Bargains at a Price: Shoppers' Privacy
Cards Let Supermarkets Collect Data
By Robert O'Harrow Jr.
Washington Post Staff Writer
This article is reprinted without permission from the Washington Post under the fair use doctrine. © Copyright 1998 The Washington Post CompanyThursday, December 31, 1998; Page A01
They pushed their carts down the same aisles at the Georgetown Safeway, shopping for milk, snacks and other groceries. But when Lynn Erskine and Alison Schafer considered prices one recent afternoon, they might as well have been in different stores.
A bag of bagels that cost Erskine $1.59 would have been 99 cents for Schafer. A frozen gourmet dinner that was $4.19 for Erskine would have been $2.99 for Schafer. Cans of peeled tomatoes cost Erskine more than twice as much as Schafer would have paid.
Erskine paid more because she refuses to join the Safeway Club and get a bright-red plastic identification card to present at the checkout stand for discounts. Safeway and other grocers use these cards to record precisely who buys every bag of peas, every pound of bacon, every six-pack of beer and every bottle of cold medicine. Company officials say such minutiae will help them offer more personalized service, a better selection of products and lower prices.
Merchants have always wanted to know their customers better, but today's vast, high-speed computers allow them to track consumer purchases with unprecedented precision and on a much larger scale than in the past. The plummeting price of computing power, coupled with popular theories about the benefits of marketing directly to individuals, has helped push sophisticated data collection far beyond the handful of giant airlines and credit card companies that used it a decade ago to thousands of local stores.
At the same time, huge data warehouses have sprung up around the country -- places where merchants and marketers can pay for additional information collected elsewhere about each of their customers -- such as their homes and cars -- and match that with their specific purchase data to create clear profiles of their customers' lives and preferences.
The result is a changing consumer universe in which customers increasingly are asked to make an Information Age trade-off: In exchange for discounts and other blandishments, they must share data with corporations about who they are and what they buy. This bargain can open individuals up to unprecedented scrutiny. Even purchases as apparently mundane as groceries can provide subtle clues about one's health, drinking habits, income and self-image.
Whether this corporate effort leads to a dangerous erosion of consumer privacy or something more benign is a question that divides some consumers -- if they're even aware of what's going on.
Schafer and many other shoppers use their club cards and eagerly accept this choice. "I'm just buying Tide and English muffins and dog food," said Schafer, 35, who added that she would feel foolish passing up savings that others around her get. That afternoon she saved $2.50 on her purchases and earned bonus points for more discounts later. "Why spend a lot more money for something as boring as food?" she asked.
Erskine, on the other hand, said she loathes the idea of a corporation sifting through the fine-grained details of something as personal as her food. As a result, on her receipt it was noted she paid an extra $10.47, or about 22 percent more for her groceries than she would have as a Safeway Club member. "I resent having to pay extra to protect my privacy," said Erskine, 30. "Why should I have to give up my information to be able to get a sale item?"
Grocers say they don't sell or share their files, but there are no laws preventing them from doing so. Indeed, law enforcement officials are already interested in the data collected at supermarkets. Safeway and at least two other major chains acknowledge that in response to subpoenas they have given individuals' data to law enforcement officials. Smith's Food and Drug Centers in Arizona said it released information to the Drug Enforcement Administration on several recent occasions, such as, for example, whether a suspected drug dealer bought huge supplies of plastic bags.
Officials declined to provide details about the cases in which Smith's handed over data to the DEA. But Special Agent James Molesa, spokesman for the DEA's Phoenix office, said investigators can use the files to establish the whereabouts of a suspect and find clues about his behavior. "Quite frankly, they're interested in what the guy was buying," Molesa said about one case. "This is a little piece of information that, when combined with other facts regarding a person's lifestyle, actually creates evidence."
For some consumers, that kind of exposure is unnerving. Assistant Secretary of Commerce Larry Irving used a made-up name when he got a Safeway card because he wants the savings but questions the longevity of the stores' privacy promises. Irving, who runs the National Telecommunications and Information Administration, said he fears he might buy something such as herbal medicine that someday could be used to make him seem flaky.
"Although I don't think I buy anything at Safeway that would cause me or my family embarrassment, I don't want to take the risk," he said. "I don't need somebody going back in 10 years and thinking I'm strange. Who knows what the hell anybody will use this for?"
Old Meets New
"Loyalty," or "relationship," marketing is the latest way merchants are attempting to re-create the feel of a country store, a place where the shopkeeper knows everyone's name, family members, address, and what kinds of meat or books the person tends to buy. Instead of relying on human relations, though, the stores use giant batches of computer records to customize their appeals to customers. Marketers say a key aim of loyalty programs is to identify the most profitable customers, reward them with special products or services and encourage them to spend more money.
The airline frequent-flier plan, an early example of this, has been around in electronic form for more than a decade. But data collection and matching are now done on a scale that lets companies -- from groceries to hotels to all manner of firms on the World Wide Web -- try to anticipate what some customers want before they ask for it.
"It is a marketing and information revolution," said John D.C. Little, a professor at the Massachusetts Institute of Technology and author of a book on the subject. "Everybody who has a name and address and who shops will be affected by it."
Companies also are using this new-found power to identify and better serve their best customers. But "if they [customers] are not valuable to a company, if they're not as valuable as their neighbors and friends, guess what? They're not going to get any of the breaks," said Martha Rogers, a marketing specialist and leading advocate of technology-driven relationship marketing. "What we care about are the 20 percent who give you 80 percent of the business."
Some aren't cheered by these trends. "We are creating all of these pools of data with no restrictions and no rules and no limits," said Robert Gellman, a lawyer and privacy consultant in the District.
At the Ritz-Carlton hotels, for example, information about the needs and wants of 500,000 customers is routinely fed into a new customized computer system called Customer Loyalty Anticipation Satisfaction System, or CLASS. The CLASS system tracks whether guests sleep in queen-size or king-size beds, use down pillows or foam ones, enjoy mints at night or chocolate -- in short, most anything a customer wants on a routine basis.
While the luxury chain has used such information since the early 1980s, spokeswoman Stephanie Platt said the company needs the new technology to keep up with customer expectations. "Our guests have basic needs," she said. "And people expect us to satisfy them now."
Hallmark keeps close watch on more than 15 million customers enrolled in its Gold Crown loyalty card program. In exchange for giving their names, addresses, birth dates and other information, these customers get discounts on cards and gift certificates usable at Hallmark Gold Crown stores. "They'll walk a mile to use their card," Hallmark spokesman John Armato said about the Gold Crown customers.
Some of the most aggressive data-collection efforts are on the World Wide Web. Online companies can track what participating customers look at, where they go and precisely how long they linger at a particular site. One of the leaders is Amazon.com, the online bookseller. It tracks what 4.5 million customers buy and then offers them suggestions about what they might enjoy, based on the personal reading patterns its computers discern.
But most information is still gathered by shops in the real world, and industry analysts say grocery stores are among the companies leading the way.
Six of 10 supermarket companies electronically collect customer data or plan to soon, about twice the proportion at the beginning of the decade, according to the Food Marketing Institute. Tracy Flynn, vice president of food industry marketing for NCR Corp., which manufactures computer systems that make such programs feasible, estimated more than 7,800 stores around the nation have such programs, with 2,000 more set to begin them in the next few years. "That is very, very powerful stuff," he said.
Safeway started a new loyalty program this spring at 124 stores across the Washington region, while Fresh Fields rolled out a program in 11 stores locally. A few dozen Food Lion stores across the region also have shopper cards. Officials at Giant Food Inc. said they are "reviewing loyalty programs in the industry" and left open the possibility of starting one. More than a dozen Super Fresh stores around the region also have shopper cards. The chain uses them to tabulate how much shoppers spend, not what they buy. Cardholders can automatically receive free or discounted items.
Officials at Safeway and Fresh Fields said customers have rushed to enroll in the programs, sharing their names, addresses, birth dates, telephone numbers and other data in exchange for discounts. "It has been overwhelmingly received in a positive way by our shoppers," said Safeway spokesman Greg TenEyck, adding that average sales have gone up since the program began in the spring. "They invariably say, 'I love it. I love the discounts.' "
The reality of loyalty programs is far more complex than simple trade-offs at cash registers. At grocery stores, which are just beginning to get a handle on the data they amass, information about individual customers is constantly analyzed in extremely sophisticated ways.
After the information is gathered at checkout counters, it typically is stored in swift computer systems known as data warehouses. Specialists then plumb the data to identify customers with certain buying habits. The digital records also allow grocers and others to mail out product pitches on behalf of manufacturers, targeted to people who are most likely to be interested in the product.
"We're keeping track on an up-to-the-moment basis [of] a shopper's purchases," said TenEyck, the Safeway spokesman, adding that the technology the company uses now is far more sophisticated than the kind used in a previous card program.
Marketing officials defend these practices and say companies worry about doing anything that might upset customers. Besides, "the consumer always has the last card. They have the choice to say no," said Tom Collinger, a professor of direct marketing at Northwestern University.
The Direct Marketing Association, which has 4,100 members in the United States, also will begin requiring members next year to tell customers how they share data with other marketers, give them a choice to opt out of such sharing and honor requests not to send them junk mail. Safeway already allows customers to opt out of mail pitches. "We are moving in the right direction," said Chet Dalzell, spokesman for the marketing association.
But critics say marketers rarely fully explain such matters, and they complain that even when companies offer consumers a chance to sidestep data collection, they do so in fine print. For example, Safeway offers a small box to check at the bottom of the sign-up form.
"All the marketers say, 'This benefits consumers.' And it does," said Gellman, the privacy specialist. "But what they won't do is be honest about it. They won't explain exactly what they're doing. They won't tell you they're creating profiles of people. They won't say they give it to cops if subpoenaed."
Susan Fournier, a marketing professor at Harvard University, said she worries about the influence and leverage corporations gain over consumers through the collection of personal information, often without an individual's permission. She said few people ever imagine that the information they share at one company -- or with government officials -- routinely makes its way to others.
"We can get information now about people's lifestyles, behavior and beliefs, and habits in more detail than we've ever been able to get before," Fournier said. "When people become aware of the magnitude of it, they say, 'Oh, my God.' "
Food can say a lot more about an individual or family than most people realize, especially when analyzed by a computer, according to Louis Grivetti, a nutrition professor at the University of California at Davis. Someone who buys a lot of rice or pasta sometimes will turn out to be less affluent, since pasta or rice is often used as nutritional filler, he said. Busy two-income families often buy prepackaged dinners. Teenage girls are among those who buy the most rice cakes.
All of this multiplied week after week provides clues about one's health and lifestyle. "What we buy and the combination that we buy reflects who we are. It's a reflection of the demands on our time, our economic status and our past life experiences," Grivetti said. "As the brilliant Frenchman said, 'You are what you eat.' "
Judith W. DeCew, a philosophy professor at Clark University and a privacy analyst, said the more information databases have about an individual's reading habits, hotel stays and groceries, the more law enforcement authorities want access to the files.
"Maybe most of us think, 'No one is out to get us. We're not famous,' " said DeCew, author of "In Pursuit of Privacy: Law, Ethics, & the Rise of Technology." "But you can't predict what will happen."
So even people like Arden Schell, who said she has thought long and hard about privacy, remain uncertain as more businesses ask her to trade her information for special deals.
She said giving up her Safeway card -- and the savings that come with it -- doesn't seem like a good option. So for now she has resigned herself to those moments of simmering anxiety she sometimes feels when she hands over her card at the grocery store. "It's like sitting in your beachfront property watching the storm warnings, hoping the hurricane doesn't hit you," said Schell, 58, of Arlington. "It's the kind of thing you worry about but you don't know how to put a stop to it."
Name, Address And Cereal Numbers
Applications for a club card from Safeway, Fresh Fields and Food Lion all asked for such standard information as name, address and home phone number. Here is what was requested beyond that:
* Number of people in household.
* Number of children and age of each child.
* Where else you shop most often.
* How much you usually spend each week on groceries. Food Lion
* Zip code where you work.
* Favorite department at Fresh Fields.
* Number and ages of those in household.
* Percentage of food shopping done at Fresh Fields.
* Other stores where you shop.
* Birth date