Knowing Data’s Value

Companies today try carefully to balance their desire for more customer information with the need to respect consumer privacy. To increase the capture of customer data at all points of contact and to establish a mutually beneficial relationship with your customer from the start, firms should consider adopting best practices before asking for an individual’s personal information.

Type of Data and Use

Before collecting information about your customers, document the type of data you need, how it will be used and who will use it. This will help you determine what you need to offer customers in exchange for any personal details they choose to reveal as well as how to design your privacy policy.

Will the information help you understand basic demographics and develop targeted marketing campaigns? Will it be used to build a model that predicts purchasing behavior? Will it help create more personalized sales and service messages on your Web site? Remember that the most effective information customers can provide is that which you can use within a few months, or even days, after it’s collected.

Value of Information

After deciding on the type of data you need and how it will be used, calculate the value of the information. This will give you a better idea of what you can offer customers in exchange for their information.

For example, suppose a consumer electronics manufacturer has research showing that most buyers of portable CD players are teenagers (ages 13 to 17) and that 22% will purchase an audio shelf system within two years.

The manufacturer estimates it sells 200,000 CD players to teenagers annually and that it could sell audio shelf systems to 20% of the 44,000 teenagers likely to buy within two years.

But since the manufacturer sells through distribution, it doesn’t know who its teenage customers are. Customer information from warranty cards is minimal compared with the total number of portable CD players sold. So what is it worth to a manufacturer to obtain customer information about its teenage buyers?

Audio shelf systems generate an average net profit per unit of $50. As long as the total cost of the manufacturer’s information collection and marketing efforts remain under the estimated net profit of $440,000 (the result of selling audio shelf systems to 20% of the 44,000 teenagers likely to buy within two years), the manufacturer will make money. Even if the manufacturer’s data collection and marketing efforts work out to break-even, it will have valuable customer insight available for other marketing campaigns.

Customer Rewards

Can firms be honest about how they’re using personal information and still expect to receive it? Or do they need to give the illusion that providing data is in the customer’s best interest?

Here is an actual example of how one Web-based company solicits customers’ personal data: