The ethics of database marketing: personalization and database marketing--if done correctly--can serve both the organization and the customer. (Business Matters).

At the Core

This article:

* Examines the ethics of storing and using customer information

* Discusses privacy as an essential business strategy

Today, every information manager and technologist faces the challenge and added responsibility of safeguarding the corporation's greatest asset: customer trust.

Technology has advanced to a state where collection, enhancement, and aggregation of data are instantaneous. Corporations now have the technology to analyze the finest details about each customer. They can determine the most profitable clients and tailor their marketing messages accordingly. Information can be collaborated upon across the enterprise so the customer hears a single voice.

While this ability is a positive development for the corporation and means better services for the client, it also adds a level of anxiety if the aggregation is not performed correctly and appropriately. As personalization and data collection technologies become more advanced, the expectations of consumers are shifting rapidly. Customers' patience levels are getting shorter and shorter. Mistakes are not quickly forgiven.

Privacy and customer permission have become the cornerstone to customer trust. Most importantly, trust has become the cornerstone to a continuing relationship. A recent IMG Strategies study reported that "having basic permission and privacy policies (e.g., an opt-in policy) is becoming just the price of entry for marketers as opposed to the differentiator it used to be a year earlier."

Enter CRM 

Companies want to "know" their customers; customer relationship management (CRM) is the key to that knowledge. IDC Research estimated that the worldwide market for CRM applications would more than double between 2000 and 2005, from $6.23 billion to $14.04 billion. CRM, however, is more than technology, software, and hardware. The real essence of CRM is in the acronym itself: customer relationship management--the relationship between the customer and those who manage the dialogue with the customer.

The database has become the strategic enabler for developing and maintaining this relationship. The role of database management as the vehicle for customer interaction has become a central strategic issue that reaches far beyond technology. Establishing and maintaining customer trust must be consistent across all customers' touch points. Each piece of information made available at the various interactions with the customer must be made available throughout the enterprise.

The capability and role of the database in marketing has drastically changed in the last decade. In times past, organizations maintained numerous databases. Customer information was stored in accounting, customer service, service, shipping, sales, and marketing databases. Each of these contained information important to that department's function. Unfortunately, it was rare when even the account number was consistent across the various departments. To add to the complexity, the formats were not standardized, and access was limited. The customer was seen as fragmented pieces of information. It also was commonplace for customers to receive multiple pieces of correspondence about the same topic and to have to present information about their accounts each time they contacted the company.

The information age brought with it technology and innovation that enabled a blending of these diverse databases that provides companies a more complete picture of the customer.

Personalization

Personalization has emerged as one way to send the right message to the right person at the right time. Personalization brings with it the question of just how much information is too much. Corporations face the challenge of making appropriate information available at all customer touch points while protecting privacy at the same time. As a safeguard, sensitizing and training must occur at all levels of the organization. A company could have highly publicized privacy policies, but it only takes one bad interaction with a customer service representative to lose a customer.

Although personalization and privacy seem to be in conflict, the bottom line is that personalization benefits all involved: company, customer, and supplier. It gives the company a way to serve the customer better. Better service means better customer retention. Commonly, a five percent increase in customer retention can translate into a 25- to 125-percent increase in company profitability in the business-to-business marketplace, according to Fred Reichheld's book, The Loyalty Effect.

The customer gets products and services tailored to his or her preference. No longer do consumers have to provide information over and over to the companies they do business with. And suppliers can control their inventories and product development cycles.

Author Bruce Kasanoff sums up the seeming inconsistency between service and privacy: "It is a strange time. Privacy advocates are up in arms, but most people still are more upset over what companies forget about them than what they remember."

There is no lack of creativity in the application of technology to customer services. Some of the most significant advances in CRM can be found in the travel industry. Airlines, for example, closely track passenger history and preferences to better serve customers. One airline, for example, has begun using flight information to have travelers' cars ready at valet parking when they return from a trip. Changes in flight information can be sent via e-mail to a personal digital assistant (PDA) or cellular phone. In the future, flight delays can be reported directly to a destination hotel.

Privacy and Business Strategy

Privacy has become a top-down business strategy. At executive levels, companies are introducing the new position of chief privacy officer (CPO). (Editor's Note: Also see article by Pemberton, page 57.) CPOs serve as a liaison between the corporation and consumer. They often have veto power over product launches, marketing campaigns or strategic partnerships that they feel would interfere with the privacy of customers, employees, or suppliers.

Due to the never-ending media coverage of the legal aspect of consumer privacy, people are more aware of the types of information being collected about them. Most people, however, do not mind revealing personal information if it is used to better serve their needs and makes their interaction with a given company more convenient. A recent study conducted by Ipsos-Reid, a research and polling firm, reported that 47 percent of adults aged 18 to 34 have visited health-related Web sites and provided personal information, and 42 percent of those 35 to 54 years old have done so. Several of the most popular information-gathering and distribution sites on the Web are actually those of state governments. The sites contain information on everything from local government rules and regulations to birth, death, adoption, and marriage records.

Use with Caution

Employees and employers must become the custodians of customer trust and protect the privacy of their customers. They must learn to think beyond the proverbial box about the implications of the process of collecting and using information. Some organizations, however, are still learning how to apply CRM techniques appropriately as well as effectively. A dental group, for example, decided to apply personalization and database marketing techniques to send reminder postcards to current clients. Each postcard was properly personalized with the client information, including the amount of money toward dental care that they still had available from their insurance provider. Although technology was applied effectively, recipients were not pleased to see their personal information printed on postcards that could be read by postal carriers and anyone else handling the mail.

The customer relationship is built on more than the pieces of data and collected history. Merely collecting data and storing it in data warehouses can be a tremendous waste of corporate resources. Personalization and database marketing--conducted correctly--serve both the organizations and the customers.

Business cultures must grasp the concept that every single point of contact within the organization and throughout the supply chain is a key to the success of customer relationships. Technology is merely the enabler. The application of the technology--based on understanding the impact each and every dialogue has on the total customer relationship--is quickly becoming the highest priority within corporations. Businesses no longer focus on product share alone. The shift has moved toward customer share. This trend shows no sign of slowing down.

References

Kasanoff, Bruce. Making it Personal: How to Profit from Personalization Without Invading Privacy. Cambridge, MA: Perseus Books, 2001.

Reichheld, Fred. The Loyalty Effect. Cambridge, MA: Harvard Business School Press, 1996.

Debbie A. Cannon is President of DAC Enterprises, a firm that specializes in database management as well as one-to-one marketing. She may be reached at [e-mail].