Ethics and Regulation in Direct Marketing in the UK - Essay Example

Ethics and regulation in direct marketing in the UK Introduction Direct marketing can be roughly defined as an interactive system that involves personalised communications between a marketer and a customer. With the advent of computers and the development of a wide array of databases, it has become possible to use various communication channels and also store customers’ information to enable further communication with them. This not only changes how direct marketing is defined, but also brings into context the aspect of ethics as regards the marketer’s use of a customer’s information. Not all customers may be willing to have their personal information such as contact details stored by a marketer for fear that such information may be misused or given to third parties. In addition, some customers may be discomfited when marketers constantly send them information about products or services through their phones or emails. This calls for regulations on ethical use of the customer’s personal information. Against this backdrop, this paper discusses the significance of ethical and socially responsible activities within the context of direct marketing in the UK. The paper also looks at the aspect of self-regulation of the direct marketing industry in the UK and how certain complexities make legislation with regard to regulation of direct marketing difficult. Definition of direct marketing and ethical concerns regarding use of data Because direct marketing involves more than just reaching the customer in a personalised approach, Rapp (1999, cited by McCorkell [2003, p. 569]) defined it as the process in which individual customer’s feedbacks and transactions are stored, and the information is then used to direct the targeting, implementation and control of actions that are designed to initiate, develop and extend gainful customer relationships. This means that direct marketing involves keeping customer details so that such details can be used in future to reach customers or create customer profiles such as buying behaviour, customer’s geographic location and so on, which can be used in market segmentation processes. For direct marketing to be effective, marketers have to keep a database of customer profiles, which can be used to contact customers when there is a new product or service release, when there is a discount being offered on a particular product or service and so on. This means that as marketers interact with new customers, they have to keep their personal information such as customer name; customer address (email address, IP address and postal address); age; telephone numbers; customer status, for instance user, non-user or lapsed user and so forth; income; socio economic group; purchase history; geodemographic profile; and previous response (Withey & Lancaster 2012, p. 194; Practical Law Company 2012). In some cases, it may be necessary to keep customers’ information pertaining to political or religious views, health and sexual orientation (Practical Law Company 2012). By keeping customers’ information, it is possible for both the marketer and the customer to mutually benefit. For customers, this could imply that they benefit from the core services being offered by the marketer and derive additional gains such as confidence, social and special treatment from the marketer. Similarly, marketers stand to benefit by making more profit due to enhanced sales, enjoying customer loyalty, and enjoying a more steady trade from returning customers (Little & Marandi 2003, p. 171). A good example of how both marketers and customers benefit from the direct marketing relationship is in Tesco’s use of the Clubcard loyalty programme. Using stored customer data, Tesco sends customer vouchers to spend freely in the store towards the worth of their shopping (Humby, Hunt & Phillips 2008, p. 6). In a year, Tesco can spend as much as £300 million on customer rewards, but the retailer also makes a significant profit because Clubcard pays for itself. Since 1995, Tesco has covered the cost of running Clubcard with an increase in sales that is directly attributable to the promotions that have been facilitated by this loyalty programme (Humby, Hunt & Phillips 2008, p. 6). Nonetheless, marketers face the quandary of balancing the purpose of, and the gains sought by their different stakeholders. A fair balance needs to be struck to ensure ethical use of the customers’ information that marketers store. Although the UK is one of the countries in which the self-regulation of the direct marketing industry is most effective, the complexity of the issues involved makes legislation difficult, and the ability to regulate the diversity of direct marketing activities requires the concerted efforts of a number of self-regulating bodies (FitzGerald & Arnott 2000, p. 240). In spite of this, one of the most important pieces of legislations in the UK which help in protecting the way customer information is used is the Data Protection Act of 1998. This legislation is discussed in the next section. The Data Protection Act (1998) and ethics/regulation of direct marketing The Data Protection Act (1998) recognises the fact that the application of relationship marketing approaches in consumer markets requires the constant use of databases for collection and analysis of customer information, for keeping customer profiles and for communicating with them (Little & Marandi 2003, p. 171). The Act places significant obligations on organisations that hold information on customers. In particular, the Data Protection Act was designed to regulate how information held on databases could be retrieved, analysed and used (Withey & Lancaster 2012, p. 194). The Act is premised on the EU Data Protection Directive of 1995 and outlines eight principles of good information handling. These principles are: 1. The information or data must be fairly and legally processed; 2. The data should be acquired for limited lawful purposes and shall not be further processed in any way that is incompatible with the stated purpose or purposes; 3. The information should be adequate, relevant and not excessive with regard to the aim or aims for which it is processed; 4. The information should be accurate and where need be, current; 5. Personal information gathered for any purpose of purposes shall not be kept for longer than it is required for that purpose or purposes; 6. Information should be processed in accordance with the customer’s rights; 7. The information must be secured or protected from unauthorised processing, accidental loss or damage; 8. The information should not be transferred to countries that do not have adequate data protection systems (Harris & Botten 2008, pp. 179 – 180). There are several implications emanating from the above-mentioned points. For instance, information about a customer’s health, religion or race must be handled delicately and acquired with the full approval of the customer. In addition, the information that is collected may not be used for purposes other than those for which it is gathered, which makes the practice of preparing databases with the aim of customer profiling and managing customer relationships questionable. For instance, if a customer’s information is kept for the purpose of contacting him or her when there is a new product or offer, it may be regarded inappropriate to use such information for purposes of sending the same customer a survey questionnaire about a different product or service. Therefore, such variations of information use must be disclosed at the time of collecting the information from the customer. As well, addition of information for profiling purposes which may be of questionable relevance to customer files, such as hobbies, sexual orientation or religion, may also pose problems. Furthermore, the Data Protection Act requires that declarations as to what use the marketer would put the recorded data must be visible at the point of collection. Ironically, many websites which profile customers’ information do not take this into consideration (Little & Marandi 2003, p. 172). The Data Protection Act also requires any direct marketing organisation that stores information about individuals on a computer to register with the information with the Information Commissioner. It is regarded a criminal offence to store or use personal information without being registered. It is also unlawful to use data for an objective other than the registered purpose, for instance when data from people entering a competition is used for list selling or mailings. Direct marketing organisations must therefore register various details, including the type of personal information stored, the sources from which the information is acquired, the purposes for which it is used, and to whom the information might be disclosed. Self-regulation of direct marketing in the UK As it was mentioned earlier in this paper, the UK is one of the countries with the most effective self-regulating direct marketing industry. This point is emphasised by Evans, O'Malley and Patterson (2004, p. 451), who argue that in regard to the policy of self-regulation, the UK is considered one of the most successful countries. There have been increased attempts by the UK direct marketing industry to police itself. Self-regulation goes beyond the minimum requirements of legislations such as the Data Protection Act. There are many services and organisations involved in the self-regulation of direct marketing. For instance, Preference Services were introduced based on recognition of consumers’ concerns and rights. Unfortunately, unless more proactive policies are established, more and more people may register their wish not to be contacted by direct marketers, and this will only serve to reduce the size and potential of the market available (Evans, O'Malley & Patterson 2004, p. 451). One of the most outstanding organisations involved in direct marketing is the Direct Marketing Association (DMA). The DMA requires its member organisations to adhere to the spirit, rather than just the letter, of its Code of Practice (Evans, O'Malley & Patterson 2004, p. 451). The code gives a detailed account of how different types of customer data should be obtained, processed and used (Direct Marketing Association 2012). The DMA also offers specialised codes for e-commerce, email and SMS campaigns and for direct marketing to children. There is also the Mail Order Protection Scheme (MOPS) which provides financial reimbursement to consumers after off-the-page selling firms fail (Evans, O'Malley & Patterson 2004, p. 451). With organisations such as those mentioned above in place, it would be expected that direct marketing organisations would handle customer data ethically with no need for regulation. However, it is still difficult to determine how long directing marketing companies can hold customer data. It may also be difficult to determine which customer’s data should be used and whose should not. Therefore, there is a likelihood that much as organisations will try to regulate what they do with respect to direct marketing on their own, they may end up not adhering to the ethical standards expected by customers. This is the reason why the Information Commissioner’s Office exists to limit the freedom that direct marketers have. The Information Commissioner’s Office stipulates what marketers should do with respect to customers who would not want to have their data captured or those who would like to opt out of certain marketing programmes after registering. For instance, the Office advises marketers to suppress the details of customers who request to have their information deleted from a marketing list or database instead of actually deleting them. This is because suppression allows the marketers to ensure that they do not send marketing to people who have requested to opt out, and this also ensures that the marketer has a record against which to check any new market databases or lists (Information Commissioner’s Office, not dated). Conclusion Direct marketing involves more than just reaching the customer in a personalised way as it encompasses the acquisition of customers’ details that can facilitate further marketing contacts with them. How customers’ information is used by marketers really matters since marketers have to adhere to an ethical code and ensure that the information is used only for the purpose for which it was obtained. Although the UK has and an effective self-regulating environment for direct marketers, the wide array of issues involved in direct marketing has necessitated the establishment of legislations such as the Data Protection Act (1998) and institutions such as the Information Commissioner’s Office to ensure that direct marketers handle information ethically and within the established regulations. References Direct Marketing Association 2012, “Direct Marketing: Code of practice”, Evans, M J, O'Malley, L & Patterson, M A 2004, Exploring direct & customer relationship marketing, 2nd edn, Cengage Learning EMEA, London. FitzGerald, M & Arnott, D C 2000, Marketing communications classics: An international collection of classic and contemporary papers, Cengage Learning EMEA, New York. Harris, D R & Botten, N 2008, Introductory certificate in marketing, Elsevier, Oxford. Humby, C, Hunt, T & Phillips, T 2008, Scoring points: How Tesco continues to win customer loyalty, 2nd edn, Kogan Page Publishers, London. Information Commissioner’s Office, not dated, “Preventing direct marketing”, Little, E & Marandi, E 2003, Relationship marketing management, Cengage Learning EMEA, New York. McCorkell, G 2003, “What are direct marketing and interactive marketing?” in Baker, M J (ed) The marketing book, 5th edn, Butterworth Heinemann, Oxford. Chapter 22, p. 565-584. Practical Law Company 2012, “Direct marketing: A quick guide”, viewed 9 March 2012, Withey, F & Lancaster, G 2012, CIM coursebook 06/07 marketing fundamentals, Routledge, London. Read More