Consumers reach the boiling point over privacy issues

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Privacy concerns are nothing new. Consumers bristle when companies collect and use information about them in order to sell products.

Recently, however, privacy issues have been growing at warp speed.

Consider Intel Corp.'s new Pentium III chip, introduced in February, which contained an embedded serial number that allowed the company to trace equipment. Privacy advocates screamed; Intel heard them, and now the chip's ID number has been disabled.

Then the chip became child's play compared with Microsoft Corp.'s Windows 98 identification number, unique to individual computer users and embedded in both hardware and individual documents created by users--without their permission.

That gave Microsoft the ability to trace a user through software programs, such as Microsoft Word. Again, privacy activists screamed, and Microsoft has agreed to modify the ID feature.

Also, early this year, Hallmark Cards was embarrassed when it was discovered that an accessible online file created by the cardmaker contained not only the e-mail addresses but intimate messages of customers' electronic cards to loved ones.

It's no wonder that consumer concern is growing.

According to a Louis Harris & Associates poll conducted in December, 88% of consumers are worried about threats to their personal privacy. Seventy-eight percent said they feel businesses ask for too much information.

FUELED BY NEW TECHNOLOGY

The dual catalysts for the rising concern are database and Internet technologies. Also contributing is "customer relationship management," the hottest concept in marketing.

Every marketer is putting the squeeze on its agencies and consultants to find ways to get closer to the consumer. In the process, marketers come up against privacy issues again and again.

The marketing trend, of course, is bolstered by the increasingly refined technology that enables marketers to compile ever-richer databases of customers and potential customers.

"Consumers notice that marketers who target offers to them seem to be watching what they do," said Jason Catlett, president of consultancy Junkbusters Corp. "Some targeted offers are so accurate that they spook the consumer. Marketers talk about having a relationship with the customer; if that's not something the consumer wants, then it's a liability."

Of course, there are relationships that many consumers want, and there's a benefit to both consumers and marketers to target relevant messages to interested consumer segments.

FORD OFFERS PERKS

In January, Ford Motor Co. debuted a program called The Connection that, among other things, boasts a Ford-owner e-mail network to offer perks and privileges (such as rental car upgrades) on all its brands.

"We conduct permission marketing campaigns where a customer allows us to send the information to them," said Thor Ibsen, Ford's manager of Internet and new media. "And we don't share information about customers with anybody."

Some companies rely on collected data in aggregate form that tell a bigger-picture story about consumers and can be used to support mass-media advertising choices.

MasterCard International and Symmetrical Resources recently launched Media Advisor, which combines MasterCard aggregate transactional data with Simmons survey data. WPP Group's Kantar Media Research has a minority stake in Symmetrical, which owns Simmons Market Research Bureau.

"Simmons survey-response data and Media Advisor together provide the most comprehensive picture of how consumers are spending their money," said Steve Carnevale, senior VP-agency and advertiser sales at Symmetrical.

This, he said, is different from direct marketing companies that mine individual customer data to sell products.

"We wanted to take transactional data and use it to support mass-media advertising decisions," said Mr. Carnevale.

McCann-Erickson Worldwide became Symmetrical's first client.

"At no time do we ever want to know the individual," said Mr. Carnevale. "We're able to provide good marketing information without crossing over the line of consumer privacy."

SOME RED FLAGS

But even aggregated data collection can be intrusive to consumers, depending on how it's used.

"In general, aggregated data are fine and have no privacy implications per se," Mr. Catlett said. "However, there are a number of red flags to consider. It is possible to use a technology called triangulation, by which a series of data points from various sources about groups, when married together, can identify an individual."

Several marketers use permission-based marketing as a way to overcome some of the objections of privacy advocates. These opt-in programs are proliferating in both online and traditional marketing campaigns.

"Individual marketers should try and make their marketing fully consensual," said Mr. Catlett.

'PRIVACY PROMISE' URGED

The Direct Marketing Association has been urging its members since October 1997 to adopt its "privacy promise" to consumers, which allows them to opt out of marketing messages and promises compliance with basic tenets of fair infomation practices. By July 1999, the DMA will deny membership to any company that does not comply.

"The temperature is rising, and it's at boiling point," said Kate Delhagen, analyst and research director of online retail strategies at Forrest Research.

Last week, the signs that consumers are mad as hell and aren't gonna take it anymore became very visible--they spoke out loudly enough to sway governmental action.

Donna Tanoue, chairman of the Federal Deposit Insurance Corp. said the federal agency was scrapping its proposed "know your customer" rule.

The rule had been proposed so banks could conceivably collect information about customers' individual bank transactions to ensure financial institutions' adherence to anti-money laundering statutes.

But regular citizens weighed in with a vengeance. The decision, disclosed at FDIC's board meeting, was based on more than 250,000 comments, an unprecedented figure for FDIC and most in the form of e-mail.

According to Ms. Tanoue, the responses came from tens of thousands of citizens with no special affiliation, as well as consumer activists, bankers and libertarians.

Contributing: Bradley Johnson, Jean Halliday.

Copyright March 1999, Crain Communications Inc.

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