Beyond Consumer

Privacy to
Consumer Advocacy
May, 2000

Charles Morgan
Company Leader
Acxiom Corporation

Jennifer Barrett
Fair Information Practices Leader
Acxiom Corporation
 Beyond Consumer
Privacy to
Consumer Advocacy In the Information Economy, privacy is unquestionably one
of the most important business issues companies face.
How they choose to act on that single matter can have
repercussions affecting their entire business.

Given the continued growth of e-commerce, the

proliferation of marketing databases and a surge of largely
negative media attention, consumer privacy concerns are
likely to intensify. In light of this, businesses must address
privacy issues quickly and legitimately or face the very real
prospect of additional governmental regulation and rising
consumer distrust.

Forward-thinking companies are taking a hard look at their

consumer privacy policies and recognizing that newly
developed Customer Data Integration (CDI) technology can
help them honor individual privacy rights and address
consumers’ concerns. CDI technology links related customer
information so that it is quickly accessible enterprise-wide.
This enables businesses to move beyond mere privacy
protection and toward aggressive consumer advocacy.

True consumer advocacy actually represents a significant

opportunity for businesses to improve customer loyalty,
boost retention and increase market share.
Beyond Consumer Privacy
to Consumer Advocacy

The Privacy Paradox

As consumers rely more and more on computers and the World Wide Web for work,
entertainment and shopping, they are also becoming increasingly aware of the
maintenance and use of databases.

Most consumers correctly regard such databases as necessary, benign and impersonal.
But show them a database that contains personal information about themselves and
some of them become uncomfortable—unless they know precisely what is in those
files, how the data will be used and have some kind of choice about that use.

Obviously, businesses—particularly those involved in direct marketing, telemarketing,

e-commerce and mixed-channels (e.g., e-commerce and retail)—need to be sensitive
and responsive to such concerns. At the same time, no one wants e-commerce to be
shackled by regulations that impede growth and drive up costs for everyone. This is
particularly true considering the direct economic benefits that database information
generates for consumers.

For example, research has shown that the ready availability of real property data in the
United States has resulted in significant savings for American consumers. Specifically,
real property financing costs in the United States are roughly 2 percent less than in
countries with restrictive data policies. That’s roughly 25 percent of current rates, which
means thousands of dollars in savings for every homeowner. Why? Because access to
accurate information leads to accurate lending decisions.

Furthermore, a well-known American catalog clothing retailer recently completed a

study to assess the impact of consumer data on its operations. The magnitude of the
results was astonishing. The company determined that if consumer data had not been
readily available, the negative impact on sales would have severely stunted company
growth and limited the organization to only one-third of its present size. Moreover,
increased marketing costs would have forced the retailer to substantially raise the price
of its merchandise to maintain effective margins. The result would have been higher
prices, fewer customers and fewer jobs.

There’s no question that protecting consumer privacy is important and should be done.
At the same time, we cannot ignore the fact that the free flow of information has a
positive impact on consumers’ pocketbooks. So are privacy and responsible data usage
somehow mutually exclusive? Absolutely not.

In fact, thanks to a powerful new Customer Data Integration technology, the two can
comfortably coexist.

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“Full Access:” Not Just for Europe Anymore!

As Americans, we like to think of ourselves as world leaders. But in the consumer

privacy debate, the European Union (EU) has broken new ground. And what happens in
Europe will certainly influence future events in the United States.

Within the EU, consumer privacy is a hot topic. Laws are already in place that grant
consumers the right to full access of any and all data that companies maintain on them
and a choice about how it is used. Domestic privacy advocates are already arguing for
similar access privileges for American consumers.

Clearly, changes in American consumer privacy policies are on the horizon. And there is
mounting political pressure on domestic businesses to develop responsive and appropriate
privacy practices—including the possibility of creating some form of full access.

Existing Obstacles to Full Access

Full access may be a desirable goal, but it constitutes a major challenge. Until recently,
the basic ability to store and retrieve large quantities of data has greatly outpaced the
far more difficult challenge of linking and accessing that data across multiple
databases. As a result, most large companies have ended up with several distinct “silos”
of data within their organizations, and a lot of redundant data as well.

Frequently, each department or business unit has its own database—which is often
incompatible with the databases of other business units. The marketing division
maintains data files for its own purposes and has very little idea what data exists in the
accounting department or the e-commerce department or the retail sales department.

How do consumers—and businesses—suffer when customer information cannot be

retrieved quickly and completely? The experience of a colleague stranded by car
problems during a New England snowstorm illustrates the point:

My car insurance includes an additional monthly payment for roadside assistance.

I have had this package for five years, but had never used it. When I called for help,
the service rep put me on hold while he tried to “confirm” that I did indeed have
this option. I stood in 15-degree cold while his futile data search efforts continued
in vain, he had no way of knowing this information was locked in a regional
database serving an area I hadn’t lived in since 1998. Four hours and six inches of
snow later, I finally called a local towing company. The cost to me was $125. The
long-term cost to my insurance company was at least $18,000—because I am no
longer their customer.

The problems inherent in this situation are obvious. First and most importantly, there is
the question of accuracy—a prime consumer concern. Consider the fact that virtually
everyone, at one time or another, has received multiple pieces of direct mail from the
same company. If something as relatively simple as a name can be misconstrued, one
can legitimately ask what other information in that company’s files is similarly flawed
or just plain wrong? And furthermore, in how many different places is it located?

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Beyond Consumer Privacy
to Consumer Advocacy

This underscores the second major obstacle—effective application of choice and access
to consumer data. With data scattered among functional units—and little or no
integration between them—how can an enterprise possibly comply in a reasonable
amount of time with consumers’ legitimate requests to learn what information the
company has on them?

The fact is that most companies simply can’t. A consumer could correct faulty personal
data or opt-out from receiving telemarketing solicitations with one company division on
Thursday and receive a solicitation by phone containing the old, incorrect data from
another division on Friday. It happens all the time. And not surprisingly, it fosters
annoyance and distrust.

Until quite recently, technological limitations made company-wide data linkage very
difficult to achieve. However, a new Customer Data Integration technology, released
late last year, has been developed in recent months that puts this capability within the
reach of any organization—in real time.

The Key to Enterprise-Wide Data Integration

New solutions such as Acxiom Corporation’s AbiliTec technology helps solve the
problem of integrating customer data across the enterprise. This technology uses
enormous data resources (a “knowledge base”) as its foundation. The data in the
knowledge base is both current and historical and includes variations over time (for
example, if an individual’s name changes as a result of marriage, divorce, etc.). For
each person, company and address within the knowledge base, this CDI technology
creates a customer/address “link” to avoid duplication.

A company’s existing customer databases can be compared with the information in the
Acxiom knowledge base, and links are then assigned to the company’s records. Once
the links are assigned within each database, an individual customer’s data can be easily
accessed—and combined—across the enterprise.

What does this mean for the consumer and the business? For the business, it means
that data now held in the marketing database, the sales database and the accounting
database can be easily combined to eliminate redundancy and improve accuracy.

The Jane Doe listed in the marketing database is now recognized as the same J. S. Doe
listed in the accounting database. Her correct, current home address (found in the sales
database) now replaces the inaccurate, obsolete address contained in the marketing
database. And so on. This gives the company a single view of the customer—a full
portrait of customer preferences and purchasing history.

From the consumer’s perspective, this data integration capability means that when the
apparel catalog you have been shopping from for 10 years moves to the Web, you can
count on the same level of service and recognition you have come to expect as a long-
term, loyal customer—regardless of where your customer data is stored. And your
simple request to correct information based on a faulty mailing or e-mail solicitation
now gets corrected throughout the enterprise—regardless of which business unit is
contacted. Similarly, you are assured that a request to find out what data the company
has in its files can be answered completely.

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This extraordinary ability to link consumer data quickly and completely across the
enterprise creates the opportunity for a company to move from being merely concerned
about consumer privacy to becoming an aggressive consumer advocate—and to use
consumer advocacy to its competitive advantage.

How a Policy of Consumer Advocacy Benefits

the Enterprise

Clearly, some form of “open access” arrangement will be a necessary part of doing
business in the future. And companies that choose to be at the forefront of this
movement will benefit significantly in two important ways.

First, by showing consumers what information they have throughout the enterprise,
businesses demonstrate responsibility and integrity—and thereby improve customer
loyalty and retention.

Second, consumer input helps assure the accuracy and currency of the data a company
has on file. Once consumers are given access to the information stored in their data
files, their level of suspicion and distrust drops significantly—and they tend to focus on
correcting or supplementing the data, rather than asking that their files be eliminated
entirely. Naturally, this helps the company by improving effective contact—and
therefore, boosting overall sales.

How it Can Work

First, with the help of the new Customer Data Integration technology, businesses can
show consumers what information they have throughout the enterprise. By doing so,
they recognize and comply with consumers’ clear desire for greater access to personal
data files.

Consider the example of an individual who logs on to a company’s Web site and, while
viewing the offerings, receives a personalized promotion. Surprised by how accurately
the offer fits her personal tastes, the individual sends a message to the company’s
customer service department. In the note, she asks what information they have about
her that suggests she would like this particular product.

Because the individual’s focus has switched from shopping to the investigation of the
existence of her personal data file, the company recognizes that this is a decisive
moment in the customer relationship. The company first authenticates that the shopper
is who she claims to be by asking her to list some of her recent purchases. She does
this. The company then uses the new CDI technology to compile all of her data, in less
than one second, and immediately sends her a complete list of all the internal and
external information they have on file.

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Beyond Consumer Privacy
to Consumer Advocacy

In addition to providing customer data, the company also sends her a simple, clearly
written explanation of:

• how the company uses this information to serve her better (the personalized
promotion and products, plus lower prices);
• how the data is safeguarded;
• how the individual can correct or remove all or part of the information if she
chooses; and
• the company’s Fair Information Practices policy.

By addressing the shopper’s privacy concerns immediately and completely—and letting

her know that she has the right to correct or delete any erroneous data—the company
is able to convert a potentially negative situation into a positive one and solidify its
relationship with the consumer. The customer’s fears are allayed and her understanding
of the database marketing process is significantly enhanced. She feels empowered, not
threatened, by the legitimate use of information.

Consumer Advocacy: A Positive Solution

to the Privacy Paradox

The bottom line is that companies can and should become strong consumer advocates.
The benefits to consumers and businesses alike are simply too great to ignore.

Customer Data Integration technology makes it possible to quickly and accurately link
related customer data and show it to consumers for their review and appropriate
correction. When given access to their data files, consumers tend to focus on the
accuracy of the data (even to the point of volunteering information) rather than
choosing to “opt-out” of the company’s database altogether.

And when the substantial benefits of Customer Data Integration are clearly explained
and provided to consumers, most will see the value of the process. As they enjoy the
tangible results of the process—lower prices, more relevant offers, and improved
products and services—their loyalty to the company is strengthened.

Frankly, doing what’s right is good business. Customer Data Integration technology
generates accuracy, completeness, efficiency, openness and trust—the key ingredients
of stronger, deeper, more profitable customer relationships. That’s why true consumer
advocacy (not just defensive, reactive lip service to privacy) is the optimum strategy for
everyone.

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Appendix
Consumer Choice—Selective Opt-out or Opt-in?

Information is the most underrated driver of the U.S. economy. However, some
legislators and regulators, along with the privacy advocates, have been aggressively
promoting opt-in as the preferred form of consumer choice. Opt-in is portrayed as
giving the consumer greater protection than opt-out ... when, in fact, opt-in provides no
additional protection and actually reduces the positive effects that information offers
the economy and consumers. To briefly cover the issues surrounding this topic, we first
need to define our terms:

• Opt-in—requiring a consumer to give permission before use of their data

can occur.
• Opt-out—allowing use of consumer data unless the consumer withdraws
their permission.
• Selective Opt-out—allowing use of consumer data unless the consumer
withdraws their permission for certain selected purposes.

Opt-in vs. Opt-out

At first glance, the concept of opt-in seems appealing. After reviewing the facts,
however, any appeal quickly fades. Facts to consider include:

• Opt-in does not increase protection. Because opt-in and opt-out both give the
consumer the same amount of say in how information is used, neither one
offers a greater amount of protection over the other.
• Selective opt-out offers the greatest versatility and control to consumers.
By using a default-standard that allows the free flow of information, paired
with selective opt-out of certain categories of data and data use, consumers
enjoy greater access to products and services. Most consumers have bought or
subscribed to unsolicited offers they have received. If opt-in were the default,
they would have never received those offers. By giving the consumer even more
choice with selective opt-out, such as permitting the use for direct mail offers,
but prohibiting the use for telemarketing solicitations, the consumer gets all the
benefits with minimized irritations and unwanted intrusions. With selective opt-
out, companies manage to the consumer’s preference.
• Opt-in leads to increased costs. Opt-in systems set the default to no information
flow, therefore severely limiting the economy’s strongest driver—information.
Companies wanting to grow their markets, expand into new markets, target their
marketing efforts and develop strong relationships with their customers would
have to develop a prospect universe by contacting consumers, one-at-a-time, to
get their permission to offer them products and services. These costs will be
passed on to the consumer in the form of higher prices.
• Opt-in increases, not decreases, unwanted solicitations. Contrary to what privacy
advocates predict, opt-in will actually increase unwanted solicitations. Companies
will not have the information they need to effectively target offers. Companies
will have to rely on broad-based efforts to find new customers. They will have
to broadcast by mail, by phone and other forms of media to reach and acquire
new customers. Broadcast marketing is typically invasive and expensive ... and
the costs always get passed on to the consumer. Imagine if every company was
trying to contact you, regardless of your interest.

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Beyond Consumer Privacy
to Consumer Advocacy

The Free Flow of Information

The free flow of information is an essential driver in the U.S. economy. Just-in-time
products and services, e-commerce and fast, efficient delivery are common expectations
of consumers. Information serves a useful and critical market function that benefits
consumers and companies alike in facilitating accurate and speedy transactions.

The conclusion is obvious. Selective opt-out is the preferred method of choice that gives
the consumer full control over the use of personal information while it preserves the
economic benefits that consumers in the United States enjoy today.

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