Privacy & Ethics: Is CRM Too Close for Comfort?

WHEN MY WIFE SAW AN AD for a new, less intrusive blood-sugar tester to help manage her diabetes (available free via a coupon at our local pharmacy), she snapped it up. She’ll do anything to make a distasteful part of her life easier. What she also received in the bargain was an onslaught of very targeted direct mail and Internet solicitations from the manufacturer of the test as well as from several pharmaceutical companies.

As a marketer, I like the fact that I can get closer to my customers through customer relationship management (CRM). And I’m well aware that people are willing to share even the most intimate details about themselves if they think they’re getting something of value. CRM allows a business to have a dialogue with its customers, thus creating an opportunity to solve problems expediently, identify needs, and increase customer satisfaction and revenue. It’s the company’s eyes and ears to the marketplace.

Yet as a consumer, I’m wary that every nuance in my family’s private life is simply more marketing information in search of a perfect pitch. Old-fashioned notions of privacy, of course, have already gone out the window. The availability of information now in the public domain is staggering: From toll-free numbers to warranty registration cards to department of motor vehicles records to catalogs and club memberships, information about most everyone is on a database in some form or another. The vast majority of solicitations from these sources are merely intrusive and not unethical.

Gray Ethics

CRM raises some disturbing ethical issues that fit into a grayer, more unregulated arena. These are issues that we as a society must grapple with, more so in some industries than others.

For instance, the pharmaceutical companies have done a stellar job of exploiting CRM. Before 1994, they spent less than $50 million a year in direct-to-consumer marketing, but in 2000 they spent nearly $2.5 billion. Above and beyond blanketing the broadcast and print media with advertising, pharmaceutical companies are using CRM to hone their marketing messages to specific doctors and patients. Studies have shown that when patients go to a doctor and request a drug seen in an ad or a direct mail solicitation, almost half the time they will walk out with a prescription for that drug. A November 2001 study by The Henry J. Kaiser Family Foundation, a health-care research organization based in Menlo Park, Calif., found that of those people who talked to their doctor about a medicine they saw advertised, 44 percent said that the doctor gave them the prescription medicine they had asked about. Some observers say such direct marketing to consumers is unethical because it usurps the prescription drug system and physician-patient relationship by directly targeting people when they are at their most vulnerable. It also puts tremendous pressure on physicians to prescribe drugs that are usually more expensive and not much better than older, generic medications.

Ironically, most of the health-care industry is lagging far behind in using CRM to manage customers effectively and better prepare patients to be wise consumers of its services. But the very strategy that is powering pharmaceutical profits could greatly enhance the physician-patient relationship as well as build customer affinity for local health-care providers. For instance, numerous studies have shown that people who search for health-related topics online are consistently less than satisfied because they would rather receive this information from their physician and local hospital?institutions they already trust and can access.

Health care is not the only place where ethical issues with CRM exist. In banking, lenders walk a fine ethical line when they target sub-prime loan borrowers who pose a greater risk because of previous credit problems or even a lack of credit. Those loans carry higher interest rates and fees and, in many documented cases, include unfair penalties and provisions. There have been instances where borrowers who own houses with equity could qualify for better terms yet were steered to the more lucrative sub-prime market.

A Higher Road

If we as a nation are really serious about curbing health-care costs, we should pressure the Food and Drug Administration into rescinding its regulation that permits direct-to-consumer marketing in the pharmaceutical industry. Medicare, Medicaid and health plans could also build in incentives for doctors who resist prescribing a new, more expensive drug when an older and equally effective generic medication is available. Patient education is the key here, and many health plans and medical groups are letting their patients know the true cost of these drugs and encouraging the use of generics when possible.

With the rapid growth of technology that can mine even the smallest detail about a customer, IT professionals, marketers and policy-makers must be sensitive to these ethical issues. When Seth Godin published Permission Marketing in 1999, he established the basic groundwork for ethical CRM: Ask for permission and keep the relationship honest at all times. A relationship in Godin’s world means a two-way road of mutual respect and value, not a one-way ticket to exploitation. Retention of customers is based on trust developed through clear, consistent, nonintrusive and honest dialogue that meets expectations all around.

But permission marketing is hard work. It takes longer to acquire customers who have “raised their hand” and invited the company to communicate with them. But in the end, it’s worth doing. Not following this philosophy of business will only invite customer ire and more restrictive legislation. Ultimately, it all boils down to IT and marketing executives taking the high road by being the voice and conscience of their company and making sure that CRM is done the right way.

As for my wife, she’s a bargain shopper, and the privacy concerns I have don’t bother her nearly as much as they do me. So long as she gets a bargain in the transaction, it seems a fair exchange. Go figure.