"Your phone number, please?"
Your eyes dart around. Your palms get sweaty. You feel vulnerable. If you had just met the love of your life or had just caught up with a childhood friend that you hadn't seen in ages, this would have seemed like an appropriate query.
Unfortunately, that's not the case this time. You are wedged at the head of a long checkout line and you know absolutely nothing about the cashier lobbing the question your way. But the lack of familiarity isn't mutual. The retailer knows a lot more about you than you think. Your phone number linked to your buying patterns is gold in enterprising, merchandising hands. You still want my phone number? Not until you buy me breakfast, snookums.
The art of the deal
Checking out of a store shouldn't be a trying experience. You have something that you want to buy. The retail establishment clearly wants to sell it to you. The price is agreed upon by your willingness to lug it over to the cashier. Shouldn't there be less barriers getting in the way of closing the transaction? In theory, sure. But there is a hidden markup in the mix. It's called information. Knowing your identity -- or, at the very least, knowing your ZIP code -- will help the company's marketing efficiency.
But shoppers didn't bargain on opening up to the company just to pick up a pair of fresh batteries. Perhaps that's why the 7,000-unit consumer electronics chain gave up on the practice two years ago. However, new retailers are rising from the RadioShack's marketing research ashes.
Popular chains like Toys "R" Us
Mined over matter
Clark Howard, the host of a consumer action radio show in Atlanta, Ga., recently tackled the growing trend of info-hungry retailers. It spawned an active thread on our own animated consumer credit discussion board. While noting that ZIP codes are now being used to help authorize credit card transactions, that doesn't explain why I've been asked the same thing even as my outstretched hand is holding greenbacks.
Am I setting up my neighbors to be junk-targeted for the retailer's next mass mailing? Am I hurting my chances of securing a location closer to my home if the parent company thinks the expansion may cannibalize existing locations? Are frustrated shoppers willing to fudge, assuring that the tony 90210 district in Beverly Hills will be up to their Hummers and toy poodles in spam?
When the object of your market research affection becomes defiant doesn't it all just flat-out fall apart? The only thing worse than a lack of information is a plethora of wrong information. What are you left with? ZIP.
That's the problem with the bricks-and-mortar approach to prying. It's actually far more prevalent -- and effective -- in the dot-com world, but it just isn't as noticeable. Can you imagine offline retailers tagging you with a cookie (let's assume that it's the chocolate chip variety in the non-virtual world) when you enter a store and logging every rack you pick over and which store you go to next?
The Web you weave
Information is a powerful thing. Online, it's everything. We're talking about a colossal beast in a data-collecting fortress. As investors, it is worth noting that some of the greatest stock investments in recent years have come from the companies that knew how to manipulate information the best.
Our Motley Fool Stock Advisor newsletter has scored well with past recommendations like Amazon
Been to Amazon lately? Head to the website and you'll find recommendations tailored to your past browsing and buying habits. First timer? Don't worry. Single out an item and you'll be treated to additional products that you may be interested in. How does Amazon know? Well, it's more than just a hunch. It knows the shopping patterns of those who landed on that particular item's page before you. Find a book you like? Amazon will bundle it with another title that is probably right up your alley and package the pair as a discounted purchase. With knowledge in its back pocket, the company has been able to expand away from its flagship book offerings into lucrative new areas with ease. Why? Because it knows you, silly.
But Netflix takes the cake. With nearly 2 million subscribers to its popular DVD rental service, the company considers the information that it has gathered through its first five operating years invaluable. Because members are encouraged to rate movies the company has accumulated more than a 100 million different star ratings on its content library. So it's more than just recommending flicks that others have checked out. Based on your ratings, it can spit back disc suggestions that were enjoyed by like-minded movie buffs.
More importantly for Netflix, it can also stack the deck of recommendations in its favor by suggesting older or independent films that won't sting the company with the higher revenue-sharing royalties it must pay the studios on fresh new releases. Naturally, it can also manage its available inventory more effectively by pitching what you might like that the company also just happens to have ready at your nearest distribution center.
So online companies know far more about you than even that persistently nosy sales clerk. Yet, because the process feels transparent and somewhat anonymous, it's not as likely to draw much in terms of consumer complaints. A good waiter anticipates your next desire. But much to the chagrin of the offline stores trying to become more Web-like and customer savvy in their data snooping ways, it comes off as brash and insensitive when they try to do it. Yes, it's a double standard, but all hope is not lost. There is a silver lining -- and it's all decked out in gaudy neon and scored to Wayne Newton.
The Vegas way out
Casino companies could teach retailers a lesson or two about getting to know their customers a little better. See, they were there before. They couldn't tell the high rollers from the guy looking for free cocktails while playing nickel slots. That all changed in 1997 when Harrah'sEntertainment
Nowadays, you will be hard-pressed to find a casino that doesn't offer an elaborate slot card plan to track its patron's wagering habits. Customers don't mind because signing up is optional, yet those that do register get treated to everything from free trinkets to meals to lodging.
Traditional retailers are starting to catch on. Best Buy rolled out its Reward Zone membership program late last year. Spend some money while providing the company with invaluable market research, and the electronics superstore chain will send you gift certificates in $5 installments. Other retailers and grocers are starting to follow suit. Yes, loyalty programs have been around since the days of S&H Green Stamps. However, in these technologically advanced times, information is priceless.
Asking for phone numbers and ZIP codes? That's just wrong. Try earning that trust. Don't take the customer out of the customer service. So, are you still here asking me for my phone number? Can I scribble it on a cocktail napkin for you? Ha! I'm just teasing you, sweetie. I'm sorry. I'm just not that easy. You haven't even met my parents! Oh, that's right. You have. You know everything about them.
Longtime Fool contributor Rick Aristotle Munarriz hates giving out his phone number, and he's never found a cashier willing to spring for breakfast. He does own shares in Netflix. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.