"Customer profiling" is a term being used to cover a wide range of marketing and service approaches. Profiling can be as simple as retaining credit-card information at an e-commerce site or as complex as correlating a customer's demographic information with relevant market segment statistics.

The purpose is usually to find out which customers will generate the most profit and determine how best to market to those individuals or businesses. Vendors want to "ensure that their precious marketing dollars are spent on things that will deliver the most benefit to the company," Aberdeen Group research director Denis Pombriant told CRMDaily.com.

The question is how to use customer profiling to accomplish that goal and avoid common pitfalls along the way.

Depends on Willingness

In the retail sector, the first hurdle to overcome is customer resistance. Tom McGinnis, partner with the security services practice of Deloitte Consulting, told CRMDaily that having appropriate privacy practices is the single biggest step a company can take in the profiling arena.

"There are a couple of different things companies are concerned about," he said. "One is what information they're capturing. Another is whether they are appropriately dealing with privacy concerns. They ask themselves, 'Am I using this information the right way? Are we blocking personally identifiable information?'-- questions like that."
Pombriant pointed out that personalized marketing can be advantageous to customers as well as vendors. Once customers see the benefits of profiling, they might become more willing to relinquish information.

Some Industry Advantages

For smaller purchases, Pombriant explained, customers will hesitate to turn over personal data.

"I think there always is going to be a bit of resistance when a vendor wants to get too close to a customer making a simple purchase," he said.

However, he noted, customers become more willing to provide personal information as the price tag of the purchase goes up.

"It's always true that in bigger ticket, unique kinds of purchases, the customer reluctantly will give up key information," Pombriant said. "The same information that somebody would not dream of telling you if he was going out to buy a bicycle, he might tell you if he was trying to finance a car, boat or house."

Money Matters

One major exception, according to Pombriant, is the financial services industry, where companies tend to have lots of information about their customers as a matter of course.

"Those vendors may be at a bit of an advantage," he said, "since they'll know roughly -- or perhaps exactly -- what a customer's age is, approximate income and marital status. [That information] makes it easier for them to offer products or services that are well-targeted."

Identity Management

In the business-to-business (B2B) realm, willingness to disclose is not as much of a factor because the profiling information is about companies and authorized users, rather than individuals. According to McGinnis, in trading partner relationships, the trick is to make good use of the information provided.

"The big thing that companies are moving toward is identity-management solutions," he said. "They allow organizations to capture a user's identity once and control and manage that person's access to information in a central repository."

The business view of privacy, McGinnis said, is about authenticating portal or trading-partner system users and ensuring that only the right people have access to the data.

"Anytime you're going to use a CRM approach or a portal approach, you can't get there from here without a robust identity-management system," he said. "You have to manage the access, support business process requirements, and address security and confidentiality."

On Guard

Whether a company is dealing with personal or corporate profiling data, keeping the information secure is crucial to customer confidence.

"These are the things that companies are trying to do to deal with not only the original capturing of data but with its subsequent use," said McGinnis.

Companies must implement and maintain a technology infrastructure for security, he noted, including firewalls and intrusion detection systems.

That is not the end of the profiling security road, however. McGinnis stressed that customer-profiling information sometimes finds its way to uses very different from the original purpose. Thus, companies must remain vigilant and make sure that profile data is tracked carefully and protected over the long term.