Markets and Marketing - Essay Example

Markets and Marketing INTRODUCTION : Since time immemorial, marketing people have used consumer data to plan their marketing strategies. And demographic information on large numbers of consumers is used in many marketing contexts. But it is generally believed that the sale of data on customers' incomes, buying habits, and so on constitutes an invasion of privacy. Direct marketing is one such phenomenon, where marketers use direct contact with consumers to sell their products or gather information regarding consumer behavior. But all this is done in full knowledge of the consumer who provides the information with his own free will. But when this information is obtained without the consent or knowledge of the consumer, it becomes a big ethical issue. Companies should understand that privacy and security-related statements are positively associated with consumers’ likelihood to purchase (Miyazaki and Fernandez, 2000).Thus there has to be a certain amount of transparency as to how the data is being used after collection by the firms. It is a fundamental principle of the DMA (Direct Marketing Association) that consumer data should only be used for marketing purposes. In one of the cases filed with DMA , CDB Infotek of Santa Ana, California, -- a subsidiary of Equifax, Inc. was offering consumer data on-line for reference purposes. There was a complaint against CDB Infotek for using consumer data to provide reference services (e.g., skip tracing, bill collection, look-ups, people-locating). This was thus a clear violation of industry ethical standards to sell consumer data such as publisher's records for look-ups, people-finding, or other reference services. So, is the Big brother watching ? Let us now take a look at this issue from consumer and marketing point of views. . CONSUMER CONCERNS: In the past decade, marketers have obtained more consumer information than ever before. A typical person is said to appear in anywhere from 25 to 100 databases, and some companies reportedly have 350 trillion characters of consumer data on more than 195 million people (Roznowski, 2001). These numbers by their sheer amount lead to a greater consumer concern and give rise to the consumer privacy policy debate. The key parties involved in this consumer privacy debate are the consumers, the businesses, the government and the DMA (Direct Marketing Association). These businesses could either be those that provide direct marketing services or those that are involved in direct marketing activities. The DMA in US have come out with the code of conduct or the do’s and don’ts for the Data compilers The data compilers are defined as “any company that assembles personally identifiable information about consumers (with whom the compiler has no direct relationship) for the purpose of facilitating the renting, selling, or exchanging of information to non-affiliated third-party organizations for marketing purposes.” (DMA, nd) Consumers are the most fundamental stakeholders in this debate. Their main concerns are the unauthorized access and misuse of the personal information by the businesses and the disturbing and intrusive selling or marketing research efforts by the over eager sales persons and companies. Many researches have shown that majority of internet consumers considered intrusion privacy through data collection and spam is very unethical (Rose, 2000). Though they do agree that sometimes it is in their own interest to provide information regarding themselves (Economist, May 1999). With the advent of internet and its related technologies, the threat of privacy invasion has reached enormous proportions. These have brought with them more specific ethical dilemmas than those previously experienced or identified by marketers. Ethical dilemmas are situations that call for an assessment of the morality involved in the decision. On can judge the morality of a decision based on its consequences, the act itself and the generally accepted norms of the society (Gini, 2005; Solomon, 2004). It is generally believed by the marketers that as long as consumers give the information voluntarily and are fully aware of how it is used, their privacy is not violated. (Rao and Quester, 2006) Thus, to obtain consumer satisfaction and to answer their concerns, companies should be transparent with consumers about information capture, its use and its access. In the year 2000, the online bookseller Amazon.com faced a U.S. Federal Trade Commission (FTC) probe and two privacy-invasion lawsuits charging that it improperly handled the personal information stored in its online database. Marketing gurus have always advocated collecting and recording data about consumers as the fundamental task of marketers. The demographic information on large numbers of consumers is used in many marketing contexts. It is mostly used to assess the consumers’ buying habits and the patterns in their spending. The advent of internet has made it possible to do so very easily and without the knowledge of the consumers. Other techniques such as data mining allow marketers to analyze, exchange and merge data across and between databases. Data mining uses principles of artificial intelligence to analyze personal information through implicit patterns discoverable in the data. This new found ability of corporations to track passively an individual’s movements on the web through cookies and web forms, if used inappropriately, may thus infringe on privacy (Forrest, 1999). In November 1999, there was a controversy over an apparent invasion of privacy by RealNetworks -- a provider of RealJukebox and RealPlayer, which are online media players. It was reported that the company was quietly mining customers' data using RealJukebox and transmitting both the data and the customer's identity to a RealNetworks database. After exposure, the ensuing scandal in the Internet industry brought the issue of privacy on the Web and the ownership of individual data into the spotlight. (Wilder & Soat, 2001) This was a totally unwarranted action from the company and it clearly constituted the invasion of privacy. Because of the infamy surrounding the incident and several lawsuits, RealNetworks, issued a patch for RealJukebox to keep it from transmitting user data. Currently, the privacy laws do not provide protection with respect to the information acquired through data mining activities. Moreover, there are no standards of data integrity or data formatting across or within industries. Though groups such as DMA try to provide guidelines for the marketers on the use of information, there is no legal sanctity to it. Marketing businesses collect the information in whatever way they can or sell whatever they have collected to those who are interested. The only thing which is stopping them is probably the fear of generating bad publicity and loosing customers. This raises special concerns for personal privacy. While there are privacy laws and data-protection guidelines established for explicit, confidential information, virtually no legal or normative protections apply to data once it is manipulated by the data-mining process. The laws and regulations regarding ethical concerns are not only insufficient but also differ in different regions. For example, while the USA and European Union have established generally much stricter privacy laws, the legal responses to the rising problem of data security and privacy in the Asia-Pacific have been irregular and patchy (Endeshaw, 2001). MARKETERS CONCERNS: Marketing and marketers have been under scrutiny by social and general public organizations for their alleged unethical practices. And as the debate over data privacy grows, many IT professionals who manage the information find themselves in the middle of the controversy with or without reason. In 2001, N2H2 Inc. l-- which provides 40% of the Internet filtering software used in U.S. schools, decided to enter a new business: the sale of aggregated data. In a partnership with marketing powerhouse Roper Starch Worldwide, N2H2 began marketing the data, called Class Clicks, that its filtering tools collected on the Web-site usage trends of elementary and high-school students. The data contained no names or personal information and complied with the new federal Children's Online Privacy Protection Act. Yet N2H2's new line of business was criticized so heavily by the privacy advocates that the company scrapped the effort. (Wilder & Soat, 2001) This was the clear case of genuine company being hounded by over zealous moral guardians of the society. As per the company , they made sure that there was no way to trace anything back to a school or an individual. It was all aggregated data, but it still triggered a red herring in public perception and it was automatically assumed that the company would try to use the data for checking out the preferences of children and link them to their buying and spending habits. Needless to say, it kicked up a storm. With the rise of electronic commerce on the Internet and availability of newer and sophisticated data-mining software, there is a huge amount of market for companies who can sell and analyze personal information. And as consumers are getting updated and knowledgeable regarding privacy laws, the government has also brought in regulations. Thus businesses are also considering new ways to address this issue using privacy-enhancing technologies and new, innovative techniques for automating compliance. Otherwise, there will be more cases of lost business due to failed compliance with privacy laws. There has been cases of two high-tech companies Zeeks.com and eCrush , who recently announced the scaling back of their businesses due to a new children's online privacy regulation. They were trying to commodify interactive sections of their sites and email lists through advertising and marketing for kids. But, they were unable to comply with the costly requirements set forth by the recently passed Children's Online Privacy Protection Act (COPPA), and closed down parts of their operations. Thus cost of complying with the new regulations and acts has become a major business issue for small companies. Direct marketing is the main form of marketing dealing with this crisis. In this method, the companies seek to reach a high proportion of the target population with apparent relevance that motivates purchase, for relatively low cost. The conventional channels, which continue to exhibit inadequately checked privacy-invasive behavior. include mail , fax, and telephone but the electronic channels, which are recent have been exhibiting signs of unethical behavior by not being transparent about their intentions regarding data usage. These channels include electronic mail, web-based communications such as electronic publishing, on-line ordering of physical goods and services, on-line payment, electronic service delivery (ESD) schemes, push-technologies etc. It is very clear that the utilization of information technologies or database marketing can improve cost efficiency and lead to meeting consumers’ needs more effectively. Companies that use database marketing programs should generally use information about consumers in order to target and improve relationships, with consumers. And this second form of direct marketing is the one that is more challenging and requires more scrutiny by the consumers. Data compiling companies generally equate database marketing efforts with fundamental free speech rights, assuming that personal information is just another commodity to be traded Schmid (2001) states: “Legitimacy of ownership requires some minimal threshold of respect, if not care, for the owners. Without respect and willing participation by non-owners, the expenditures to maintain putative ownership can be very high” (p. 85) ). If businesses anger their customers by sending unwanted information or selling their information to another company, the marketer’s bottom line may suffer. There are three specific aspects of privacy that have received attention from researchers are unauthorized use of secondary data, invasion of privacy, and errors. Besides invasion of privacy caused due to unauthorized use of secondary data, the errors in databases compiled by these companies can also lead to harmful and embarrassing situations for the consumers. As Professor Jeffrey Rosen points out in his 2000 book The Unwanted Gaze, you are not your profile. Databases can contain errors. And data compiled from disparate sources and from differing contexts can lead the user to arrive at the wrong conclusions. (2000). When intimate information is removed from its original context and revealed to strangers, we are vulnerable to being misjudged on the basis of our most embarrassing, and therefore most memorable, tastes and preferences. (Rosen, 2000) For example, in 1998 prosecutor Kenneth Starr used Monica Lewinski's book purchases from a Washington, D.C., bookstore as a basis for building her character. This is a perfect example of how profiling can harm individuals. This occurred during the Clinton administration sex scandal. Thus such small things as the grocery or bookshop purchases may end up in some database which will be used to profile the consumer – This is simply unexcusable and a classic case of Big brother watching us. CONCLUSION: Thus the need of the hour is that the businesses should follow and adhere to strict compliance laws as provided by the government and provide assurance to consumers regarding the use of personal information collected from them. The consumers too on their part should be vigilant enough to mark out the rotten apples from within the businesses. With the increase in development and use of new technologies, interest in data mining has increased rapidly and it has become an important tool in hands of marketers. Data compiling and research companies utilize these data mining techniques to analyze their databases. They look for trends and patterns which can provide new perspectives to the data such that they are able to predict consumer interests, their buying habits and thus exploit this knowledge to attract and retain their customers. This is a very beneficial tool for businesses, government, society as well as individual persons. However, like many technologies, if used by unscrupulous persons, this has a negative outcome such as invasion of privacy and misuse of information by authorities.. This further raises very moral and ethical questions regarding business practices. Although the internet technology, may not have generated any new or unique ethical issues, many of the controversies associated with this technology may warrant special considerations from an ethical perspective (Tavani, 2004). Thus the consumers face an enormous threat to their privacy on choosing online or e-commerce transactions. This is proving to be the major stumbling block to the success of the dot com or e-commerce industry. Besides, the unauthorized use of personal data, the inaccuracy creeping in due to malfunctioning of softwares and computers , also provide for unnecessary problems for the consumers. Many companies have been accused of following unethical practices till now. Online retailer Toysmart.com filed and went bankrupt after including its customer database on a list of assets to be sold. Because consumer information is stored on a database, it is potentially accessible for the whole Internet. So, personal data can be accessed later and used for purposes different from initial. Many companies, such as Double-Click can merge cookies to develop complex views of consumers’ online behavior. This is why Internet advertising company DoubleClick Inc. was accused of compiling and selling customer information without proper disclosures - and later became the subject of a class-action lawsuit and complaints to the Federal Trade Commission (FTC). Pharmaceutical company Eli Lilly blamed a "programming error" when it publicly displayed the email addresses of approximately 600 Prozac users.(Ellis, 2002) “Privacy protects us from being misdefined and judged out of context in a world of short attention spans, a world in which information can easily be confused with knowledge”. (Rosen, 2000) Another case that illustrates the potential harm of data collection and profiling is that of US Drug Enforcement Agency (DEA). In 1998 the Salt Lake Tribune reported that the supermarket chain Smith's Foods was subpoenaed by DEA for its discount card data on several named suspects. They were interested in finding out if these individuals had purchased a lot of plastic bags, the presumption being that if they are manufacturing and selling "meth," they will need plastic bags to package it in. (Givens, 2007). But, someone may have been buying plastic bags for some other use and will unnecessarily get troubled by misguided information presented by these databases. Thus the above examples amply prove that gathering of data without consumer knowledge is not only in bad taste but also can lead to personal difficulties for consumers. Both marketers and consumers will have to join hands to fight against these big brother tactics of certain unscrupulous firms. References: 1. Davis, J (1999) “The End of Privacy: The Surveillance Society,” The Economist, Vol. 351 (8117), 21-23. The Only Choice 2. Ellis, M., (2002) A privacy strategy is no longer just an option - it's a requirement, trust management, Retrieved from : http://www.intelligententerprise.com/021030/517trust1_1.jhtml 3. Endeshaw, A. (2001) Internet and E-commerce Law: With a focus on Asia-Pacific, Singapore: Prentice Hall. 4. Forrest, E. (1999) Internet Marketing Research: Resources and Techniques, Sydney: McGraw-Hill Companies. 5. Gini, A. (2005) Case Studies in Business Ethics, Upper Saddle River: Pearson/Prentice Hall. 6. Givens, B., (2007) Privacy Today: A Review of Current Issues, Retrieved from http://www.privacyrights.org/ar/Privacy-IssuesList.htm 7. Miyazaki, A.D. and Fernandez, A. (2000) ‘Internet privacy and security: an examination of online retailer disclosures’, Journal of Public Policy and Marketing, Vol. 19, No. 1, pp.54–61. 8. Privacy International, 2007, A Race to the Bottom - Privacy Ranking of Internet Service Companies. 9. Rao, S. and Quester, P. (2006) ‘Ethical marketing in the internet era: a research agenda’, Int. J. Internet Marketing and Advertising, Vol. 3, No. 1, pp.19–34. 10. Rose, E. (2000) ‘Balancing internet marketing needs with consumer concerns’, Computers and Society, Vol. 20, No. 2, pp.20–24. 11. Rosen, J. (2000) The Unwanted Gaze: The Destruction of Privacy in America, Random House 12. Roznowski, J., (2001) An Institutional and Behavioral Economics View Of the Consumer Privacy Debate 13. Schmid, A. Allan (2001). Institutional and Behavioral Economics, East Lansing: Walbridge Press. 14. Solomon, R. (2004) Above the Bottom Line: An Introduction to Business Ethics, Belmont:Thomson/Wadsworth. 15. Tavani, H. (2004) Ethics and Technology: Ethical Issues in an Age of Information and Communication Technology, Hoboken: John Wiley and Sons. 17. Wilder, C. and Soat, J. (2001), The Ethics Of Data , Information week Read More