Laura Moy & Amanda Conley, Paying the Wealthy for being Wealthy: The Hidden Costs of Behavioral Marketing

Comment by: Marc Groman

PLSC 2012

Workshop draft abstract:

Despite a growing awareness that third parties gather, store, and even sell their personal information, many consumers continue to share their information with companies that collect it by shopping online or signing up for loyalty card programs in brick and mortar stores. Insofar as this results from individuals affirmatively weighing the cost of ceding control of their personal information against the benefit of having that information conveniently pre-stored in retailers’ databases or the benefit of receiving advertisements targeted at their precise interests, behavioral advertising appears desirable, holding the promise of eventual perfect market efficiency. But even if individual consumers consciously consent to having their personal information recorded and used to provide them with targeted advertising, this information collection—particularly in the context of loyalty programs—is not cost-free. Our paper seeks to illuminate some of the hidden costs to consumers of information collection associated with individualized targeting.

The costs to consumers of highly targeted marketing are likely borne disproportionately by those with the least disposable income. Grocery store loyalty programs, for example, are designed to identify and reward the wealthiest shoppers—the small minority of customers responsible for a majority of the store’s revenue—at the expense of those at the lowest end of the income spectrum.

Not so long ago, coupons were distributed primarily in newspapers and circulars, and consumers could clip and organize these coupons if they felt that was a valuable use of their time. Today, by contrast, wealthier consumers receive targeted discounts on the products they purchase most, while the coupon clippers of the past who visit multiple stores and purchase low-cost items receive little or no benefit from stores that now view them as valueless or even revenue decreasing and undesirable. This flip on traditional price discrimination—overcharging the poor while giving discounts to the wealthy—is facilitated by information collectors’  relatively newfound ability to extract and use individual-level consumer data.

Not only does this reverse price discrimination reinforce existing income inequalities; it may even exacerbate them. Many stores mark up their prices above the MSRP in order to create the impression that they are providing a benefit to their (wealthy) customers by giving them a “discount.” Wealthy customers’ “discounts,” however, must be paid for somehow. To avoid alienating their most profitable customers, rational stores shift this cost onto the shoulders of non-wealthy customers in the form of inflated prices.

Drawing on Helen Nissenbaum’s theory of contextual integrity, we suggest that these uses of customer information violate traditional expectations of all who sign up for loyalty programs, regardless of income level.  In addition, they place the power of correcting this injustice entirely in the hands of the wealthy: only if the most favored consumers choose to opt out of having their personal information collected will non-wealthy consumers cease to be disadvantaged by behavioral marketing.