Database Marketing: New Rules for Policy and Practice

Although a relatively recent development, database marketing (DBM) programs are already forcing important choices by companies, consumers, and legislators. These choices are changing society’s view of what constitutes good marketing practice in the United States and other countries where the conjunction of new technologies and selling requirements accelerate the use, and potential abuse, of information about individuals.

From a marketer’s perspective, DBM uses information about consumers in order to improve the efficiency of what might be called the Three Ts: targeting, tailoring, and tying.

  • In work with a defined customer or prospect list, DBM can improve the targeting of current and potential buyers. Even if the messages and products remain constant, the process allows companies to waste less effort, money, and other resources by not promoting to individuals who are unlikely to respond.
  • Going one step further, DBM allows companies to tailor marketing messages and products more specifically to customer groups. As a firm learns more about the heavy users of its product or service through DBM campaigns, it can provide different variations of the product mix to more customer sets. In some cases, this process can reach the level of the individual household.
  • By taking advantage of relationships the company has created through targeting and tailoring, it can develop and maintain better ties. What some dismiss as “junk mail,” many marketers legitimately view as the initial building blocks of a long-term buyer-seller relationship. Over time, customers can receive more relevant messages and products, and the vendor can lower selling costs and increase retention rates.

Companies have thus far focused on the operational details of this process, becoming more adept at finding lists of potential customers, focusing the message, and making the contact.1 Marketers repeat a number of DBM success stories: catalog firms target groups with customized catalogs and thrive while traditional channels for these goods languish; a telecommunications firm uses its database of households and phone numbers to score a major success with a new credit card offering; supermarkets track shoppers’ purchases and offer electronic coupons and other incentives tailored to household-specific buying patterns.

But while the operational tasks are being perfected, DBM programs have also generated powerful negative responses:

  • When Lotus announced its “MarketPlace: Households” product — a laser disk containing demographic and lifestyle data about American households — certain groups protested, claiming that it violated privacy.

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References

1. Our focus is on emerging societal responses to DBM efforts and the implications for marketers and public policy analysts. Technical issues in DBM development and implementation (e.g., generic design of a database and crafting a direct mail piece to elicit higher response rates) are ably discussed in:

R.C. Blattberg and J. Deighton, “Interactive Marketing: Exploiting the Age of Addressability,” Sloan Management Review, Fall 1991, pp. 5–14.

2. M.W. Miller, “Lotus Is Likely to Abandon Consumer Data Project,” Wall Street Journal, 23 January 1991, p. B1.

Also see the statement by John Baker, vice president of Equifax, Inc.: U.S. Congress, House Subcommittee on Government Information, Justice, and Agriculture, Hearings on Domestic and International Data Protection Issues, 102nd Cong. 1st sess., 1991.

3. See M.W. Miller, “Coming Soon to Your Local Video Store: Big Brother,” Wall Street Journal, 26 December 1990, p. 10; and

“Blockbuster Contradicts Official,” Wall Street Journal, 2 January 1991, p. B6.

4. J. Rothfeder, Privacy For Sale (New York: Simon & Schuster, 1992), pp. 102–105.

5. “Equifax Is Pulling Its Credit Lists from Market: Cites Privacy Fear,” DM News, 12 August 1991, pp. 1, 8;

“Six States Sue TRW over Credit Reporting Practices,” Wall Street Journal, 10 July 1991, p. B1-2.; and

T. Leventhal, “FTC Attacks Credit Sales; Trans Union Fights Charges,” Privacy Times, 19 January 1993, pp. 3–4.

6. Maxwell Sroge Report, The United States Mail Order Industry(Homewood, Illinois: Richard D. Irwin, 1991).

7. Some pending legislation concerning DBM makes this distinction and (perhaps not surprisingly, given politicians’ dependence on mailing lists of contributors) exempts noncommercial uses from restrictions imposed on commercial uses. The rationale is most clearly expressed by Morton Halperin, then head of the Washington office of the American Civil Liberties Union: “Political, religious, and nonprofit groups have a greater right to intrude on you because of the greater value put on those messages.” Quoted in:

M.W. Miller, “Lawmakers Are Hoping to Ring Out Era of Unrestricted Calls by Telemarketers,” Wall Street Journal, 28 May 1991, p. B5.

One of the authors has long been a proud card-carrying member of the ACLU, but we would quarrel with the notion that solicitations for campaign contributions, museums, or religious groups have a greater intrinsic value than most goods and services sold via DBM efforts.

8. See “Sales Manager’s Budget Planner,” Sales & Marketing Management, 17 June 1991, p. 72; and

W.A. O’Connell, “A Ten-Year Report on Sales Force Productivity,”Sales & Marketing Management, December 1988, pp. 33–38.

9. Rothfeder (1992).

10. “Harris-Equifax Consumer Privacy Survey 1992” (Atlanta, Georgia: Equifax, 1992).

11. For a discussion of competitive uses of this issue, see:

P.M. Ippolito, “The Economics of Information in Consumer Markets: What Do We Know? What Do We Need to Know?” in The Frontier of Research in the Consumer Interest, ed. E. Scott Maynes (Columbia, Missouri: American Council on Consumer Interests, 1988), pp. 235–263; and for a discussion of consumers’ constraints in utilizing such competitive information, see:

J.E. Russo, “Information Processing from the Consumer’s Perspective,” in The Frontier of Research in the Consumer Interest, ed. E. Scott Maynes (Columbia, Missouri: American Council on Consumer Interests, 1988), pp. 185–217.

On legislation, see:

Direct Marketing Association, 1991–92 Compendium of Government Issues Affecting Direct Marketing (New York: Direct Marketing Association, 1992), p. 167.

12. C. Goodwin, “Privacy: Recognition of a Consumer Right,”Journal of Public Policy and Marketing 10 (1991): 149–166.

13. M.W. Miller, “When the ‘Junker’ Calls, This Man Is Ready for Revenge,” Wall Street Journal, 24 June 1991, pp. A1, A4.

14. R.E. Smith, “Direct Mail,” War Stories (Providence, Rhode Island: Privacy Journal, 1990), p. 35.

15. L.R. Fischer, The Law of Financial Privacy: A Compliance Guide(Boston: Warren, Gorham, & Lamont, 1991). Also relevant is the discussion of court decisions in:

P.N. Bloom, G.R. Milne, and R. Adler, “A Framework for Identifying the Legal and Political Risks of Using New Information Technologies to Support Marketing Programs,” Report 92-102 (Cambridge, Massachusetts: Marketing Science Institute, 1992).

16. P. Pae, “American Express Co. Discloses It Gives Merchants Data on Cardholders’ Habits,” Wall Street Journal, 14 May 1992, p. A4

17. T. Brennan, “DMers Knock AT&T Directory Plan,” DM News, 19 August 1991, pp. 1, 8, and 64; and

T. Brennan, “CADM Releases Its Unanimous Objection to AT&T Directory,” DM News, 7 October 1991, pp. 1, 2.

18. M.W. Miller, “Citicorp Creates Controversy with Plans to Sell Data on Credit-Card Purchases,” Wall Street Journal, 22 August 1991, pp. B1, B7.

19. Goodwin (1991).

20. A.F. Westin’s testimony:

U.S. Congress, House Subcommittee on Government Information, Justice, and Agriculture, Hearings on Domestic and International Data Protection Issues, 102nd Cong. 1st sess., 1991.

21. See, for example, the (often contradictory) views expressed in:

H. Schlossberg, “Hispanic Market Strong but Often Ignored,” Marketing News, 19 February 1990, pp. 1, 12;

P. Masterson, “Should Marketers Target Blacks More?” Advertising Age, 2 July 1990, pp. 20, 21; and

J. Garreau, “The Ethics of ‘Ethnicated’ Mailing Lists,” Washington Post, 14 November 1992, pp. A10, A11.

For a discussion of economic theory potentially applicable to these issues, see:

C. Moorman and L.L. Price, “Consumer Policy Remedies and Consumer Segment Interactions,” Journal of Public Policy and Marketing 8 (1989): 181–203.

22. “Postal Service Household Diary Study” in Maxwell Sroge Report, The United States Mail Order Industry (Homewood, Illinois: Richard D. Irwin, 1991), p. 37; and

“List Industry Overview,” Direct Marketing, August 1990.

23. See “Judge Postpones Effect of Statute to Curtail Computer Phone Calls,” New York Times, 21 December 1992, p. D10; and

“Oregon Woman Hangs Up Phone Law — Suit Says Telemarketing Limits Discriminate Against Small Business,” Washington Post, 21 December 1992, p. A9.

24. See, for example:

U.S. Congress, House Committee on Banking, Finance, and Urban Affairs, Hearings on the Fair Credit Reporting Act, 101st Cong. 1st sess., 1989.

U.S. Congress, House Committee on Banking, Finance, and Urban Affairs, Hearings on the Fair Credit Reporting Act, 102nd Cong. 1st sess., 1991.

25. For an overview of these developments, see:

B.R. Konsynski and F.W. McFarlan, “Information Partnerships: Shared Data, Shared Scale,” Harvard Business Review, September–October 1990, pp. 114–120.

26. The original Fair Information Practices were listed in a report issued by:

Department of Health, Education, and Welfare, Records, Computers, and the Rights of Citizens (Washington, D.C.: U.S. Government Printing Office, 1973).

Subsequent efforts to apply and codify these principles are discussed in:

C.J. Bennett, Regulating Privacy: Data Protection and Public Policy in Europe and the United States (Ithaca, New York: Cornell University Press, 1992).

27. D. Pring, “Direct Marketing and Research: The Need to Know,”Journal of Direct Marketing 4 (1990): 34–40.

28. Interestingly, the political equivalent (e.g., the survey from your senator or a political party’s “advisory commission” solemnly requesting your opinion about issues — and a contribution) has no pejorative name and is in fact subsidized by postal rates and (in the case of elected officials) taxpayers, through so-called “franking” privileges that enable members of Congress to use their signatures as postage.

29. M.G. Jones, “Privacy: A Significant Marketing Issue for the 1990s,” Journal of Public Policy and Marketing 10 (1991): 133–148.

30. M. Greenberg and S. Schwartz McDonald, “Successful Needs/ Benefits Segmentation: A User’s Guide,” Journal of Consumer Marketing 6 (1989): 31.

31. D.E. Schultz, “Challenge or Opportunities for Database Marketing,” Journal of Direct Marketing 5 (1991): 5, 6; and

H. Schlossberg, “Battle Rages Between Attitude and Behavioral Researchers,” Marketing News, 2 March 1992, pp. 18, 19.

32. See K. Sridhar Moorthy, “Measuring Overall Judgments and Attribute Evaluations,” Report 91-116 (Cambridge, Massachusetts: Marketing Science Institute, 1991); and

R.R. Burke et. al., “Comparing Dynamic Consumer Decision Processes in Real and Computer-Simulated Environments,” Report 91-120 (Cambridge, Massachusetts: Marketing Science Institute, 1991).

33. M.J. Culnan, “Consumer Attitudes Toward Direct Mail, Privacy, and Name Removal: Implications for Direct Marketing,” Symposium on Consumer Privacy, Chicago/Midwest Direct Marketing Days, Chicago, Illinois, 20 January 1993.

34. The Canadian Direct Marketing Association has announced a logo that will be used by marketers to indicate compliance with its guidelines. See:

R.E. Smith, “In Canada, A Real Chance to Get Off Lists,” Privacy Journal 19 (1993): 1, 4.

35. In many countries, a federal data protection board has been created to prod this consistency. Although a full consideration of the pros and cons of such a board — and whether it should have an advisory or a regulatory role — is beyond the scope of this article, it is clear that a board would give the government a very different role with respect to data collection, use, and transfer in DBM. Interested readers might consult:

H.J. Smith, “Information Privacy Policies and Practices: Inside the Organizational Maze,” Communications of the ACM (New York: Association for Computing Machinery, forthcoming); and

D.H. Flaherty, Protecting Privacy in Surveillance Societies (Chapel Hill, North Carolina: University of North Carolina Press, 1989).

36. J.K. Shank and V. Govindarajan, “Strategic Cost Analysis of Technological Investments,” Sloan Management Review, Fall 1992, pp. 39–52.

37. Much of the existing empirical literature consists of public opinion surveys, many of which were conducted a number of years ago and are growing dated in light of changes in information technology and marketing practice. For an overview of this literature, see:

J.E. Katz and A.R. Tassone, “Public Opinion Trends: Privacy and Information Technology,” Public Opinion Quarterly 54 (1990): 125–143.

Acknowledgments

The authors gratefully acknowledge Mary Culnan of Georgetown University, F. Warren McFarlan of the Harvard Business School, and three anonymous reviewers for their helpful comments on earlier drafts of this paper.