Shopping at the Crossroads
While loyalty cards have reached critical mass, giving packaged goods marketers a long-awaited platform for highly targeted, national campaigns pegged to grocer programs, consumers and regulators alike have gotten hyper-sensitive to data privacy. That puts loyalty programs at a crossroads: Just as they’re set to take off, retailers have to decide how to rein them in.
Many grocers rely on the Food Marketing Institute to set data management guidelines. Washington, DC-based FMI expects to issue loyalty marketing guidelines by September. It updated its general consumer privacy policy in January, adding a section on prescription drugs (See box, below). FMI urges retailers to set their own privacy policy, using its guidelines as a platform. Among its suggestions: Make sure business partners adhere to the retailer’s policy; collect the minimum data needed; and limit the time data is kept.
Stringent self-regulation could prevent restrictive national or state legislation. U.S. lawmakers are addressing medical, banking, and Internet privacy before a planned examination of loyalty programs. Arizona, Connecticut, Hawaii, Massachusetts, New York, South Carolina, Washington, and Wisconsin, are drafting or discussing supermarket loyalty laws. The California bill that passed last year outlines opt-in policies and prohibits retailers from sharing data with third parties, including manufacturers.
“Retailers have an obligation to serve customers’ data in the same way they’ve endeavored to serve customers. It’s a value exchange, so [marketers] should ask only for the amount of data they need, and offer something of value in exchange,” says David Diamond, executive vp at Catalina Marketing Corp. The St. Petersburg-based company is helping fund and shape FMI’s loyalty program guidelines. “If the industry doesn’t regulate itself, it will be done for them. Retailers need to be proactive.”
DON’T SELL, DON’T TELL
Dorothy Lane Markets president Norman Mayne chairs FMI’s privacy policy committee, and is unequivocal about data collected from Club DLM members: Dorothy Lane will never share or sell information.
“If the police come asking for information, they’ll have to subpoena us for it,” he says. (The stores haven’t been subpoenaed, but it’s not unheard of: An Arizona grocer was forced to give purchase history data on a man suspected of dealing drugs. Police wanted to know if he bought an inordinate amount of plastic bags.)
“We work very hard [to maintain] our level of trust,” Mayne says. “If we betray a customer [by selling data], 40 years of work could go down the drain in 10 minutes.”
Dorothy Lane asks for name, address, and phone number, then bases offers on purchase history.
When milk costs jumped and competitors slashed prices to keep it a loss-leader, Dorothy Lane raised prices to reflect its costs – then sent its top milk customers a postcard for five gallons a week at 49 cents per gallon. “We took care of our own family,” Mayne explains. “We let customers pull product [offers], we don’t let manufacturers push them. We never once let a manufacturer come tous to give samples to our customers.”
Packaged goods companies may see that as territorialism, but retailers should be protective of their customers. “Manufacturers have to get much more comfortable with co-marketing,” Diamond says. Since retailers won’t be allowed to give data to a third party (like a packaged goods company), marketers should get used to the notion that they’ll send samples to the retailer’s fulfillment house, and the retailer will provide its targeted mailing list separately.
Mayne contends any retailer can ensure privacy protection, regardless of size. “It’s not an issue of time, money, or size. It’s about the commitment of the people running the company.”
The new mantra becomes, “The customer is always protected.”
Food Marketing Institute has updated its customer privacy guidelines and added a section on prescription drugs.
Notice: Retailers should inform customers that information about their transactions is being tabulated and stored electronically in databases and may be used internally as part of special merchandising and promotion programs.
Choice: Customers should be offered the opportunity to have their names removed from the retailer’s database for internal marketing programs.
Security: Companies must maintain strict procedures to prevent unauthorized access, alteration, or dissemination of personal information. Customer data, even in the aggregate, should be restricted and accessible only to employees with “need to know” authorization.
Access: Customers should have access (upon written request) to any readily available and easily retrievable purchase information stored in retailer databases.
Prescription Drug Records and Patient Confidentiality: FMI supports a uniform national medical confidentiality policy that permits the interchange of personally identifiable information among healthcare entities for purposes of professional treatment, insurance reimbursement, or improved healthcare outcomes. Pharmacies will not transfer transaction data to third parties for marketing purposes without the express consent of customers. Customers should be offered the opportunity to have their names removed from pharmacy databases for internal marketing programs.
The U.S. private-label food and beverage market will grow to $67 billion by 2004, according to a new report from market analysis firm Datamonitor, New York City. The projection reflects a 37.9-percent increase from the segment’s current $48.6 billion valuation.
Private-label sales have risen in recent years due to growth in such categories as chilled deli and ready-to-eat meals. Continued growth will come from those areas, as well as from frozen food and dairy categories, says Datamonitor.
In the last five years, retailers have enhanced their private-label assortments. On average, private-label penetration in the top 12 supermarket chains has risen from 19 percent in 1993 to 23 percent in 1999. According to Datamonitor, private-label profit margins are 27 percent higher on average than those of national brands.
