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.
Right Stuff: America's Move to Mass Customization Annual Report, Federal
Reserve Bank of Dallas (1998).
List Chicken-Littles by Solveig Singleton, Cato Daily Commentary (November 4, 1997)