Why retailers may know more about your family than you do

by Dan Pearlman , Bob Wolf Partners/TPG

Is big brother watching you?

This is a true story: A man walks into a Target store and asks to see the manager. The manager asks if he can help and the man produces an advertisement that his daughter had received in the mail at their home. It was for diapers, wet wipes, strollers and other baby gear.

“My daughter is only 16,” the man said, “Why are you sending this stuff?”

The manager apologized profusely and offered a vague explanation. The man nodded and left. A few days later, the manager, who was bothered by the entire situation, called the man to once again offer apologies.

“Well, it appears that I complained too soon,” the man said. “Evidently there are some things going on in my house that I wasn’t fully aware of. My daughter is due in May. So I guess my only question is how you knew before I did?”

The manager again offered a vague explanation, but the truth is that retailers like Target have complicated algorithms that carefully analyze massive amounts of purchasing data. They can discern buying patterns and draw highly specific marketing conclusions.

In this case, the man’s daughter had bought a number of items in one transaction that expectant mothers tend to buy. Armed with this data and other customer information, the retailer can send out highly targeted marketing material — material designed, in this case, to create a strong bond with a potentially lucrative long-term customer.

Today, retailers are very careful with this sort of customer information. They still analyze the data, and they still make these sorts of conclusions, but they will include other offers to mask the intention of the targeted campaign — a coupon for dog food, say, or patio furniture and other seasonal items.

The truth is, retailers like Target, Wal-Mart, J.C. Penny and others use “Big Data” to know exactly the kind of ads to get in front of you. But what they don’t want is consumers to know just how much they know about them. Just think how much I could tell about you by examining what you bought at the grocery store. If you think that loyalty card is there to give you a discount, think again. This is how supermarket mailings are eerily for the exact stuff you typically purchase.

Today, the ability to use massive amounts of data and strain it into something resembling intelligence — even for something as mundane as what you buy at the grocery store — is a large, growing and dynamic industry. Essentially, it is the job of a Big Data to store large amounts of information, enable its easy analysis and use.

In 2010, Big Data was a $3.2 billion industry. But research suggests it will grow more than 428% to $16.9 billion by 2015.

Big Brother is watching? Marketers need to walk a fine line between gaining useful data versus the possible backlash of consumers who might feel that their privacy has been invaded.