Partners In Privacy

Giving your customers "ownership" over personally identifying information may not only trump privacy concerns but strengthen your competitive position as well

Many companies are struggling to reconcile two important trends: the rising concern among consumers about the privacy of personal information, and the rise of CRM as a business tool. In fact, July 1, the concern over privacy of an individual's financial information crossed over from abstract discussion to federal law. The newly implemented Gramm-Leach-Bliley Act, which former President Clinton signed into law in 1999, requires financial service institutions to disclose their privacy policies regarding the sharing of an individual's information.

Permission-based marketing is only part of the answer to respecting an individual's privacy. This type of marketing helps you acquire new and service existing customers more cost-efficiently by allowing the consumer to give permission for a company to market its goods and services to that consumer. (Opt-in emails are an example of permission-based marketing.) This form of marketing works better than mass marketing because the consumer is theoretically receptive to information. But what happens when the consumer is overloaded with marketing information about goods and services they have to opt-in to? The product message then becomes lost in the clutter.

Adsertor marketing - in which a consumer owns their name as a transferable earning asset as well as the marketing, financial, and demographic information attached to it - is a more appropriate response to the problem of privacy and marketing overload. Consumers then have a vested, financial interest in the type of marketing that they are willing to receive.

In adsertor marketing, which reflects an amalgam of privacy, CRM, and permission-based marketing principles, the consumer decides what type of marketing materials to receive and from what source. Because you own the rights to your name, the issue of which information is available to marketers is up to the individual.

The adsertor marketing concept derives from various sources and models. One source of inspiration is Recreational Equipment Inc. (REI), a Seattle-based consumer cooperative that pays a dividend to members at the end of the year based on dollar amount of purchases; this dividend can be used to purchase items either online or in-store or after a period of time turned into cash. By being a member of REI, a consumer has chosen to be part of the organization and has a vested interest in the outcome of REI's decisions. Because consumers have a vested interest in buying and selling their name due to the returns that are earned from this process, they will be inclined to join adsertor programs.

In essence, adsertor marketing is a marketing approach that is "pushed" from the consumer rather than the marketer. Information included in customer databases is up to the individual, not the database owner. Whereas the current CRM approach is a top-down one - with the manufacturer or retailer at the top of the pyramid, and the customer at the bottom - in adsertor marketing, the model is reversed. (See Figure 1.)

Pride of Ownership

At birth, all of us are given a name that we "own" from that point on, which should give us the right to approve how our name is used. This name that we own is ours, and if anyone were to try and use our name fraudulently the law could and would intervene. The selling of the right to one's name and the information associated with it is based upon the principle of ownership of mineral rights on a tract of land. Mineral rights are bought and sold based upon an assumed value of the minerals under the ground and the associated future stream of associated income. The information associated with your name includes, but is not limited to, your age, income, education, martial status, and so on. Both acts involve selling rights to an asset with an unknown value of a future stream of income. This income stream is unknown when it comes to CRM applications, but you can roughly estimate that stream with statistical modeling.

One method of measuring the income stream of an individual is the approach known as lifetime value. The lifetime value of an individual is not directly calculated; it is calculated for a group of consumers with similar purchasing behavior, demographic, and start dates. It is the net present value of the average group of customers' purchase total over this given group of consumers' lifetime. After a firm knows the value of a name, that name can be put on a list and sold on the list market.

It is likely that numerous owners of different databases - federal, state, and local governments, as well as private enterprises such as yours - hold the rights to that individual's name and guard the use of that name. Our names are bought and sold every business day, yet the actual individual owners of these names are reduced to nonentities.

Large amounts of money are traded for these names, yet the response to marketing promotions is light. When the owner of a name is involved in this process, much like a partner, and thus receives a percentage every time the name is traded, response rates would increase. That's because instead of selling names only to the highest bidder, customer-driven companies would trade them only to other firms that deliver information that is useful to the owner.

For example, if I have a pet, I would be more inclined to receive information about pet food, vet information, and other pet items, if I am a partner in the firm. If I were not a partner in the firm that is sending me pet information, I could end up hating companies that send me information about pets, especially if the information overloads me. Similarly, if I will be shopping for a car in the next three to six months, I could alert car manufactures of my future needs and elect to receive information. Finally, if I hated a certain company, becoming upset every time I receive promotional material from it, I could remove its name from those firms that I would want to receive information from.

What's in a Name?

The amount that a name is worth depends on the quality of the information associated with it. For example, if a name is on a list with other names that have household incomes of more than $75,000 per year, and these households have purchased goods from the same catalog worth more than $100 in the past year, then the value of this list has a purchase price of about $0.17 in the list market. If this name is sold 100 times in a year, the gross amount of $17.00 is retained by the enterprise that purchased it. But if the individual owned (or co-owned) that name with a company and agreed to receive 15 percent of that amount, he or she would receive a dividend for $2.55 at year's end. That amount would be the value of the name.

However, the major benefit to owning a name is not its monetary value, but the fact that the consumer knows who or what is purchasing it. For example, a company that owns (or co-owns) a name could produce a list of partners for the individual's approval. Only those partners the person in question has approved could be involved in their marketing programs, and consequently, the response rate would improve dramatically - reducing the marketer's cost of acquiring customers and keeping them.

This business model has another twist: an increase in the value and quality of personal information that would be collected in a database. Consumers have a vested interest in providing quality data about themselves. This data could include all the information a person could possibly offer, very little information, or something in between. The more self-reported information that an individual allows, the greater the value of a given name or household. Thus, the degree of detail that is present in this database would be up to the individual - not up to an analyst who pastes together different databases. (Databases that are put together in this fashion reflect an incomplete "picture" of an individual. The responses associated with such patchwork, or aggregate, databases are much lower than any self-reported information.)

Thus, individuals could decide how valuable their name is in this personal information database. If John Smith decides to include his household's spending habits, demographics, and past big purchasing decisions, then his name would be quite valuable in today's list market. Items such as household spending habits, self-reported demographics, and dates of purchases of big-ticket items are a marketing director's dream. The type of marketing that a marketing director, brand manager, or analyst would develop with these self-reported variables would again be better targeted and result in greater sales. (Currently, getting this type of demographics and purchasing history from an aggregate database is very expensive.)

An individual could self-report purchases ranging from large items such as a car or significant home improvements, to small items on a grocery list; furthermore, they could be reported as frequently as every month, or even instantly. For example, one way to gather instant purchase history would be to offer an affinity credit card for the household. You could capture these transactions automatically and download them directly into a personal information database.

Whether capturing a household's expenditures through an affinity credit card or letting an individual self-report purchasing decisions, this approach would greatly enhance your CRM activities. Everybody wins: The owner benefits from an increased potential dividend and better control of private information, and your company benefits from better, more complete information with which to design new offers for goods and services.