Why do customers have privacy concerns about frequent shopper programs

Question:

Why do customers have privacy concerns about frequent shopper programs that supermarkets offer, and what can supermarkets do to minimize these concerns?

Answer:

Frequent shopper programs often collect a customer’s descriptive information when they sign up for a frequent shopper card.  When customers use the card at the supermarket, the firm can associate the transaction information with descriptive information to identify customers and develop various strategies, including promotions targeted specifically to those customers.  These data and analyses help retailers make a wide range of strategic decisions, including store location and merchandising.

Some customers may be particularly disconcerted by the fact that the retailer not only knows who they are but what they buy during each visit.  Specifically, their privacy concerns may come from the perception that they have little control over their personal information.  Besides, they may not know or be able to control how retailers use such information or whether the retailer would share this information with other parties. Moreover, customers may be wary about who would safeguard their interest if the information is used by parties that the customer does not even know or with whom the customer does not want to build a relationship.

In many cases, the most important benefit of the frequent shopper program for supermarkets is the information needed to make better decisions at the corporate and store levels, such as store location, assessing traffic in various departments, merchandising, and inventory management.  For all these decisions, specific descriptive customer information may not be needed.  As such, supermarkets could educate their customers about how their transaction data is being used for enhancing customer service and assure them that descriptive information will not be used without the customer’s prior consent. 

Moreover, the supermarket could develop privacy policies that limit sharing and use of data by third parties without the customer’s explicit consent.  In general, supermarkets can reduce the privacy concerns of their customers by (1) giving them more control over their personal data by offering choices to opt-out of various levels of participation in the program and in the use of information, (2) giving them more information about how their data is being used, and (3) limiting access to the information without the customer’s explicit consent.

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