Brand Epic Fails Can Impact Customer Loyalty and the Bottom-line

Image Source: The Economist March 2018

     The Economist published an article last month  covering the broader issues around data privacy, lack of regulations and the ability for analytics firms to influence behavior.
Recent news has highlighted the potentially negative impact of brands working with third party analytics providers and misusing insights gleaned from their data. Facebook is trying to recover from the result of a whistle blower from Cambridge Analytica coming clean about how Facebook subscribers’ personal data had been used without their knowledge, particularly during the 2016 election.
     Tim Cook, Apple’s CEO mentioned this scenario would not happen to Apple because they don’t treat customers as products.  Zuckerberg fired back after an initial silence, proclaiming the company would make it up to subscribers to regain trust – yet he still has to speak before Congress to account for their lack of data discretion.
     Data privacy continues to heat up and remains a point of contention for brands, consumers and the government. Regulation is needed due to the lack of a governing body to oversee how consumer data is used or should be used. Brands defend their actions and claim customer data is required to provide a more personalized experience for customers. However, customers don’t necessarily agree. The tradeoff isn’t necessarily there nor does the experience feel particularly personalized except for their name appearing in an email or at the top of a login page welcoming them back. In addition, web browser cookies capture search history and ads are displayed from web site to web site for items you had previously looked up. To me, that’s not personalizing the experience, it’s invasive spam. Alas, there are clicks on the ads and purchases made from the ads so it has become very lucrative for businesses, but for consumers who do not receive monetary gain from their data being shared, it’s frustrating when their privacy is exploited.
      NBC News writer Ben Popkin published an article last month about retailers using secret shopper scores to deny merchandise returns at the register. Five years ago the TODAY show and other media outlets reported this story.  The TODAY show aired another interview this morning, identifying the same brands listed from five years go.
     The Retail Equation is the data analytics provider that has been in the news for years. They produce secret shopper scores to help retailers determine “high risk” customers for fraudulent returns. The score promptly will deny returns at the register. Brands such as Best Buy, JC Penny and Victoria’s Secret have continued to utilize The Retail Equation services claiming it will help them reduce fraud. [Read their FAQs here].  However, the retail industry still incurs massive fraud to the tune of nearly $23B annually, despite the attempts to reduce it with data provided by analytics vendors.
     Although roughly 1% of customers actually commit retail fraud, all customers are under scrutiny with this “risk score”. It particularly infuriates loyal customers. This morning’s interview on TODAY was with a woman who has been a 30+ year customer of JC Penny and is a platinum cardholder. She went through the humiliation of being told she would be unable to make any more returns for 60 days after she had returned shirts she had purchased for her husband. This happened at the register during checkout, with other customers waiting in line. The woman is questioning why she has remained loyal for so many years.
     Retailers need to realize they are losing their best customers in this scoring process. The March 13th NBC article references a Best Buy customer who had a similar experience. A man was declined the opportunity to return three cellphone cases worth $87 because he was flagged as high risk and was denied the ability to make returns for an entire year. The reality is this particular customer had spent thousands of dollars on various electronics and appliances in the past.
     If Best Buy had looked at the customer’s entire purchasing history, they would have seen the customer lifetime value far exceeded what they considered a risk with the return of $87 worth of items. Best Buy, JC Penny and other brands do not truly know its customers. Epic Fail.
     Brands are missing the mark when they use a third party scores as a means to deter fraud without looking at the whole customer picture. This approach has brands view customers purely as transactions, rather than people. Customers are not just names in a database. Customers are people with whom they need to build and nurture a long-term relationship that can become profitable over time. Know your audience is rule #1 in marketing.
     People buy from brands they trust, admire and feel a connection to. Once that trust and connection is violated, it’s hard to keep them as loyal customers. If you already lost them, it’s much more difficult to win them back. Facebook has a deep hole to dig out of and may never win back customers due to lack of trust and privacy invasion. Millennials have already moved on in droves. They won’t tolerate privacy invasion. The subscribers who will tolerate this and stick with Facebook are likely baby boomers who view Facebook as the primary means to stay in touch with family and businesses (large and small) that earn an income from selling products and services via the platform. It will be hard for any individual or business to walk away from a steady income stream. However, those incomes will eventually be impacted as their buyers move on to other social platforms.
     Which brands are doing it right? The ones who have a customer-centric approach to their business – Zappos, Nordstrom, L.L. Bean, Bed, Bath & Beyond and others as reported in this article about the stores with the best return policies.
     In this digital age, consumers have become conditioned to order several items online (various colors, sizes, fabrics, styles, etc.) and when the package arrives select the items they want to keep and return the rest. Hassle-free shipping to and from the retailer is commonplace and usually free with promo codes or as part of a subscription (a la Amazon Prime, Stitchfix, and others). Brands want to make it as convenient as possible for you to order, receive and return items. Apparently, the experience e-tailers provide customers hasn’t migrated into the brick and mortar store experience. If the convenience and ease of returns were taken away for online purchases, there would likely be a dramatic decrease in online purchases.
     Perhaps the increasing rise in digital sales will ultimately wake up brick and mortar retailers. Otherwise, they may fall by the wayside and close most if not all of its retail stores. Did anyone see the closing of Toys R Us coming? These “secret shopper scores” may be the beginning of a downward spiral, all in the hopes to deter fraudulent returns. What is the ultimate cost of that score if it means you lose your most loyal customers in the process?