The Globe & Mail
Thursday, October 29, 1998
pages C1,C4

Getting to know all about you

Promising perks and freebies, companies are gathering personal information about you with every swipe of your customer loyalty card

by Tyler Hamilton

TORONTO -- Anis Merchant, a student at the University of Toronto, signed up for an Air Miles card at his local Dominion store last week. Mr. Merchant has made many friends at the university, but by the end of his studies nobody will know him quite like Dominion.

Or, quite like Shell Canada, the Bay, the provincial liquor control board, and more than 100 other retailers and service-based companies with locations across Canada, who will get the chance to know Mr. Merchant very intimately as he matures as a consumer. They'll be privy to what he buys, when he buys it, and where it's purchased.

In exchange, Mr. Merchant gets rewards.

"I get points. I can collect them and hopefully get a free ticket somewhere", says the 24-year-old, loading groceries into his car. He can also use his points for ski trips, movie and theatre tickets, amusement park passes, and hundreds of other freebies.

They're rewards that come at the expense of personal privacy. The Air Miles program is just one of the ways that companies are collecting detailed information about consumers, creating vast warehouses out of that data and then using it to craft marketing messages and strategies.

From large retailers to telephone companies, on-line bookstores, and casinos, the use of powerful computer systems to capture, organize, and analyze customer data is big business. The quest to gain a competitive edge through improved service is motivating companies to find out who they're selling to, what makes those customers happy, and what they will ultimately buy.

Companies are only beginning to understand how to use and collect customer information. But privacy advocates warn that without legal safeguards, consumers will be left vulnerable to the wholesale trafficking of incredibly detailed portraits of their lives as consumers.

In Mr. Merchant's case, Dominion and its partners in the Air Miles program get a front-row ticket to the bits and bytes of his statistical life. Each time his Air Miles card is swiped, the data showing the time, place, and amount of his purchase gets funneled into a huge vat of highly organized information.

Not that there's anything wrong with that, says Joe Palombo, director of marketing at The Loyalty Group, the company that manages the Air Miles program and its customer data base. "There's no Big Brother here, we just want to find out when you shop and where you shop."

Mr. Palombo says the goal of the program - which includes 4.7 million cardholders - is to help its member companies keep customers loyal while increasing how much they spend. The idea is to find out what customers like and sell them more of it - as well as to discover what consumers might like and convince them they need it.

To that end, applicants for an Air Miles card fill out a form that asks them how much they earn, how much they spend on gas and alcohol, how often they eat take-out food, and other tidbits of demographic information - such as whether they own a cat or dog.

Mr. Palombo says the information is guaranteed not to be shared beyond the 100 companies that are part of the Air Miles program. "We don't sell or rent our data lists to anybody, it's all for our sponsors."

Mr. Merchant admits he never gave much thought to where his information was going when he signed up for his Air Miles card. Still, he doesn't object to companies that want to serve their clients better.

"If they use it just to market particular products for lucrative reasons, then I don't have a problem with it", he says. "But if it's going to be used in damaging ways, I don't want them to use any information on me to achieve that end. It's wrong."

Mr. Merchant's apparent lack of attention to privacy matters is typical of most consumers, says Austin Hill, president of Zero Knowledge Systems Inc., a Montreal-based designer of privacy-protection software. "If you talk to the average consumer, it's not a big deal.

"They say 'It's convenient, why not?' "

David Jones, president of Electronic Frontier Canada, says most people don't really think about privacy until it's clear they don't have it.

"Their first response is, `I'm a good person, I have nothing to hide.' It's only when things about a person are being explored that they get concerned."

The Internet adds another level of sophistication - and ease - to data gathering, allowing companies to collect customer information more efficiently as surfers do on-line transactions and leave electronic crumb trails to and from frequented Web sites.

But what can consumers do when they feel the line between better marketing and breach of privacy has been crossed? How much weight does consent really carry? And what happens to the data if the companies who have permission to collect it go bankrupt?

In Canada - with the exception of Quebec - consumers like Mr. Merchant must rely on promises alone. But last month, Industry Minister John Manley proposed a bill, called the Personal Information Protection and Electronic Document Act, that aims to protect consumers from unethical data gatherers.

That law would help stop Canadians from having personal information used against them.

Ann Cavoukian, Ontario's information and privacy commissioner, says most companies that deal with consumer information already have a privacy policy and generally adhere to it. But she says there's no law to protect consumers from privacy violations.

"Privacy revolves around the notion of choice", she says. "When this is happening without consumers' consent, they have no ability to reject the practice or correct the information being collected."

Ms. Cavoukian says companies that successfully demonstrate to customers their honest intentions will eventually find themselves with a gold mine of accurate information. Less forthright competitors will find themselves with falsified responses from jittery customers, she says.

Not surprisingly, the way companies go about establishing these gold mines is increasingly falling under the category of trade secret.

Wal-Mart Stores Inc. of Bentonville, Ark., is suing Amazon.com Inc., alleging the on-line bookstore is "raiding" its data management and analysis systems by recruiting former Wal-Mart employees.

While Wal-Mart took an early gamble on a data-collection system, Windsor Casino Ltd. in Ontario is betting today that the technology will help boost its profits.

"Prestige" player cards are at the heart of Windsor Casino's system, which aims to create life-long profiles of its most regular gamblers. Before obtaining a card, patrons must hand over their name, address, birth date, and information about hobbies and special interests.

Every time a gambler plays a slot machine or goes to a games table, the prestige card tracks how much they spend, how long they stay at a table or machine, and the size of their individual bets.

No matter which casino you visit, the information they collect about you will be used to try to draw you back in.

"They send me birthday cards, promotional letters, and free dinner passes", says Annie Scott, 54, a regular patron of Orillia, Ont.-based Casinorama, one of Windor Casino's main competitors. "I get letters inviting me to stay in their hotel for free if I book in advance."

Nancy Ziolkowski, vice-president of marketing at Windsor Casino, says she can go into the company's computer and pull out the names of a specific type of gambler, such as one who likes only dollar slot machines, comes once a week, and plays for exactly two hours.

"This is the wave of the future for any business that relies on a steady, frequent clientele", says Ms. Ziolkowski.

"Instead of spending millions of dollars on mass media marketing, we take a portion of that money and effectively use it against our own customer base."

Most mass "junk mail" campaigns - which are lucky to get a 2-per-cent response rate - are like dropping atomic bombs when what you really need is a pea shooter and good aim. There are a number of organizations that exist solely to collect customer information, which is then sold to other companies that want to strip away the waste associated with mass marketing.

Dr. Jones of Electronic Frontier Canada calls these types of organizations "traffickers in personal information". They're the companies who are in the business of selling details about the average person's life.

The ethical implications of running businesses that collect customer information convinced International Business Machines Corp. of Armonk, N.Y., to set up a consulting unit to advise companies on how to respect consumer privacy, one sign that organizations are finding it difficult to strike the right balance between aggressive marketing and privacy invasion.

"Most consumers would be happy to hear that a company is trying to safeguard that information", says Dr. Jones. Yet "companies care about privacy only because their customers care about privacy."

American Online Inc. of Dulles, Va., faced that PR problem head-on in 1997, when its plan to rent out its subscribers' telephone numbers prompted howls of protest. AOL dropped the proposal, presumably for fear of undermining its main business of providing Internet services.

That self-interested rationale disappears, however, when the company doing the selling has gone bankrupt. Consumers Distributing, the now-defunct Canadian retail chain, sold its tracking data base of two million customers to Regal Greetings and Gifts for an undisclosed amount.

Past Consumers Distributing customers could hardly protest the move because they no longer had anyone to complain to.

Zero Knowledge's Austin Hill says he's concerned with what the world will be like 25 years from now, when a generation of people resigned to the idea of having no privacy exist as virtual people within computers.

"Are we going to be able to stand up to the scrutiny being created by this warehousing of personal data?"

For now, however, consumers have yet to rebel. And if Mr. Merchant is any indication, any uprising may be a long time in coming. Asked if he's worried about the erosion of his privacy, he simply shrugs.

"That's capitalism."

How to Build a Warehouse of Data

A data warehouse is essentially a souped-up data base that holds enormous amounts of information in a way that makes it easy for companies to discover consumer spending habits, detect cases of fraud, and see trends that aren't otherwise obvious.

The software applications that make sense of these mountains of data are called business intelligence or "data-mining" tools.

Underlying the Air Miles program, for example, is a data warehouse managed by The Loyalty Group. Each member of the Air Miles program has an individual file within that system, which stores the name, address, age, and gender of the customer, as well as personal financial and buying information written on the Air Miles enrolment form.

Each time a person swipes his or her Air Miles card, the date, location, and amount of that transaction travels directly to The Loyalty Group's data warehouse, where it is placed in the customer's personal file on the system. The Loyalty Group can generate detailed reports from this information, which can look at an individual's purchasing history, compare that history to that of other customers, predict the lifestyle of that customer based on buying habits and other characteristics, and separate loyal, high-spending customers from occasional spenders.

The different ways of analyzing this data are endless, as are the number of marketing questions that can be answered, depending on the sophistication of the business intelligence tools being used.

The goal of using the technology is simple: Send cleverly crafted, personalized marketing messages to those customers most likely to buy the product or service being pitched.

Copyright © 1998 by The Globe & Mail. All Rights Reserved. Reprinted with permission.