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Loyalty programs are so ubiquitous, spanning so many industries, that they may seem unquestionable. But recent hearings held by the U.S. Congress’s Commerce Committee created some challenging questions, especially for the data warehouses that help companies target their ideal markets.

Part of the impetus for this questioning is the increased insights that marketers gain about their customers using technologically advanced data gathering methods. Especially when consumers opt in to a loyalty program, they grant data brokers access to vast amounts of information about them. These brokers, including Experian, Acxiom, and Epsilon, earn their revenues by gathering and warehousing these massive amounts of consumer data, and then selling selected slices to companies that want to target a particular audience.

The chair of the hearings, Senator John Rockefeller (D., WV), voiced concerns that the practices of the data brokers were shrouded in secrecy, such that there was insufficient oversight of how they collected and used information about consumers. But his challenges also extended to some central tactics embraced by marketers.

By segmenting populations by gender, race, ethnicity, and income, Rockefeller asserted, data gatherers were inherently discriminatory. Predatory lenders who identify a population of lower income, less educated consumers might target them unfairly, such as by promising loans but only at very high interest rates. A list of people suffering from a genetic disease might attract the attention of unethical peddlers of “miracle cures.” Because so much personal data is now available online, oversight of the uses of these data becomes even more difficult.

Rockefeller also objected to the defining feature of loyalty programs, namely, the provision of benefits to customers that the provider deems better. Using the example of airlines, the hearing noted that in the aftermath of a cancellation, airlines often give priority to their best customers to help them find another route to their destination. Such practices in turn make the industry more frustrating and less serviceable for occasional or infrequent fliers. Overall then, the harms to the broader society might outweigh the benefits to the individual or the firm.

Or perhaps the problem is merely unethical implementation, and the segmentation and targeting that Rockefeller decries is merely part of doing business.

Kate Kaye, “Rockefeller to Marketing Data Giants: You’re On Notice,” Advertising Age, December 18, 2013; Kate Kay, “7 Reasons this Senior Senator Hates Your Loyalty Program,” Advertising Age, December 20, 2013 

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