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Published: Sunday, 8/11/2013 - Updated: 11 months ago

Retailers use variety of ways to track consumer habits through loyalty programs

BY TYREL LINKHORN
BLADE BUSINESS WRITER
Each of transaction made with rewards or loyalty cards leaves a trail of breadcrumbs that says something about you. And that information, scant as it may seem, is like little flecks of gold for marketers. Each of transaction made with rewards or loyalty cards leaves a trail of breadcrumbs that says something about you. And that information, scant as it may seem, is like little flecks of gold for marketers.
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Let’s say you start your day off at a coffee shop, swiping your loyalty card to get a cappuccino. Over lunch, you log into Facebook and like a page for your favorite brand of skin-care products. Later, on your way home from work, you stop at the grocery store to pick up a few things for dinner, again swiping a rewards card to save a couple bucks.

Each of those transactions leaves a trail of breadcrumbs that says something about you. And that information, scant as it may seem, is like little flecks of gold for marketers.

Parts of the country are in an uproar over revelations the government collects and analyzes our data. But how much data do businesses collect?

The answer, experts say, is a lot.

“Any piece of data they can collect, most companies will collect. They probably know everything they want to know and more,” said Llewellyn Gibbons, a University of Toledo law professor.

Much of what businesses gather is readily given up by consumers, even if they don’t realize it. Some may be collected by less transparent methods, such as purchasing information from data brokers.

Business and marketing professionals say the practices allow them to better serve customers. However, some privacy advocates worry that the data gathered could fall into the wrong hands.

Companies hope that by tracking how and when consumers spend their money, they can better get to know these customers and their habits. They can tailor offers or even product development to earn our business.

“The holy grail is predictive modeling. Can we predict what people do, when they do it, and influence things within our control like promotion, sales, product decisions?” said Puneet Manchanda, a marketing professor with the Ross School of Business at the University of Michigan.

For example, some people are prodigious coupon-clippers, while others never use them. If a store can predict when a customer will visit and what type of item they’ll be looking to buy, the store can send them a coupon, perhaps steering them to a specific brand.

One of the most common ways stores keep tabs on an individual’s purchases is by getting them to sign up for a loyalty program. A customer might get a free hotel stay after so many visits, special members-only discounts, or accumulate points he or she can use for more discounts.

In return, the merchant gets trackable data they can use for a variety of marketing purposes.

And in the United States, loyalty programs are huge.

U.S. consumers held an incredible 2.65 billion loyalty program memberships last year, according to a report by LoyaltyOne, a Toronto-based consumer insights and analytics firm that specializes in loyalty programs.

“For most organizations today, the loyalty program actually becomes the core of the ability to capture consumer data and understand what’s going on from a consumer perspective,” said Jeff Berry, the company’s Senior Director of Knowledge Development and Application.

The sheer number of people who file in and out of retail stores daily makes it nearly impossible for stores to know those people the way proprietors did 80 years ago.

Loyalty programs, Mr. Berry said, allow customers to voluntarily share that data as they make their purchases.

“The best companies are using consumer data to help provide unique offers, create unique experiences,” Mr. Berry said.

“Frankly, more advanced organizations are using their loyalty program data to decide on store layouts and what products and services they would offer to their consumers on the basis of that information,” Mr. Berry said.

Jackie Siekmann, a spokesman for the Kroger Co., said the Cincinnati-based grocer uses its Kroger Plus Shopper’s Card to better communicate with its consumers and give them the products they want.

“We do use this information to find out what items the customer purchases often, and send him or her offers and coupons directly correlated to those purchases,” Ms. Siekmann said. “We have a very high redemption rate on these coupons, especially among our loyal shoppers.”

Kroger can contact shoppers who have purchased an item that is later recalled.

Ms. Siekmann said the company is careful about keeping the data secure, and never sells or trades personal information to outside companies or marketers.

Worrying practices

Experts say that most companies keep those promises. But there are still things that make privacy advocates worry.

One of those practices is retailers asking customers for their ZIP code. While it may be needed to verify certain purchases, such as pay-at-the-pump gas, most of the time it’s purely for marketing reasons, said Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse in San Diego.

Sometimes, it can be as simple as wanting to see what areas shoppers come from and where a new location might prosper.

“Certainly that kind of use is not objectionable,” Mr. Stephens said. “But when it’s being used in conjunction with other info to identify their customers specifically and market to them and obtain information that the customer really did not intend to be given to that retailer, it certainly is a problem from a privacy standpoint.”

With a ZIP code, retailers who buy information from data brokers can get much more accurate information about specific customers.

And although the deodorant brand you swipe under your arms in the morning may not say much about your life, the whole of your purchases might.

“[Businesses] may be able to extrapolate info about you,” Mr. Berry said. “If you’re suddenly buying diapers and baby food they may be able to extrapolate you just had a baby if you weren't buying those things before. There may be some life-stage data they can infer about the things you’re buying.”

That makes some people uneasy.

“Individual data points may not matter, but when you put them together it shows the pattern of how you spend money,” Mr. Gibbons, the law professor at UT, said.

Should that data get out somehow, the potential uses are troubling.

Experts wonder: Could it be used in court? Could it be used by health or life insurers who make assumptions about your risk factors by what you purchase?

That leads to an inherent problem with extrapolating collected data: Assumptions aren’t always correct.

“Sometimes you need to hear firsthand from customers what some of these data points mean. Sometimes having those conversations with customers can bring much more insight than what five points of data might mean,” said Bill Grindle, who is the president of the Columbus Region for Communica Inc., a Toledo-based marketing firm.

Communica does a lot of work helping companies collect data and making sense of the information they gather. Much of that data is digital, and Mr. Grindle said in many cases that’s replaced the need for large scale surveys.

But Mr. Grindle says he believes there will always be the need to get data the old-fashioned way: sitting customers down and asking what they think and why they do what they do.

Tracking tells

There’s a whole world of data collection online, where almost everything is tracked by someone.

Businesses can often determine where Web users are located, what sites they visited previously, even what type of computer they’re using.

All that tells them something.

For example, users who log on with an Apple computer might be willing to pay more for higher-end goods and services. That’s what travel site Orbitz.com found, so it started showing those users higher-priced options that users on Windows-based machines might not see.

The policy, first reported by the Wall Street Journal, made big news, but experts say it’s not necessarily uncommon.

Knowing when someone is visiting their sites also might lead companies to send targeted ads or special offers to entice that visitor to go ahead and buy that watch he keeps looking at.

All this leads to questions of how much consumers really realize what they’re giving away and how it’s being used.

“Consumers are kind of schizophrenic when it comes to this question,” Mr. Manchanda, the marketing professor at UM, said. “They generally seem to have a suspicion that companies are collecting and exploiting them using their data, but I don’t think they know precisely what is being collected. If they find out there’s usually quite a bit of outrage and moral indignation, even though in most cases the collection is perfectly legal.”

There’s also the tendency to care less if they really like the product or service they’re getting. Mr. Manchanda said many customers don’t like the idea of an auto insurance company being able to monitor where a car is and how fast it’s going, but some of those same people have no problem setting their mobile phone to share its location, which essentially allows the exact same thing.

Relevant benefits

But is it really a bad thing if customers are getting deal offers that are pertinent to their needs?

Mr. Manchanda doesn’t think so.

“Most consumers tend to focus on the fact the company’s collecting the info. What they don’t realize many times is they benefit,” Mr. Manchanda said.

While it may be a little creepy to see banner ads for Las Vegas hotels after reading up on some of the casinos on the strip or ads for slacks after ordering a sport coat, wouldn't you rather see ads for something you might actually want to buy, experts ask.

“It’s the cost of doing business on the Internet, but I’d rather have ads that are relevant to me,” Mr. Manchanda said.

Marketers pay attention to what people buy but also are increasingly interested in what people say about their brands. Chatter and opinion-sharing creates useful data. As social networks such as Facebook and Twitter make those interactions easier and more widespread, marketers have taken note.

“We’re being influenced by these social connections we’re making," said Deanna Lawrence, Communica’s director of data integration.

Staying on top of that and trying to build a view from afar both of customers and how a brand fits into their lives is important, she said. However, with the sheer amount of data shared on Facebook and other networks, there’s a lot of noise. People are still working on how to cut through that to find useful marketing information.

But Ms. Lawrence said the possibilities are going to increase as younger Internet users who are comfortable sharing nearly all details of their life in an online forum become primary consumers.

“I think we’re going to want to invest a little more of our privacy,” she said. “The return will be that relevant experience they get back.”

Contact Tyrel Linkhorn at: tlinkhorn@theblade.com or 419-724-6134.



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