Data-Hungry Retailers Snoop Like Spies

By Chris Cobbs

ORLANDO, Fla. – Using powerful search tools, computers can now sift through millions of electronic records to study patterns of behavior that could uncover terrorist plots – or boost sales at the supermarket or drugstore.

“Data mining,” as it’s called, may have been used by the National Security Agency on millions of Americans’ phone records in a quest to find planned acts of terrorism. Congress has expressed concern that such a secret data-gathering project, disclosed this month by USA Today, may violate citizens’ privacy rights and civil liberties.

But the same methods are also widely used by retailers, who assemble computerized collections of customers’ purchases along with their names, addresses, income levels and other tidbits, giving businesses clues to people’s buying habits on a giant scale.

Though some experts contend that such data mining may be an invasion of privacy, others say it’s actually more about spending than spying.

What companies are looking for is bigger profits, said Mark Johnston, a marketing professor at Rollins College in Winter Park, Fla.

“They have no interest in doing anything malicious with the data, because their interest is economic,” he said. “They don’t want to harm you – they want you to come back to them and shop.”

A common way to accumulate information is through discount or loyalty cards. When the card is used at the checkout register, details of what’s in the customer’s shopping cart are recorded and stored in a computer, giving the retailer a purchase profile of the customer as well as help with inventory control, product placement and other strategic decisions.

For example, CVS Corp.’s loyalty program, which has been in use for five years, is called the ExtraCare card. More than 50 million cards are in use, and two-thirds of the giant chain’s sales, excluding prescription drugs, are made with the cards, spokesman Mike DeAngelis said.

The benefits to shoppers include targeted coupons for favorite products and in-store credits based on a percentage of purchases made the previous quarter.

“It drives sales by helping us target offers to our best customers,” DeAngelis said. “They go back to the store more often and buy more.”

None of the information about customers is shared with other businesses, he said.

“Ordinarily, when you send out 100 coupons, only 2 percent are redeemed,” said Raj Echambadi, an associate professor in the marketing department at the University of Central Florida.

“But data mining can help improve the odds by predicting which shoppers may be receptive. So you might send out 20 coupons and get five hits, a more efficient way to reach customers.”

Data mining can also pinpoint patterns that human analysts would be unlikely to spot, Echambadi said.

“You’re trying to extract hidden information from large databases,” he said. “That’s very hard for humans to do. It takes a computer to go beyond human cognition to find previously unknown behaviors.”

For example, he said, data mining might uncover what brand of sports car married men with two children are most likely to buy.

Amazon.com, the world’s biggest online retailer, monitors its customers’ purchases and uses data mining to suggest additional purchases – based on the recorded preferences of other customers who bought the same things.

Consumer advocates and privacy-rights groups raise concerns about the security of such shopping data, noting that the average American appears in as many as 50 commercial databases.

“All this personal information is a hot commodity that businesses are collecting, using and sharing,” said Brad Ashwell, consumer and democracy advocate for Florida PIRG (Public Interest Research Group).

“The more information that’s compiled, the easier it is for others to find, which contributes to ID theft. We want to see regulations and hard consequences.”

And the amount of information that’s collected about individuals is enormous, said Lee Tien, senior staff attorney for the Electronic Frontier Foundation, a California privacy group.

There’s an entire industry of information brokers that aggregates data from public records, such as property ownership and motor- vehicle information, with data about consumers’ buying behavior and credit-card use, he said.

“In the private sector, it’s driven by marketing, while in national security, the search is for dangerous individuals,” he said. “But the larger issue is how much data is collected and how long it’s stored. Consider that Google stores every search query that’s ever been typed, and you get a feel for it.”

However, those fears are unfounded, said Britt Beemer, the Orlando-based chairman of America’s Research Group, a consumer- behavior research company.

“I work for some of the biggest Fortune 500 companies, and none of them rent or share information about customers,” he said. “All the people in the consumer-interest groups see a bogeyman behind every tree.”

(c) 2006 Sunday Gazette – Mail; Charleston, W.V.. Provided by ProQuest Information and Learning. All rights Reserved.