Market of One (The Hub Magazine)

Transparency and responsibility define the age of personalized marketing.

Last year marked a turning point in marketing: it was the moment when genuine, one-to-one marketing was finally realized. In their 1996 book, The One to One Future, Don Peppers and Martha Rogers envisioned personalized marketing on an individual level for millions of buyers. In 2012, advances in mobile communications and big-data algorithms reached a tipping point, enabling marketers to personalize pricing and the shopping experience on a mass scale. While these developments are still in their infancy, they have opened the door to unprecedented opportunities, watch-outs and responsibilities.

Personalized marketing — that is, marketing tailored to a single user — was making headlines last summer when it was discovered that Orbitz.com was showcasing higher-priced hotel deals to Macintosh versus PC users. Hotel rooms were merchandised depending on the kind of computer the shopper was using, as well as the browsing and buying histories of the shopper. According to The Wall Street Journal, “The sort of targeting undertaken by Orbitz is likely to become more commonplace as online retailers scramble to identify new ways in which people’s browsing data can be used to boost online sales.”

This might not have been terribly surprising, since Amazon and others have been using shoppers’ browsing and buying data to target ads, push coupons, and make suggestions (“you might also like... ”) for a few years now. What changed this past year was that such personalization found its way in-store.

In July 2012, Safeway introduced its Just for U loyalty-card program. Based on the shoppers’ buying history, this platform generates personalized coupons as well as individualized pricing. Shopper “A” gets a different price than Shopper “B,” on the same item. Promotional offers and pricing provide incentives to each shopper differently. The idea is that the offers are increasingly relevant and compelling to potential buyers.

The advantages of this approach are worthwhile for the marketer. Individualized — or dynamic — pricing presents an opportunity for marketers to increase their “share of shopper,” or as Peppers and Rogers would say, “share-of-customer.” While early mass-marketing focused on getting share-of-market, personalized marketing focuses on gaining share-of-customer. The One to One Future claimed: “The share-of-customer marketer will concentrate on one customer at a time, and try to sell that customer as many products as possible over the customer’s lifetime.”

In fact, personalized pricing plays out this vision perfectly. In an interview with Drug Store News, Steve Burd, CEO of Safeway, explained that the Just for U program increases share-of-customer: “We have countless examples of people who used to spend $50 with us now [spending] $150 with us. We want more of that.”

Different price tags for the same item may feel familiar to people who have booked travel online, where prices fluctuate widely and often. However, pricing models for travel are usually based on availability, timing and capacity. Those pricing schemes have been developed based on marketplace supply and demand. On the other hand, personalized pricing is based on the individual’s habits and proclivities. This is price elasticity for a market of one.

Is individual price elasticity fair? There are two sides to the issue. On the one hand, personalized marketing is fair insofar as the program is voluntary and ultimately benefits the shopper. On the other hand, which shopper gets the better deal, and how is that determined?

Many shoppers see the advantages of personalized pricing and promotions. The convenience and efficiency of tailored marketing is especially appealing. One shopper on consumerist.com remarked: “Kroger sends me coupon packs (two so far this month) tailored to my past purchases. I will use at least 80 percent of the coupons, compared to the near-zero percent from the random mailers that get put in my mailbox. I think it’s a great deal.”

In a similar vein, a shopper said: “I love the new Safeway thing. I hope it gets very accurate after some use. I couldn’t even come close to caring if a supermarket tracks what I buy. So, for me, this is perfect ...”

On the other hand, some shoppers are unsettled by individualized promotions. While most consumers are inured to the idea of giving up some privacy in return for discounts, the canny use of data mining still spooks a significant number. According to one consumer: “I find something inherently creepy and unfair about targeting these ‘secret’ deals. I’d rather they were open to everyone, even if they’re not advertised.” Another articulates her emotional reaction to customization as “strangely manipulative and controlling.”

Not all shoppers are spooked, however. Some see personalization as a phenomenon dating back to small, old-time stores. As one consumer posted on nytimes.com, the only difference today is that it’s “on a larger scale and has less of the personal touch.”

Beyond privacy concerns, the real crux of the individual pricing issue is fair commerce. Who is getting a good deal and why? “There is a sense of fairness that’s derailed here,” Professor Joseph Turow of the Annenberg School of Communications told The New York Times. On blogs and feedback forums, consumers have voiced concerns about racial and income discrimination in connection with personalized pricing.

The responsibility of owning consumer data, and customizing pricing, does provoke a certain demand for transparency. Recently, in the UK, personalized pricing has attracted the attention of the government. Today, British consumers can ask companies to release data about their energy consumption, and according to a BBC report, the government may eventually require supermarkets to release their data on shoppers.

Calls for increased transparency are coming from shoppers, as well. Stores that advertise prices on shelves (such as Trader Joe’s), have been held up as examples of fairness in blogs and public discussion forums. Likewise, in describing the difference between personalized pricing and movie-ticket pricing, one consumer wrote, “There is a crucial difference: the movie theater’s prices are posted. You might not get the student discount or the matinee price but you know it exists.” In the court of public opinion, transparency is a key to fairness.

As a practical matter, retailers may have an incentive to offer some public information, because pricing transparency may be discoverable as consumers can compare prices on social networks. It is not hard to imagine that this might breed resentment among those not singled out for certain discounts. Further, at least theoretically, a price differential opens the door to an arbitrage market and middlemen.

The middleman could be a “reverse” scalper. A traditional scalper sells at a price higher than a ticket’s face value. But reverse scalpers could advertise their ability to buy low. They could then sell to you at a price lower than you could buy on your own. This business model could be based on the margin differential, or on referral fees. While I had conceived of this phenomenon as only theoretically possible, The New York Times recently reported that a start-up named Hukkster.com had just launched such a business. Hukkster sends price alerts on specific items to subscribers, but is also considering working with retailers to offer shoppers personalized discounts.

In addition to transparency, shoppers may call for choice in their discounts. A blogger who was experimenting with the Just for U program discovered that bagged coffee was cheaper if she periodically switched brands. This information led her to “game the system.” Naturally, such behavior threatens to derail brand loyalty. Out-maneuvering the algorithm may become part of the shopping experience, unless marketers surrender some levers to the shopper.

Finally, consumers may demand some control over the use of their data. Facebook has learned this lesson the hard way, first with Beacon and more recently with Instagram. Beacon was the program that automatically made a shopper’s purchases public on Facebook. This was an opt-out program only, and opting out was confusing. The issue was the publication of consumers’ shopping activities without their consent. Ultimately, Facebook relented in the face of public pressure to dismantle the program. Similarly, Facebook used Instagram technology to post personal photographs in advertising contexts — again, without permission.

The opportunities for personalized marketing are enticing, but must be pursued responsibly. The lessons of the last few years have shown that shoppers are calling for increased transparency, choice and control. Access to the same information and purchasing opportunities levels the playing field, and restores a sense of fairness. Ultimately, earning the shopper’s trust is a fair price for winning in the market of one.

Read the full article at: http://hubmagazine.com/html/2013/hub_53/mar_apr/237230313/marketingdrive_accountability/index.html

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