buy quicker and easier with Amazon's one-click purchase, a capability made possible by Amazon's retention of customer data. Amazon's collection and use of data benefit both buyer and seller. It's a win-win relationship.

But when the vendor sells information about that customer to a third party, it can easily become win-lose, as unsuspecting shoppers find themselves inundated with annoying phone calls at dinnertime, junk mail or spam (junk e-mail) offering everything from home mortgages to sex toys. While the unwitting recipient ponders the source of so many "tailored offerings," the vendor counts the cash, raking comfort in privacy laws that require only a general statement of policy rather than disclosure of specific transactions.

Downside notwithstanding, the residential construction marketplace has much to gain from increased data capture and data analysis. Consider the dealers: based on the amount of lumber delivered to a job site, the timing of the deliveries and the location of the drop, a dealer can estimate the size and cost of the home under construction and approximate the need for insulation, roofing, flooring, millwork, and finished products. This type of analysis also lets dealers identify new or missed sales opportunities with existing customers. And it allows dealers to explore broader market opportunities.

As dealers record and total transactions, they become better able to supply manufacturers with timely demand data. So manufacturers will ultimately gain the ability to better manage inventory levels and product pipelines. Theoretically at least, that would lead to lower costs and prices.

Builders could benefit from data capture in two ways. First, like Amazon's customers, builders should see products and materials of interest. Dealers can present preferred brands and address anticipated needs in ways that make it easier and more economical for them to buy products. Builders also benefit by virtue of their ability to record data on products used in the construction of a house, i.e., the "DNA" of the home, which they can share with homeowners to differentiate their offering and facilitate future maintenance.

In the very near future "smart" homes will record and list critical data and enable prescriptive maintenance and diagnostics. Preferred vendors might receive automatic notification of a failing component. Perhaps a homeowner wishes to change the mood of his/her house by reconfiguring the robotic lighting. Why shouldn't the house's computer system remember the different settings as a car remembers seat positions. Most, if not all, of these ideas have existed for years but only recently has technology reached the point where implementation has become economically feasible.

Looking forward, manufacturers, dealers and builders will collect more data and more good will should result. Some, no doubt, will also sell their customer lists to generate incremental revenue, but there is reason to believe that privacy laws will change. As a simple solution, what if the law required every mail, e-mail or telephone solicitation, to identify the original source of the addressee/recipient's information? Or what if any company providing personal information about John Doe to third party or "affiliate" had to provide notification to John Doe of the same? Wouldn't this be preferable to the spare of confusing, multi-page privacy statements hitting everyone's mailbox these days?