She Thinks She Hasn’t Been Spied On

If you've never heard the story about Target and the pregnant teenager, then you're dreadfully underarmed in the constantly escalating war between retailers and consumers.

As Charles Duhigg tells it in both The New York Times and in his insightful book The Power of Habit:

...a man walked into a Target outside Minneapolis and demanded to see the manager. He was clutching coupons that had been sent to his daughter, and he was angry, according to an employee who participated in the conversation. "My daughter got this in the mail!" he said. "She's still in high school, and you're sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?"

Turns out she already was pregnant, and Target--thanks to its sophisticated customer analytics--knew it long before her parents.

Now, obviously, Target wants to sell merchandise, it wants to gain market share, and it wants to understand your wants and needs so it can successfully sell more to you. The more a retailer knows about you and your life situation, the more effectively it can do this.

Unfortunately, many consumers mistakenly believe that a retailer's information about us comes from relatively limited range of sources--say, our purchasing activity at that retailer and our use of that specific retailer's loyalty cards.

Wrong! Retailers can (and do) buy information about you using all kinds of sources, most of which have nothing to do with what you buy in their stores. They can easily learn all kinds of things, like:

"...your ethnicity, job history, the magazines you read, if you've ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own."

Vulnerable to intervention
It gets worse. There are times when information about us is nearly priceless, times when consumers are, in the disconcerting phrasing of one academic, "vulnerable to intervention by marketers."

What exactly does this phrase mean, and why is it important? Duhigg explains it this way: "a precisely timed advertisement, sent to a recent divorcee or new homebuyer, can change someone's shopping patterns for years."

Retailers know that once a major life change happens to you--say you have a kid, buy your first house, or get divorced--you're going to start building an entirely new set of buying habits. And you'll likely be too busy (or too tired, or too passive) to price compare, and certainly you'll be too busy to go to multiple stores. If retailers can "intervene" at these times by offering you the specific products you want to buy at attractive prices, they can "help" you establish new buying habits. With them.

And so the soon-to-be-ex gets ads for cat food (or Russian brides), and the newly pregnant woman gets coupons for diapers and cribs.

If that isn't chilling enough, think about the online information gathering habits of companies like Faceborg, Amazon and Google, who have laughably easy access to our browsing habits. I experienced an all-too-typical example of this when browsing for K-Swiss tennis shoes recently on Amazon and then, creepily, saw ads for the exact same brand on Facebook, Yahoo Mail and other sites for days afterward. Classy.

Which takes us to a gigantic problem that retailers are only just beginning to grapple with: We know that they know. And it creeps us out.

A pregnant woman thinks she hasn't been spied on
You have to get past the painfully offensive idea that a retailer can predict things like "you're pregnant" or "you're about to get divorced" to get to an even more offensive idea: that the very same retailer wants you to think they don't know about it.

One way they can do this is by offering carefully targeted ads to you, but camouflage them with other unrelated ads. This way you won't see the targeting. Thus they put ads for power tools and men's shirts next to the coupons for diapers and baby clothes. They mask their knowledge about us by simulating randomness. Target said it this way: "we found out that as long as a pregnant woman thinks she hasn't been spied on, she'll use the coupons."

My brain makes strange leaps sometimes, and weirdly enough, this reminds me of a story about British and American codebreakers during World War II. Once the Allied forces had broken the German codes, they knew astounding amounts of information about German troop movements, submarine movements, and so on. But if the Allies were too obvious about it and always seemed to know the locations of German subs or tank divisions, the Germans would quickly realize that their codes had been broken. They'd then do the absolute worst thing possible: change their code system, and the Allies would totally lose their informational advantage.

So the Allies made sure to "make mistakes" and do other things to camouflage their knowledge, to make it seem like they didn't know the codes! Unlike many modern retailers, they knew enough to consider the second order question: How do we make sure they don't know we know?

This is where we are right now with retailing. When we know they know, it ruins everything, and we're too angry and too creeped out to buy. So they have to do the same thing the Allies did: camouflage the fact that they know, so we don't think we've been spied on.

Readers, what do you think?

For further reading:
1) Charles Duhigg's original article in the New York Times, How Companies Learn Your Secrets.

2) Duhigg's exceptional book The Power of Habit. I recommend it to readers not only for context on retailing, but also for its insightful discussion on the psychology of habits, and how we can manage and control some (but unfortunately not all) of the aspects of our habit routines.

3) Also, have a look at Neal Stephenson's Cryptonomicon, an excellent novel about World War II codebreakers that addresses the "meta" of how to keep them from knowing we know. A really entertaining read.

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