A Proponent of Profiling - Part 1

I have absolutely no sympathy for the people who are protesting the use of profiling. In fact I think the whole anti profiling ideology is a bit insane. Arizona borders Mexico. Mexicans are illegally crossing that border. And yet the Arizona police can’t actively look for these illegal Mexicans because that would be profiling which is illegal. As I said, this is insane.

When it comes to profiling, I should admit that I am a bit prejudiced because I made my career by profiling in the private industry. I worked for two seemingly opposite industries – casinos and banks. But in both cases the same rule applied, studying past behavior can predict future behavior. Before technology changed things, both industries would send out mass mailings to all their customers offering the same product or service. Not only was this expensive but it resulted in a low rate of people actually buying that product or service.

Starting in the late 80’s companies began to get the hardware and software needed to computerize customer information. A lot of data was now being generated and for some reason I had a knack in analyzing all of this data on past behavior and demographics. I was in at the start of Harrah's famed players club and then at Caesars Palace, Las Vegas. In these casinos, I would profile their customers using information gathered from their member’s card, put players into segments based on their gaming and where they lived and then determined what offer was needed to generate the most profits from each segment. Thanks to profiling I helped casinos make a lot of money.

In banking you could go a step further and predict behavior based on a customer’s demographics. It is just common sense. But then again so much of profiling is just that, common sense. Anybody would figure out that a 25 year old probably doesn’t have the money for CDs but would need car loans or mortgages. On the other hand an 82 year old probably isn’t interested in on-line banking or a car loan. As I said, simple common sense is a big part of profiling. Demographics however could not help predict how much a person would gamble, if at all. Perhaps the only indicators that were ever used were to exclude nearly everyone who lived in Utah as Mormons didn't gamble but target people in Chinatown to visit when the casino was empty at Christmas. Otherwise neither age, income, race nor any other demographic indicator helped in explaining gaming habits. Luckily, demographic data does help in profiling almost every other kind of company.

It’s not just banking and casino who profile their customers. Every sophisticated industry has been doing this for years. Why do you think so many businesses now offer some kind of membership card that you show when making a purchase? This is used to collect data on your behavior and many companies will also include your demographics in their profiling of customers. How do they know your age, income, education etc? They send their customer file of names and addresses to outside companies who specialize in obtaining specific information about everybody. This data is retrieved from a variety of sources including all that information you provide when filling out warranty cards for example.

The company I once used to provide demographic data on bank customers guaranteed an 80% match. They could provide a bank with detailed information such as age, home value, race, marital status and even type of car you owned on up to 80% of every customer. Combining demographic information with your buying habits allowed us to accurately profile you. Based on that profile you will be sent offers that are targeted specifically for you.

So is this profiling a bad thing or is it simply good marketing? The truth is, for the most part, people love it. If CVS knows I frequently buy Coke then why would I be upset if they often give me coupons for Coke? It’s a win-win situation. You get offers for products you actually use and need and the company makes money. Everybody is happy – thanks to profiling. There is, however, one major drawback.

When profiling their customers, businesses often use outside companies that specialize in this. In fact that consulting team I managed was with a company that specialized in the financial industry. Now in order to profile First Federal Bank’s customers we needed two types of data – past behavior and demographics. Past behavior was obtained by having First Federal send in their computer files with all of their customer’s information. That’s right. Your banking data (name, address, SS, credit card numbers, bank account numbers, how much you had in your accounts, loan info etc.) could very well be sitting in some third party business office or worse on somebody’s laptop that they take home. And you would never know. Of course these third party businesses are supposed to follow tight security rules but I could walk through my old offices on any given day and see tapes or CDs with bank data sitting openly on people desks or PC's with bank data on the monitor and no one at the desk.

But it gets worse. In order to get that demographic data the company I worked for had to then send the names and addresses to yet another company. Granted, we never sent anything other than just name and address but nonetheless this information was being passed around and when returned contained specific demographic information about each customer. Shortly before I retired there was a scare when this demographic provider was hacked. There were also frequent news stories about other companies which had been hacked or worse, a laptop with all the customer data was lost or stolen. This is a serious problem but it is a security problem, not a profiling problem. Tighter security or providing companies with a means to profile their customers in-house will resolve this issue.

Profiling in the business sector is a win-win for everybody. Companies send offers targeted to you specifically and in doing so reduce their expenses and increase their profits. Everybody wins. So why is profiling considered to be atrocious in the public sector? Since I got rather carried away talking about business profiling I will tackle this question in my next blog.