How Big Retail Can Use Big Data To Act Small

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justin-petty"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Justin Petty, vice president of global media and partnerships at dunnhumby.

If you frequent a small business, the owner may get to know you and ask you questions about your hobbies. She might know your kids’ names. She might make product recommendations based on what she knows about you. She may even give you a discount because you’re “friends.”

It doesn’t feel like an invasion of privacy when it’s done on a personal, one-to-one level. If you were concerned about your privacy, wouldn’t it be better if you went to the store and didn’t talk to anyone, and in return they did nothing to help you?

I suspect many of us prefer to shop at small stores, where we get to know the people there and feel valued. We dream of the “good ol' days,” when you went to the local butcher or baker and they knew exactly what you wanted and why. The rural general store was typically not just a store, but also the post office and the drug store. The owner there not only knew what you bought but who you communicated with and what ailed you. It seems like a serious breach of privacy viewed through a modern prism, but for some reason we don’t feel that way when it’s a small business owner.

That’s exactly what many big retailers try to do today. As retail moved from specialty stores to corner stores to supermarkets over the last 150 years, store owners lost the easy ability to know their customers. With that lack of understanding, they were less capable of making customercentric assortment changes, pricing and discount decisions, and the ever-important direct communication with their customers. The assortment became larger, the prices became competitive, and the communications became impersonal. Convenience won out over personalization.

Now we are in the age of big data and technology. Retailers can achieve that store owner personalization with their customers and make customercentric decisions because the data is available to lead them. That data has been building over the last 20 years, and some retailers have done a better job than others of capitalizing on the insights. Now technology is fueling even more data capture, sometimes in a way that is viewed as a privacy invasion. For example, when it was widely publicized that Nordstrom was tracking shoppers’ smartphones in their stores, they were forced to stop due to the backlash from customers.

When a small business owner observes where their customers enter their store, the path they take, what items are bought together and need to be located in the same area and so forth, it feels like they are being attentive and helpful. When a big-box retailer does it through technological means, it feels like an invasion of privacy. The intent is the same: to make a better shopping experience for the customer.

Technology is making it easier to capture useful, and often sensitive, data at a scale never seen before. In order for retailers to use this data to their advantage, they need to focus on how to capture the data in a way that customers will understand and agree to. Consumers believe any data generated by them, even if anonymous, belongs to them. The retailer’s right to use that data is a privilege only the consumer can grant. That is the mentality retailers must overcome in deciding how to capture and use consumer data.

Opt-In Or Opt-Out

The first step is to clearly communicate an opt-in or opt-out policy and process. The opt-in/-out options need to be simply stated for customers to read and accept or decline, explaining clearly which information will be captured, how it will be captured, what will be done with it and why. The retailer must outline explicitly any sensitive information that might be captured.

The average consumer doesn’t realize that most data is stored anonymously and is used at an aggregate level. They immediately assume any data you’ve captured about them will forever be linked to them at the individual level and you’ll know everything about them. Overcoming that worry will ease initial privacy concerns. It also helps if the customer trusts the retailer and believes their motives are pure.

Interestingly, consumers are willing to release their personal information when they get something in return, or when they inherently understand that it helps them. For example, online retailers have tracked customers since the first basket was abandoned at checkout. They use the information to better understand the digital path to purchase, how to make the experience better and recommend products that are relevant to consumers. Customers seem to accept that without much concern, and the onus is on bricks-and-mortar retailers to foster that same sense of benefit to their shoppers.

There are countless apps in existence today that track everything from GPS coordinates to media consumption. The privacy policy is always available in the user agreement that most of us agree to without reading. So we freely give permission for someone to track everywhere we go because we don’t take time to read the fine print, or maybe the app is so valuable to us that we don’t mind giving up some personal information. To avoid future backlash by consumers, retailers (and app developers) should consider a customer privacy policy that is separate from the 83-page user agreement - something that succinctly and in layman’s terms outlines the data capture policy and allows the consumer to opt in.

Most people recognize a product recommendation on a trusted ecommerce site and find it useful when the retailer gets it right. If the retailer delivers valuable coupons or special offers, customers recognize their data may have been used to drive that offer. But they prefer that to the barrage of unsolicited, nonrelevant offers they usually receive. As long as retailers are smart about how they use the data for customized, personalized messages and offers, both the shopper and the retailer win. But many retailers fail when they capture sensitive data and never deliver value that their customer can recognize.

It’s that give and take that should drive decisions about whether or not it’s permissible for a retailer to track shoppers’ movements in-store. If customers feel they are getting something valuable out of the deal, or there is a convenience associated with participating, they are usually willing to give their permission. There are many apps, like Placed and Foursquare, to which people willingly give their location data because they are rewarded with special discounts, helpful tips or the attention of their peers. Like many people, I recognize that these companies have a vast amount of data on the places I’ve been, but that’s fine with me because I trust they are using the data to make my experience better.

Ideally, stores should use my data to better understand me and create a shopping experience that reflects this depth of understanding. That’s when I stop perceiving them as “breaching my privacy” and start seeing them more like local small businesses that knows me so well.

When big data helps stores to behave “small,” customers should see all sorts of benefits. But making that clear to shoppers – by delivering, not just talking – is up to retailers.

Follow Justin Petty (@just_n_petty) and AdExchanger (@adexchanger) on Twitter.

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