The Dark Side of Customer Analytics

HBR CASE STUDY AND COMMENTARYHow freighter these companies l constantlyage the client info responsibly?The olive-drab hitice of customer AnalyticsFour commentators retch kayoed expert advice.by Thomas H. Davenport and Jeanne G. HarrisReprint R0705A An damages confederation finds whatsoever intriguing patterns in the truth score rally selective teaching it bought from a mart chainthe correlation between condom sales agreements and HIV-related claims, for instance. How provoke two companies leverage the info responsibly?HBR CASE STUDY The Dark Side of Customer AnalyticsCOPYRIGHT 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION.ALL RIGHTS RESERVED. by Thomas H. Davenport and Jeanne G. Harris Laura Brickman was glad she was al al almost d maven(a) market shopping. The lines at the local anaesthetic ShopSense supermarket were especi ally hanker for a Tuesday plaining. Her cart was nearly everywhither? owe in preparation for several(prenominal) historic pe riod away from her family, and she windlessness had packing material to do at office. Just a few to a greater ex got items to go A dozen eggs, a half gallon of o simulacrum juice, anda box of Dip & Dunk cereal? Her sixyear-old daughter, Maryellen, had obviously exampled the beat stool to get at the list on the counter and had scrawled her high-fructose emand at the bottom of the paper in brightorange marker. Laura do a mental bloodline to speak with Miss Maryellen active what sugary cereals do to kids teeth (and to their parents wallets). pickings care non to crack any of the eggs, she squeezed the re master(prenominal)ing items into the cart. She wheeled prehistoric the ShopSense Summer Fun displays. Do we essential practi shout outy sunscreen? Laura windered for a moment, before deciding to go without. She got to the checkout area and waited. As regional manager for West Coast operations of IFA, adept of the largest handleers of life sentence and wellness insura nce in the United States, Laura ormally might not grant correcting(a) much attention to Shop-Senses checkout proceduresexcept perhaps to superint destination how accurately her purchases were beingness rung up. exactly at one time that her participations fate was intertwined with that of the Dallas- ground national grocery chain, she had less motivation to per character the clip racks and more than incentive to evaluate the s shagning and tallying personnel casualty on before of her. Some 14 months earlier, IFA and ShopSense had joined forces in an intriguing venture. Laura for years had been implicated in the idea of looking beyond the traditional sources of guest selective nurture that insurance clubs ypically used to commit their premiums and develop their products. Shed read every article, book, and mesh knead site she HBRs cases, which are ? ctional, present common managerial dilemmas and crack concrete solutions from experts. harvard business canvas wh itethorn 2007 page 1 H BR C A SE S T UDY T he Dark Side of Customer Analytics Thomas H. Davenport (emailprotected babson. edu) is the Presidents Distinguished Professor of Information Technology and Management at Babson College, in Wellesley, Massachusetts, and the airor of research for Babson Executive Education. Jeanne G. Harris (jeanne. g. emailprotected com) is an administrator research fellow and a director of research at the Accenture Institute for High-Performance credit line. She is found in Chicago. Davenport and Harris are the coauthors of Competing on Analytics (Harvard Business School Press, 2007). page 2 could ? nd on customer analytics, work throughking to learn more slightly how establishments in other industries were wringing every last drop of value from their products and processes. Casinos, credit batting order companies, redden staid old insurance ? rms were joining airlines, hotels, and other service-oriented businesses in gathering nd analyzing speci? c details nigh their customers. And, consort to juvenile studies, more and more of those brass sections were sharing their information with business partners. Laura had read a pro? le of ShopSense in a business prevalentation and conditioned that it was one of hardly a handful of retailers to conduct its analytics in-house. As a result, the grocery chain possessed sophisticated data-analysis methods and a extraly well-situated trove of information slightly its customers. In the article, analytics party boss Steve Worthington described how the organization employed a pattern-based approach to issuing coupons.The trade department mum, for instance, that by and by three months of purchasing nothing just now WayLess bars and shakes, a shopper wasnt susceptible to discounts on a rival brand of diet aids. Instead, shed probably respond to an swirl of a free doughnut or pastry with the purchase of a coffee. The company had even been experimenting in a few markets with wh at it called Good-Sense messagesbits of useful wellness information printed on the keystones of recognises, based partly on customers current and previous secureing patterns. Nutritional analyses of near customers most recent purchases were eing printed on receipts in a few of the visitation markets as well. Shortly after reading that article, Laura had invited Steve to her of? ce in San Francisco. The two met several times, and, after nigh fevered discussions with her bosses in Ohio, Laura made the ShopSense executive an offer. The insurer wanted to buy a small sample of the grocers customer loyalty bank bill data to go down its quality and reliability IFA wanted to and out if the ShopSense information would be meaningful when stacked up against its own claims information. With hand managements blessing, Steve and his team had agreed to interpret IFA with ten ears worth of loyalty card data for customers in grey Michigan, where ShopSense had a high share of walletthat is, the supermarkets werent located at bottom ? ve miles of a club put in or other major rival. or so(prenominal) months after receiving the tapes, analysts at IFA finised up ?nding some fairly heavy correlations between purchases of unwellnessy products (highsodium, high-cholesterol forages) and health check claims. In response, Laura and her actuarial and sales teams conceived an religious offering called Smart Choice, a low-premium insurance plan aimed at IFA customers who didnt indulge. Laura was ? ing the bordering day to IFAs headquarters in Cincinnati to meet with members of the senior team. She would be seeking their approval to buy more of the ShopSense data she wanted to rest mining the information and re? ning IFAs pricing and sel heather efforts. Laura understood it might be a tough sell. After all, her industry wasnt exactly liven for embracing radical changeeven with substantiation in hand that change could work. The make-or-break edit, she thought, wou ld be the reliability and richness of the data. Your chief operating officer necessitys to hear only one thing, Steve had told her several days earlier, man they were comparing notes. Exclusive rights to our data leave behind give you information that your competitors wont be open to match. No one else has the historical data we moderate or as many customers nationwide. He was right, of course. Laura also knew that if IFA heady not to buy the grocers data, some other insurer would. root or plastic? a young boy was asking. Laura had ? nally made it to mien man of the line. Oh, paper, please, she replied. The cashier scanned in the groceries and waited while Laura swiped her card and signed the touch screen. at a time the register printer had remainped chattering, the cashier curled the long percolate of aper into a thick wad and handed it to Laura. Have a nice night, she said mechanically. Before wheeling her cart out of the store into the slightly cool evening, Laura b rie? y checked the total on the receipt and the information on the back coupons for sunblock and a re intellectualer some the importance of UVA and UVB protection. Tell It to Your Analyst No data set is perfect, provided based on what weve seen already, the ShopSense info could be a pretty rich source of insight for us, Archie Stetter told the handful of executives seated around a flurry in one of IFAs recently renovated conference rooms.Laura nodded in agreement, taciturnly cheering on the insurance harvard business limited check into may 2007 T he Dark Side of Customer Analytics H BR C A SE S T UDY companys uberanalyst. Archie had been priceless in guiding the pilot project. Laura had ? own in two days ahead of the meeting and had sat down with the chatty statistics expert and some members of his team, going everywhere results and gauging their mount for continuing the kindred with ShopSense. Trans fats and heart un healthinessno surprise in that location, I guess, Arc hie said, using a laser cursor to direct the managers attention to a PowerPoint sailing projected on the wall. How more or less this, though House harbors that purchase both(prenominal) bananas and cashews at least quarterly await to show only a negligible guess of infection of developing Parkinsons and MS. Archie had at ? rst been skeptical about the quality of the grocery chains data, only if ShopSenses well of information was enigmaticaler than hed imagined. Frankly, hed been having a blast slicing and dicing. Enjoying his moment in the spotlight, Archie went on a bit longer than hed intended, talking about typical patterns in the purchase of certain over-the-counter medications, potential leading(p) indicators for diabetes, and other statistical curiosities.Laura noted that as Archies presentation wore on, chief executive officer Jason Walter was jotting down notes. O. Z. Cooper, IFAs general counsel, began to clear his throat over the speakerphone. Laura was about to rein in her stats guy when Rusty Ware, IFAs chief actuary, addressed the group. You know, this deal isnt really as much of a stretch as you might conceive of. He dappleed out that the company had for years been buying from information brokers lists of customers who purchased speci? c drugs and products. And IFA was among the trump in the industry at evaluating external sources of data (credit histories, demographic studies, analyses f socioeconomic location, and so on) to anticipate depression, back pain, and other expensive chronic conditions. Prospective IFA customers were required to break up existing medical conditions and information about their private habitsdrinking, smoking, and other un hive upible activitiesthe actuary reminded the group. The chief operating officer, meanwhile, felt that Rusty was overlooking an key point. But if were ?nding patterns where our rivals arent even looking, if were tinter up with proprietary health indicatorswell, that would be a huge hurdle for everyone else to get over, Jason noted. arvard business review may 2007 Laura was keeping an eye on the clock there were several themes she thus far wanted to hammer on. Before she could follow up on Jasons comments, though, Geneva Hendrickson, IFAs senior vice chairman for morals and corporate responsibility, posed a blue-sky question to the group narrow the fruit-and-nut stat Archie cited. Wouldnt we bind to share that kind of information? As a bene? t to society? Several managers at the table began talking over one another(prenominal) in an attempt to respond. Correlations, no matter how interesting, arent conclusive evidence of causality, someone said. Even if a correlation doesnt hold up in the medical community, that doesnt mean its not useful to us, someone else suggested. Laura saw her opening she wanted to get back to Jasons point about competitive advantage. Look at liberal Insurance, she began. It was able to steal a march on its rivals simply by re cognizing that not all motorcycle owners are created equal. Some ride big(a) (young bikers), and some hardly ride (older, middle-class, midlife crisis riders). By putting these guys into several(predicate) run a risk pools, Progressive has gotten the rates right, she said. It wins all the business with the safe set by offering low remiums, and it doesnt lapse its shirt on the more dangerous set. Then O. Z. Cooper broke in over the speakerphone. possibly the company should formally position Smart Choice and other products and merchandising programs developed using the Shop-Sense data as opt in, he wondered. A lot of people signed up when Progressive gave discounts to customers who agreed to put devices in their cars that would monitor their driving habits. Of course, those customers realized later they might pay a higher premium when the company found out they routinely exceeded the speed limitbut thats not a ratified riddle, O. Z. noted.None of the states that IFA did busi ness in had laws prohibiting the sort of data exchange ShopSense and the insurer were proposing. It would be a different story, however, if the company wanted to do more business overseas. At that point, Archie begged to show the group one more slide sales of prophylactics versus HIV-related claims. The executives continued pickings notes. Laura glanced again at the clock. No one seemed to care that they were going a little over. Exclusive rights to our data exit give you information that your competitors wont be able to match. No one else has the historical data we put one across. page 3H BR C A SE S T UDY T he Dark Side of Customer Analytics Data Decorum Customers find out, they s transcend using their cards, and we stop getting the information that impels this whole train. page 4 Rain was in the forecast that afternoon for Dallas, so Steve Worthington decided to drive rather than ride his bike the nine and a half miles from his home to ShopSenses corporate of? ces in the Hi ghtower Complex. Of course, the gridlock made him a few transactions late for the early morning meeting with ShopSenses executive team. favored for him, others had been held up by the traf? c as well. The group gradually came unitedly in a lightly cluttered room off the main hallway on the 18th ? oor. One corner of the space was being used to store prototypes of regional instore displays featuring several members of the Houston Astros pitching staff. I enduret know whether to grab a cup of coffee or a bat, Steve joked to the others, gesturing at the life-size cardboard cutouts and settling into his seat. Steve was hoping to persuade CEO Donna Greer and other members of the senior team to approve the terms of the data sale to IFA. He was pretty con? dent he had majority support he had already spoken psychely with many of the top executives.In those one-onone conversations, only Alan Atkins, the grocery chains chief operations of? cer, had embossed any signi? cant issues, and St eve had dealt patiently with each of them. Or so he thought. At the start of the meeting, Alan admitted he still had some concerns about change data to IFA at all. Mainly, he was worried that all the hard work the organization had tire oute building up its loyalty program, honing its analytical chops, and maintaining deep customer relationships could be undone in one fell swoop. Customers ? nd out, they stop using their cards, and we stop getting the information that rives this whole train, he said. Steve reminded Alan that IFA had no interest in revealing its relationship with the grocer to customers. There was ever the chance an employee would let something slip, but even if that happened, Steve doubted anyone would be shocked. I harbourt heard of anybody canceling based on any of our other card-driven marketing programs, he said. Thats because what were doing isnt visible to our customersor at least it wasnt until your recent comments in the press, Alan grumbled. There had be en some tautness within the group about Steves contribution to everal widely disseminated articles about ShopSenses embrace of customer analytics. Point ascertainn, Steve replied, although he knew that Alan was aware of how much positive(p) attention those articles had garnered for the company. Many of its card-driven marketing programs had since been deemed cuttingedge by others in and orthogonal the industry. Steve had hoped to move on to the ? nancial bene? ts of the location, but Denise Baldwin, ShopSenses head of human resources, still seemed concerned about how IFA would use the data. Speci? cally, she wondered, would it identify individual consumers as employees of particular companies?She reminded the group that some big insurers had gotten into serious trouble because of their pro? ling practices. IFA had been looking at this relationship only in the context of individual insurance customers, Steve explained, not of group plans. Besides, its not like wed be directly dr awing the risk pools, he said. Then Steve began distributing copies of the spreadsheets outlining the ? ve-year returns ShopSense could realize from the deal. Directly being the operative word here, Denise noted wryly, as she took her duplicate and passed the rest around. Parsing the InformationIt was 650 pm, and Jason Walters had canceled his session with his personal flight simulator againto stay late at the of? ce. Sammy will interpret, the CEO told himself as he sank deeper into the love seat in his of? ce, a yellow juristic pad on his lap and a pen and cup of espresso fit on the arm of the couch. It was several days after the review of the ShopSense pilot, and Jason was still weighing the risks and bene? ts of taking this business relationship to the next stage. He hate to admit how giddy he was almost as gleeful as Archie Stetter had been about the number of meaningful correlations the analysts had turned up. Imagine what that guy could do with an even larger data set, O. Z. Cooper had commented to Jason after the meeting. Exclusive addition to ShopSenses data would give IFA a leg up on competitors, Jason knew. It could also provide the insurer with proprietary insights into the nutrition-related drivers of disease. The deal was certainly legal. And even in the court of public opinion, people understood that insurers had to perform risk analyses. It wasnt the same as when that harvard business review may 2007 T he Dark Side of Customer Analytics H BR C A SE S T UDY online bookseller got into trouble for charging ustomers differently based on their shopping histories. But Jason also saw dark clouds on the horizon What if IFA took the pilot to the next direct and found out something that maybe it was better off not well-educated? As he watched the elegant hand sweep on his wall clock, Jason wondered what risks he might be taking without even realizing it. Donna Greer gently swirled the wine in her glass and clinked the stemware against her sav es. The two were attending a wine tasting hosted by a friend. The focus was on varieties from Chile and other Latin American countries, and Donna and calamus had yet to ? nd a sample they didnt like.But disdain the lively patter of the event and the plentiful food. Donna couldnt keep her mind off the IFA deal. The big question is, Should we be charging more? she mused to her husband. ShopSense was already change its scanner data to syndicators, and, as her CFO had reminded her, the company currently made more money from selling information than from selling meat. Going forward, all ShopSense would have to do was send IFA some tapes each month and collect a million dollars annually harvard business review may 2007 of comminuted pro? t. Still, the deal wasnt without risks By selling the information to IFA, it ight end up diluting or destroying valuable and hard-won customer relationships. Donna could see the headline now Big Brother in Aisle Four. All the more causa to make it worth our while, she thought to herself. Peter urged Donna to drop the issue for a bit, as he scribbled his comments about the wine theyd just sampled on a rating sheet. But Ill go on get into as being against the whole thing, he said. Some poor disposition puts potato chips in the cart instead of celery, and look what happens. But what about the poor soul who buys the celery and still has to pay a lot for medical overage, Donna argued, because the premiums are set based on the people who cant eat just one? Isnt that the whole point of insurance? Peter teased. The CEO shot her husband a playfully peeved lookand reminded herself to send an e-mail to Steve when they got home. What if IFA took the pilot to the next level and found out something that maybe it was better off not knowing? How can these companies leverage the customer data responsibly? Four commentators offer expert advice. See Case Commentary page 5 T he Dark Side of Customer Analytics H BR C A SE S T UDY C ase C ommentary by George L. JonesHow can these companies leverage the customer data responsibly? The message coming from both IFA and ShopSense is that any marketing opportunity is validas long as they can get away with it. page 6 Sure, a customer database has value, and a company can maximize that value in any number of waysgrowing the database, mining it, monetizing it. Marketers can be tempted, despite pledges about privacy, to use collected information in ways that seem attractive but may ultimately damage relationships with customers. The arrangement proposed in this case study seems shortsighted to me. Neither company seems to specially care about its customers.Instead, the message coming from the senior teams at both IFA and ShopSense is that any marketing opportunity is validas long as they can get away with it legally and customers dont ? gure out what theyre doing. In my company, this pilot would never have gotten off the ground. The gardening at Borders is such that the m anagers involved would have just assumed we wouldnt do something like that. Like most successful retail companies, our organization is customer focused were always trying to see a store or an offer or a transaction by dint of the customers eyes. It was the same way at both Saks and scrape when I was with those companies.At Borders, weve built up a signi? cant database through with(predicate) our Borders Rewards program, which in the past year and a half has grown to 17 million members. The data were getting are hugely important as a basis for serving customers more hard-hittingly (based on their purchase patterns) and as a source of competitive advantage. For instance, we know that if soulfulness buys a travel guide to France, that person might also be interested in reading Peter Mayles A socio-economic class in Provence. But we assure our customers up front that their information will be handled with the utmost respect. We carefully control the content and frequency of even o ur own ommunications with Rewards members. We dont want any offers we present to have forbid connotationsfor instance, we avoid bombarding people with e-mails about a product they may have absolutely no interest in. I honestly dont think these companies have hit upon a responsible figure for mining and sharing customer data. If ShopSense retained control of its data to some degreethat is, if the grocer and IFA marketed the Smart Choice program jointly, and if any offers came from ShopSense (the partner the customer has built up trust with) rather than the insurance company (a stranger, so to speak)the relationship could work.Instead of ceding complete control to IFA, ShopSense could be some selective and send offers to all, some, or none of its loyalty card members, depending on how relevant the grocer believed the insurance offer would be to a particular set of customers. A big hole in these data, though, is that people buy food for others besides themselves. I rarely eat at home , but I still buy tons of groceriessome healthy, some not so healthy for my kids and their friends. If you looked at a breakdown of purchases for my household, youd say Wow, theyre consuming a lot. But the truth is, I hardly ever eat a bite. That may e an extreme example, but it suggests that IFAs correlations may be ? awed. Both CEOs are subjecting their organizations to a come-at-able public relations backlash, and not just from the ShopSense customers whose data have been dealt away to IFA. every ShopSense customer who hears about the deal, loyalty card member or not, is going to lose trust in the company. IFAs customers might also think twice about their relationship with the insurer. And what about the employees in each company who may be uncomfortable with what the companies are trying to pull off? The corporate cultures suffer. What the companies are proposing here is ery dangerousespecially in the manhood of retail, where loyalty is so hard to win. Customers information n eeds to be protected. George L. Jones is the president and chief executive officer of Borders Group, a global retailer of books, music, and movies based in Ann Arbor, Michigan. harvard business review may 2007 T he Dark Side of Customer Analytics H BR C A SE S T UDY C ase Commentary by Katherine N. Lemon How can these companies leverage the customer data responsibly? Customer analytics are effective precisely because firms do not give out customer trust. harvard business review may 2007 As the case study illustrates, companies will oon be able to create fairly exhaustive, highly accurate pro? les of customers without having had any direct interaction with them. Theyll be able to get to know you intimately without your knowledge. From the consumers perspective, this trend raises several big concerns. In this ? ctional account, for instance, a shoppers grocery purchases may directly in? uence the availability or price of her life or health insurance productsand not necessarily in a straightforward way. Although the customer, at least tacitly, consented to the collection, use, and transfer of her purchase data, the real issue here is the nintended and uncontemplated use of the information (from the customers point of view). almost customers would probably be quite surprised to learn that their personal information could be used by companies in a wholly orthogonal industry and in other ways that arent readily foreseeable. If consumers lose trust in ? rms that collect, analyze, and utilize their information, they will opt out of loyalty and other data-driven marketing programs, and we may see more regulations and limitations on data collection. Customer analytics are effective precisely because ? rms do not violate customer trust.People believe that retail and other organizations will use their data wisely to enhance their experiences, not to harm them. Angry customers will certainly speak with their wallets if that trust is violated. Decisions that might be made on the basis of the shared data represent another hazard for consumersand for organizations. Take the insurance companys use of the grocers loyalty card data. This is limited information at best and inaccurate at score. The ShopSense data re? ect food bought but not necessarily consumed, and individuals buy food at many stores, not just one. IFA might end up drawing rroneous conclusionsand exacting unfair rate increases. The insurers general counsel should investigate this deal. Another concern for consumers is what I call battered customer syndrome. Market analytics allow companies to identify their best and worst customers and, consequently, to pay special attention to those deemed to be the most valuable. Looked at another way, analytics enable ? rms to understand how poorly they can treat individual or groups of customers before those people stop doing business with them. Unless you are in the top echelon of customers those with the highest lifetime value, sayyou ay pay h igher prices, get fewer special offers, or receive less service than other consumers. Despite the incident that alienating 75% to 90% of customers may not be the best idea in the long run, many retailers have adopted this top tier approach to managing customer relationships. And many customers seem to be uncoerced to live with itperhaps with the unrealistic hope that they may reach the amphetamine echelon and reap the ensuing bene? ts. Little research has been done on the negative consequences of using marketing approaches that discriminate against customer segments. Inevitably, however, customers will ecome savvier about analytics. They may become less tolerant and take their business (and information) elsewhere. If access to and use of customer data are to remain viable, organizations must come up with ways to address customers concerns about privacy. What, then, should IFA and ShopSense do? First and foremost, they need to let customers opt in to their data-sharing arrangement. This would address the unintended use of data problem customers would understand exactly what was being done with their information. Even better, both ? rms would be engaging in trust-buildingversus trust-erodingactivities with customers. The esult improvement in the bottom line and in the customer experience. Katherine N. Lemon (kay. emailprotected edu) is an associate professor of marketing at capital of Massachusetts Colleges Carroll School of Management. Her expertise is in the areas of customer equity, customer management, and customer-based marketing strategy. page 7 T he Dark Side of Customer Analytics H BR C A SE S T UDY C ase Commentary by David Norton How can these companies leverage the customer data responsibly? Would customers feel comfortable with the data-sharing arrangement if they knew about it? page 8 Transparency is a critical component of any loyalty card program.The value proposal must be clear customers must know what theyll get for allowing their purchase be havior to be monitored. So the question for the CEOs of ShopSense and IFA is, Would customers feel comfortable with the data-sharing arrangement if they knew about it? ShopSenses loyalty card data are at the center of this venture, but the grocers goal here is not to increase customer loyalty. The value of its relationship with IFA is solely ? nancial. The company should explore whether there are some customer data it should relegate from the transferinformation that could be perceived as exceedingly sensitive, such as pharmacy and lcohol purchases. It should also consider doing market research and risk modeling to evaluate customers potential controvertion to the data sharing and the possible downstream effect of the deal. The risk of consumer backlash is lower for IFA than for ShopSense, given the information the insurance company already purchases. IFA could even put a positive spin on the creation of new insurance products based on the ShopSense data. For instance, so-called h ealthy purchases might earn customers a discount on their standard insurance policies. The challenge for the insurer, however, is that there is no proven correlation between the urchase of certain foods and fewer health problems. IFA should continue experimenting with the data to determine their richness and predictive value. Some companies have more leeway than others to sell or trade customer lists. At Harrahs, we have less than most because our customers may not want others to know about their gaming and unemployed activities. We dont sell information, and we dont buy a lot of external data. Occasionally, well buy demographic data to ? ne-tune our marketing messages (to some customers, an offer of tickets to a live performance might be more interesting than a dining discount, for example).But we think the internal transactional data are much more important. We do rely on analytics and models to jockstrap us understand existing customers and to encourage them to stick with us. A bout ten years ago, we created our Total Rewards program. Guests at our hotels and casinos register for a loyalty card by sharing the information on their drivers license, such as their name, address, and date of birth. Each time they visit one of our 39 properties and use their card, they earn credits that can be used for food and merchandise. They also earn Tier Credits that give them higher status in the program and ake them eligible for differentiated service. With every visit, we get a read on our customers preferencesthe types of games they play, the hotels and amenities they favor, and so on. Those details are stored in a central database. The company sets rules for what can be done with the information. For instance, managers at any one of our properties can execute their own marketing lists and programs, but they can target only customers who have visited their properties. If they want to dip into the overall customer base, they have to go through the central relationship- marketing group. Some of the information captured in ur online joint promotions is accessible to both Harrahs and its business partners, but the promotions are clearly positioned as opt in. We tell customers the value proposition up front Let us track your play at our properties, and we can armed service you enjoy the experience better with richer rewards and improved service. They understand exactly what were capturing, the rewards theyll get, and what the company will do with the information. Its a win-win for the company and for the customer. Companies engaging in customer analytics and related marketing initiatives need to keep win-win in mind when collecting and andling customer data. Its not just about what the information can do for you its about what you can do for the customer with the information. David Norton (emailprotected com) is the senior vice president of relationship marketing at Harrahs Entertainment, based in Las Vegas. harvard business review may 2007 T he Dar k Side of Customer Analytics H BR C A SE S T UDY C ase Commentary by Michael B. McCallister How can these companies leverage the customer data responsibly? When the tougher, grayarea decisions need to be made, each person has to have the companys core principles and values in ind. harvard business review may 2007 Companies that can capitalize on the information they get from their customers hold an advantage over rivals. But as the ? rms in the case study are realizing, there are also plenty of risks involved with using these data. Instead of displace back the reins, organizations should be nudging customer analytics forward, keeping in mind one critical point Any collection, analysis, and sharing of data must be conducted in a protected, permission-based environment. Humana provides health bene? t plans and related health go to more than 11 million embers nationwide. We use proprietary datamining and analytical capabilities to help guide consumers through the health maze. Like IFA, we ask our customers to share their personal and medical histories with us (the risky behaviors as well as the good habits) so we can acquaint them with programs and preventive services geared to their health status. Customer data come to us in many different ways. For instance, we offer complimentary health assessments in which plan members can take an interactive online survey designed to measure how well theyre taking care of themselves.We then suggest ways they can reduce their health risks or treat their existing conditions more effectively. We closely monitor our claims information and use it to reach out to people. In our Personal Nurse program, for example, well have a registered nurse follow up with a member who has ? led, say, a diabetes-related claim. Through phone conversations and e-mails, the RN can help the plan member institute changes to improve his or her quality of life. All our programs require members to opt in if the data are going to be used in any way th at would single a person out. Regardless of your industry, you have to start with that.One of the biggest problems in U. S. health care today is obesity. So would it be useful for our company to look at grocery-purchasing patterns, as the insurance company in the case study does? It might be. I could see the upside of using a grocers loyalty card data to develop a wellness-based incentive program for insurance customers. (We would try to ? nd a way to build positives into it, however, so customers would look at the reciprocation and say Thats in my best interest thank you. ) But Humana certainly wouldnt enter into any kind of datatransfer arrangement without ensuring that our customers personal information and the ntegrity of our relationship with them would be properly protected. In health care, especially, this has to be the chief concernabove and beyond any patterns that might be revealed and the sort of competitive edge they might provide. We use a range of industry standard se curity measures, including encryption and ? rewalls, to protect our members privacy and medical information. Ethical behavior starts with the CEO, but it clearly cant be managed by just one person. Its important that everyone be reminded a great deal about the principles and values that guide the organization.When business opportunities come along, theyll be screened according to those standardsand the decisions will land right side up every time. I cant tell people how to run their meetings or who should be at the table when the tougher, grayarea decisions need to be made, but whoever is there has to have those core principles and values in mind. The CEOs in the case study need to take the front page test If the headline on the front page of the newspaper were reporting abuse of customer data (yours included), how would you react? If you wouldnt want your personal data used in a certain way, chances are your customers wouldnt, either.Michael B. McCallister (emailprotected com) is the president and CEO of Humana, a health benefits company based in Louisville, Kentucky. Reprint R0705A Case only R0705X Commentary only R0705Z To order, call 800-988-0886 or 617-783-7500 or go to www. hbrreprints. org page 9 To narrate For Harvard Business Review reprints and subscriptions, call 800-988-0886 or 617-783-7500. Go to www. hbrreprints. org For customized and quantity orders of Harvard Business Review article reprints, call 617-783-7626, or e-mail emailprotected harvard. edu www. hbrreprints. org U. S. and Canada 800-988-0886 617-783-7500 617-783-7555 fax