Privacy Issues

At its surface, data mining seems to provide the customer with an endless barrage of positive rewards. The ability to have customized and relevant, coupons, rewards, and specials directed towards a customer, seem to heighten the overall shopping experience. What price does a customer have to pay to obtain this highly targeted marketing material? When it comes to data mining and customer loyalty programs, it is their privacy that will ultimately be sacrificed.

Consumer Desire for Incentives:

Many consumers are oblivious to the sizeable amount of personal data that they have to sacrifice when they sign up for a loyalty or rewards program. When joining such a program, most customers do not even bat an eyelash at disclosing their full name, date of birth, and address, all in the hope of saving a few dollars on their next shopping trip. A recent report claims that nearly 80% of consumers are willing to sacrifice their personal information in return for the savings and rewards offered by loyalty programs [4]. Customers are clearly not afraid to disclose such personal information to retailers they deem to be trustworthy. One’s identity is essentially recreated for the retailer; couple this with a customer’s unique shopping and purchasing habits, and a very robust profile can be fashioned and potentially exploited.

An Invasion of Privacy:

A business cannot be truly successful unless it can accurately understands and effectively target its customers with relevant and appealing information. The advent of the digital age has made such targeting even more apparent, as physical brick and mortar stores must now compete for shoppers with online retailers [5]. This fierce competition has driven many companies to implement attractive customer loyalty programs, all in the hopes of covering every inch of the market. While a broad observation of consumers is indeed helpful to retailers, the development of such loyalty programs and technologies has transformed basic market research into a sort of highly refined consumer surveillance system. Any and every edge that a retail store can have over the competition is one-step closer to the achievement of financial success. Data mining has become a key player in this game, as it offers businesses direct insight into the mind of the customer. With all of this data currently being gathered, the question must be posed as to the potential risks being inadvertently placed upon the customer.

Obtaining Personal Information: Most customers do not fear disclosing their personal information to a retail store. In fact, only 25% of customers said they would forgo the savings and rewards gained from a loyalty program due to privacy concerns [4]. While this percentage of skeptical shoppers certainly does not represent the majority, there is still a reason for concern. Most shoppers are readily aware that their personal information can and will be used by businesses to generate mailing lists for telemarketers and solicitors. What most shoppers are not aware of is that their identities are often in the hands of foreign third-party businesses, which greatly increases the potential threat to their privacy.

Privacy Risks:

When a retail store or business decides to implement a customer loyalty or rewards program, they often do not have the capability to do so in-house. In most cases, a third-party vendor is consulted with to physically develop the loyalty card that a customer’s credentials are imprinted on, as well as assist in the design of the terminal station that will decipher and read this information [6]. This means that the potential for a customer’s personal information being leaked or stolen is greatly increased. The use of an additional party to handle such personal information increases the likelihood of fraud and privacy invasion: two offenses that consumers fear the most.

As mentioned earlier, most consumers are aware that their personal information can and will likely be shared with third-party partners. While fraud is not something most consumers wish to think about, it is something that they must keep in the back of their mind. A 2013 study showed that nearly 5.3% of all consumers had experienced some form of fraud, up from 4.9% the year prior; most of this fraud stemmed from consumers opening new accounts at retail stores or with credit cards [7]. In such instances, thieves were able to steal the names and address of the cardholder, which would then be used for nefarious purposes.

As a whole, the customer loyalty programs that retail stores utilize can be labeled as “safe.” “Safe” meaning that the information one provides to a business is known to be shared with other entities in exchange for the achievement of rewards and savings, all of which are assumed to be safeguarded. While the data handled by most large corporations is protected on numerous levels, the possibility for a data breach is always present. In order to prevent such an occurrence, companies will often take the proper precautions in an attempt to mitigate any privacy concerns that a customer may have.