One of the major buzz-phrases of our time is big data: how to use it, why to use it, when to use it and what the pitfalls to avoid are. It is clear that leveraging data about customers is a useful and, indeed, often vital aspect of competing in an increasingly connected world, yet it comes with a host of ethical and legal caveats that may leave some companies despairing.
Identifying the uses of big data can be simple. “Marketing is all about understanding your customers. Knowing which customers are your best buyers is critically important. Organizations that leverage big data have access to millions of pieces of granular information about their customers’ habits and intentions, not to mention detailed information about spending habits and patterns,” said attorney Ross Buntrock, a partner and head of the Communication, Technology and Mobile Practice Group in the Washington, D.C., offices of the law firm Arent Fox LLP.
He added that you could gather information like customer acquisition costs and customer happiness to retain customers. “Data can allow marketers to target customers precisely and efficiently by providing advertising, and product and services offers that are specifically tailored to a particular individual based on his/her attributes,” Buntrock said. “Big data combined with the use of mobile devices can result in offers to individuals that are highly relevant, delivered at the right time and place using geo-location.”
Basing on Clients’ Needs
Bryan Pearson, President and CEO at LoyaltyOne, said that the companies that succeed in using big data do not look at the data from the point of view of product creation or the need to meet periodic sales goals; they look at the data from the point of view of their best customers, and then base their decisions on what is important to those customers.
“This means layering the data: the where, what and how of customer spending, to pinpoint specific preferences,” he said, citing the example of La Quinta Inns & Suites which has used its loyalty program data to create and send personalized postcards with updates about the properties its members frequent. “Not only are these messages well received, many members write back with photos documenting their own travels to La Quinta locations. This leads to more shared data and a deepened trust,” he said.
Inherent Risks of Big Data
But while using big data can have many positive effects, it also poses a risk if companies do not adequately address the many ethical and legal issues surrounding it. Buntrock explained that, to the extent that companies are using personally identifiable information (PII), there are potential legal implications associated with the use or misuse of PII.
“In the United States, pursuant to the Fair Information Practice Principles, the crux of privacy protection includes the concepts of notice/awareness and choice/consent,” he said. “To satisfy the principle of notice and awareness, the data subject from whom data will be collected must be made aware of the uses to which his or her personal information will be put, and to whom such personal information will be disclosed.”
He added that the notice is intended to allow the data subject to make an informed choice as to the collection and use of the subject’s personal information, and to consent—or not—to that collection and use.
Buntrock advised that, as companies contemplate availing themselves of the benefits of big data as it regards consumers, they should first understand and evaluate the potential legal privacy implications of their activities, and consider steps to address privacy concerns. “Proactively dealing with the privacy issues and making sure the proper legal protections are in place in dealing with the right vendors will afford companies protection from reputational harm, litigation and regulatory scrutiny,” he said.
While consumer privacy is clearly a major issue, and the FTC has taken actions to attempt to reign in certain data-collection practices and processes particularly with regard to data brokers, Buntrock said that the biggest pitfall he had seen companies fall into is entering into contracts with vendors that have not been properly vetted and signing bad contracts with them.
“Companies need to make sure they’re dealing with reputable vendors that have in place best practices in the way that they acquire and analyze sensitive customer data,” he said. “In addition, companies need to be clear about legal issues, most critically indemnification provisions. The bottom line is that you need good counsel helping with these negotiations.”
Ethically, Pearson noted, organizations should recognize that when they enter into a data exchange with consumers, they have entered into a promise and are obligated to deliver on that promise.
“The explosion in the availability of data, plus the capacity to manipulate it, has created a kind of virtual cookie jar for marketers, and the temptation is great to keep reaching in for more,” he said. “Therein lies the risk: How many times can we dip in before we’ve crossed into invasive territory? Companies should determine their goal, what data they need to achieve that goal, and then collect only the data they need.”
Pearson, who authored The Loyalty Leap, offered the following guidelines for best practices:
He added that collecting data without using it to benefit the consumer is both annoying and alienating. “Specifically, organizations should not enter into a data exchange without a clearly stated purpose; they should not abuse the consumer’s willingness to share,” he said. “Providing a personal email address to a brand is not the equivalent of rolling out the welcome mat to daily messages that are irrelevant, nor is it an invitation to cross the creepy line into the areas such as personal finance or children.”
This report was originally published by NSAM sister publication Global Delivery Report