Telegraph Herald (Dubuque, IA)
April 7, 2014
If you've bought a house or car lately, chances are you know your credit score, or at least whether it's good or bad.
But what about your customer loyalty score? Or your identity score? Or your health score?
Most people have no idea that businesses use thousands of such scores to rank consumers based on data harvested from search engine histories, shopping habits, social media networks, mobile apps, surveys and census reports.
The scores rely on computer modeling to determine whether you receive a coupon for free shipping from your favorite clothing store, or one for $10 off, or no discount at all. They dictate whether you see ads for credit cards with high interest rates or for platinum cards with low rates and enticing rewards.
A score that assigns you a value based on the average credit score in your ZIP code could limit your financial choices by putting you in a less-desirable pool of potential borrowers.
Some scores route certain people to higher-ranking customer service representatives based on estimated purchasing power. Other scores designed to catch identity fraud can even affect your ability to open a bank account, purchase a cellphone or board an airplane.
But unlike credit scores, the so-called "e-scores," or "predictive scores" used for marketing or fraud detection, are not regulated by the government. Consumers have no legal right to see their scores or correct errors in them.
The scoring practices have drawn scrutiny from the Federal Trade Commission (FTC), which is investigating how companies collect and use consumer data. Last year, the watchdog agency cracked down on 10 data brokers in a "secret shopper" operation. The brokers allegedly were willing to sell consumer information to undercover FTC officials for credit, insurance, employment or housing decisions, a violation of the Fair Credit Reporting Act.
The FTC sent warning letters to the companies.
Together with consumer advocates, FTC officials have testified about scoring before Congress, urging lawmakers to update federal laws to ensure that people can access and control the data collected about them.
"There are many, many different kinds of scores, but the main thing is a score is an effort to categorize you to decide what to offer you and what to charge you for it," Ed Mierzwinski, federal consumer program director for U.S. PIRG, a consumer group, said in an interview. "If it's used fairly and transparently, it might be OK, but we don't know enough about them."
Companies that create and sell scores for marketing or fraud detection purposes say that stronger legal protections aren't necessary because the industry has plenty of voluntary safeguards in place.
Members of the Direct Marketing Association trade group, for example, must agree to guidelines for ethical business practices, which include a pledge to keep data secure and honor consumers' requests not to use their personally identifiable information. And many data brokers allow consumers to see their profiles for free or for a small fee, a practice the FTC encourages.
"The industry's trying to do the right thing," said Susannah Sulsar, a member of the association and director of customer relationship marketing at Barkley, an advertising agency in Kansas City, Mo.
"Nobody wants to be singled out for being a bad steward of consumer data," Sulsar said. "People would not want to do business with them and they would lose more customers than they would lose through bad marketing."
Barkley uses scoring to divide consumers into categories according to how likely they are to respond to a specific advertising pitch. If data reveals that a subset of customers prefers burgers, Sulsar said, there's no point in sending them coupons for chicken sandwiches.
The scores aren't always numeric. The agency might build profiles or characters for a segment of consumers, labeling foodies "flavor cravers" because they value taste over cost, Sulsar said, or "Nick & Lisa," for married couples with kids who share a certain income bracket and education level.
Or the agency might assign customers a score between 1 and 10 depending on how often they frequent a client's store or restaurant and how much they spend there. Those who score 8, 9 or 10 are probably the most loyal customers who come often and spend more per trip.
Those people might not get discount offers because they're already displaying the behaviors marketers want to see.
But customers who score 5, 6 or 7 might get "bounce-back offers" of extra savings if they buy something within two weeks, rather than once every few months.
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