Retailers use 'loyalty' programs to track consumer habits

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.

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.

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

Jackie Siekmann, a spokesman for the Kroger Co., said the 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," Siekmann said. "We have a very high redemption rate on these coupons, especially among our loyal shoppers."

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

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," 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.

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," said Gibbons, the University of Toledo law professor.

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.

But 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.

(Toledo Blade writer Tyrel Linkhorn can be reached at tlinkhorn@theblade.com. Distributed by Scripps Howard News Service, www.shns.com.)

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