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multichannel analytics - risk or reward?

7 December 2012

As all good retailers will know, multichannel marketing is marketing using many different marketing channels to reach a customer. A channel might be a retail store, a web-site, direct mailings etc. The objective is to make it easy for the customer to buy from you in whatever is the most appropriate and convenient way for them.

To be effective, multichannel marketing needs to ensure that the details and price of goods are consistent across different channels. This might also be supported by a detailed analysis of the return on investment from each different channel measured in terms of customer response and sales conversions. Some retailers also target certain channels and apply different prices and/or promotions to those channels aimed at different demographic segments of the market or at different socio-economic groups of consumers.

This bulletin attempts to set out some of the considerations retailers should have before and whilst they are embarking on targeted multichannel marketing.

Retailers are often told that ‘big opportunities await those companies that harness big data for customer-driven marketing’. Many multichannel marketing service providers exist to help retailers reach their goals.

Such extensive multichannel analytics identify who your customers are, where they live, what channels they prefer and their buying preferences. The benefit to you is that you get to focus your efforts where they will reap the greatest reward and engage the right message to the right market at the right time.

However, companies must exercise caution when segmenting their customers so that they can personalise offers and prices.

Your first consideration should be the Equality Act 2010. The Equality Act has been around for a couple of years now and (amongst other things) bars discriminatory pricing based on particular protected characteristics: disability, gender reassignment, pregnancy and maternity, race, religion or belief, sex, sexual orientation and (since 1 October 2012) age.

Taking the newest addition to the prohibition for a moment: Age. Retailers will commit an offence if they:

  • provide goods or service to one section of the public selected by virtue of their age but not to another, or
  • provide goods or services to one section of the public selected by virtue of their age on more favourable terms than another

Unlike the other protected characteristics under the Equality Act, direct discrimination because of age can be justified if it is objectively justifiable – that is, ‘a proportionate means of achieving a legitimate aim.’ This recognises that some age-differentiated treatment is socially acceptable. However, it is unclear how this legal test will be applied by the courts.

There are also some general exceptions which permit discrimination where the Act otherwise prohibits.

The exceptions include:

  • the use of age in financial services including insurance
  • so called ‘beneficial concessions’ in services, for example, cheap hair cuts for pensioners, cut price or free travel related to age
  • age-linked holidays, for example, Saga; Club18-30

Taking the above into consideration, retailers are advised to consider the Equality Act when they are considering segmenting their database as part of their multichannel strategy. The starting position will be that if the segmentation is on the basis of one of the protected characteristics, providing goods or services to the different sections at different prices or at all is likely to be prohibited under the Equality Act. However, as the age exceptions highlight, there may be an exception that retailers can take advantage of to ensure that the practice is legitimate.

Next we move to Data Protection legislation.

Under the Data Protection Act, retailers will be data controllers and thus subject to the provisions of the Act. One of the key requirements of a data controller under the Act is to provide data subjects with fair processing information.

In relation to fair processing information, retailers must ensure that its customers or potential customers are provided with certain information. This includes “any further information which is necessary taking into account the specific circumstances in which the data is or is to be processed, to enable processing in respect of the data subject to be fair”.

When deciding whether and what further information is necessary, retailers should consider what processing of personal data they will be carrying out once the data has been obtained and whether the data subjects are likely to understand the purposes for which their personal data is going to be processed.

The Information Commissioner’s Office (ICO) has firmly set out that in its view, details that are used to segment databases into targeting lists (including browsing behaviour) is personal data for the purposes of the Act.

As such, retailers must ensure that they provide those on its database with details of how their data will be used to put them into a group where they will be targeted with certain prices and/or promotions depending on what group they fall into.

The ICO expects that this information is given due prominence and is expressed in terms most visitors can understand. It also suggests that individuals should be given a simple means of disabling the targeting and profiling.

The Office of Fair Trading (OFT) undertook consumer research in relation to this activity which, perhaps not surprisingly, found that using personal data in ways that could increase prices to consumers is “unexpected and objectionable”.

For this reason, it is understandable why so many retailers do not disclose how and why customer segmentation takes place. However, failing to disclose this information is in breach of the Data Protection Act. Retailers need to strike the right balance on how they address this legal/commercial tension.

The OFT launched a ‘call for information’ in relation to the practice of personalised pricing in November this year. It says it is committed to building trust in online shopping so that consumers can be confident that businesses are treating them fairly. It is only a matter of time before a retailer finds itself the OFT’s scapegoat for failing to ensure that its personalised pricing practices are legitimate. For this reason, it is imperative that retailers seek legal advice before attempting to take advantage of those ‘big opportunities that await them’.

For further information about multichannel marketing and how to ensure that you are using your customer data legitimately, please contact Helena Wootton. Also ask about our Marketing Compliance product.

Further reading: http://www.youronlinechoices.com/uk/

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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