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Home > Privacy and Business > How Businesses Use Information


How Businesses Use Information

Businesses want information about their customers, because that information has value. We should understand what this means.

There are two major uses of customer information that make information valuable. First, businesses use it to learn what customers want and need. Second, they use it to more efficiently offer their products to customers. Let us take each in turn.

Businesses expend a great deal of effort to learn the desires of consumers. Almost every business is in a constant competition to please and retain customers. Each vies not only with its direct competitors, but with the makers of substitute products.

One of the best indicators of what people will buy is what they have already bought. But it is not enough for a business to take the sale of a certain item as a hint that it should produce another of the same thing. Businesses use what purchasing information they can get to learn who is buying what products and why. They may learn that consumers buy certain things during certain times of year, or in certain parts of the country, or on certain days of the week. They may learn that a product is more appealing to a certain age group, or to a certain gender, or to people with a certain hair color, or even to an individual person. The list of what information might be useful can never be finalized because the tastes and characteristics of consumers never stop shifting.

Businesses use what information they can get to modify products, combine them with other products, and maximize their benefits and attractiveness to consumers. The more a business knows about its customers, the more able it is to satisfy them.

The next step in the process is to tell consumers about the availability of products that may interest them. Advertising, too, is improved by information. Businesses need to learn where, when, and how their potential customers are ready to hear about products available to them. Businesses today spend an extraordinary amount of money on magazine advertisements, radio, television, billboards, and direct marketing in the hope of informing consumers about products that may meet their needs. The price of all this advertising (many billions per year across the economy) is ultimately charged to consumers.

Knowing which consumers want which products allows businesses to find customers more cheaply and less obtrusively. The availability to businesses of accurate and specific information about consumers brings all of us better products at lower costs. Information sharing benefits both businesses and consumers.

The fact that information has this value leads us to important points about how businesses will generally treat personal information about consumers. Accurate consumer information gives a business an advantage over its competitors, allowing it to create better products and make them known to customers more efficiently. For this reason, businesses can be expected to safeguard consumer information that they hold. Certainly, they may sell information, and some businesses specialize in precisely that, but both the seller and buyer have strong economic incentives to protect this information from disclosure. This nests with consumers’ legal right under the law of torts to sue anyone who harms them by publicizing personal information about them.

The interests of consumers and businesses also nest in terms of what uses may be made of personal information. Businesses have a fundamental interest in protecting their reputations and relationships with customers. A business that offends consumers with its use of personal information spoils its relationship with its customer and wastes the value of the information. Consumers may be easily offended by open use of information about them, just like your neighbors and family members would be offended if you repeated back to them everything you knew about them.

Open use of personal information would destroy the trust that businesses are constantly trying to develop with customers. It can also bring adverse publicity, threatening the public image of the business, as well as lawsuits based on the common law privacy theory of intrusion. In essence, businesses must be tactful with customer information. Consumers will penalize them heavily, taking dollars out of their bottom lines, if they are not.


Links:

The Right Stuff: America's Move to Mass Customization Annual Report, Federal Reserve Bank of Dallas (1998).

Mailing List Chicken-Littles by Solveig Singleton, Cato Daily Commentary (November 4, 1997)

Comments? comments@privacilla.org (Subject: BusinessAndInfo)

[updated 8/29/00]



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