Online profiling is collecting information about Internet users and their online behavior to create a profile of their tastes, interests, and purchasing habits. Online profiling is a more sophisticated, efficient, and powerful version of traditional demographic segmentation studies done by marketers. With online profiles, your firm can learn to anticipate individuals' likely tastes and potential spending desires, and allow your marketing and Web strategies to capitalize on them.
HOW TO PROFILE
To build an effective customer profile, the first thing you need to do is design a database that can put the information gathered on your customers to profitable use. Such a database will organize the data you gather and help you draw conclusions about your customers' behavior and interests. The design stage involves creating categories of information pertaining to your customers and identifying how those categories relate to each other. These categories will allow you to quickly manipulate and aggregate data in your analysis. In the end, you want to systematize the data so you can make reasonable predictions about customers' tastes and needs.
You can use either reactive or nonreactive methods to collect Internet data on your customers. Reactive means that the customer is aware the data is being collected, allowing him or her to react in some way. Nonreactive data collection, on the other hand, proceeds without customer knowledge. There are advantages and disadvantages to each approach. By collecting customer data with their knowledge, you build a relationship of trust with your clients and can perhaps develop a more cooperative and comprehensive interaction with them over time. On the other hand, the knowledge that data is being collected may cause customers to curtail their natural surfing habits or avoid online shopping. Nonreactive data collection, meanwhile, has the advantage of appearing less intrusive, so customers have no impetus to change their behavior. However, collecting and using customer information in secret poses ethical and potential public-relations difficulties, which can damage your firm's reputation and make customers wary of your site.
You can collect nonreactive customer information in a variety of ways. Many firms maintain Web log files, the records of all requests for pages or files on your site. You can also find information using common gateway interface (CGI) files, based on a protocol designed to communicate with Web forms, recording the kinds of services and products requested by the user. One of the more elaborate methods is to use software applications designed specifically for online profiling, such as cookies. Cookies are coded identifiers that are placed on a user's computer when a page, such as a banner advertisement, is loaded. The files can help you identify which pages a person visits and how often. From these practices you can reach some general assumptions about customers' online behavior, and tailor your marketing schemes accordingly.
Reactive data-collection involves requesting information from the user such as name, e-mail address, address, and other personal details. In addition, you can ask descriptive questions to obtain information on shopping habits, income, sex, education, occupation, and other sociographic data.
Customer profiling does come with pitfalls. As with many activities related to the Internet, customers and other Web users are often wary of businesses that engage in online profiling, seeing such practices as a violation of their privacy. Privacy concerns are among the chief factors limiting e-commerce, as customers refrain from making purchases online lest the transmission of personal or financial data be taken out of their control, potentially falling into unwelcome hands. This, in turn, can tarnish your company's reputation and diminish the your customers' trust.
Thus it is extremely important to be open about your profiling practice. This will help avoid any suspicion of impropriety, while also clearly explaining your profiling policy to your customers so they can feel safe shopping at and giving information to your site. Many companies include a link on their Web site to their privacy policies, which are carefully crafted to assure their customers that information collected on them is used to help meet their needs. The policies spell out exactly what will and will not be done with accumulated information.
The U.S. Federal Trade Commission (FTC) in 2000 issued a report on online profiling calling for the practice to be informed by five "core fair information practice principles": notice, choice, access, security, and enforcement. According to the report:
- Web sites need to disclose their profiling practices.
- Consumers should have the chance to opt out of the practice or have a say in how the information is used.
- Once information is collected, individuals should have access to their profiles
- Profiles should be secured from unauthorized viewers
- Enforcement mechanisms should be in place to ensure that Web sites meet their own requirements regarding their profiling practices
While critics charge that online profiling represents a potentially dangerous breach of individual privacy, proponents argue the practice is pro-customer because it ensures companies can meet customers' needs. At any rate, according to many analysts, online profiling is less a choice than a necessity for Internet businesses; it is less an issue of whether to profile customers online than of how companies implement such practices.
Cantos, Lisa, Lorin Fine, and Randi Singer. "FTC Releases Online Profiling Report." Intellectual Property & Technology Law Journal, October 2000, 22.
Thibodeau, Patrick. "Online Profiling." Computerworld, September 18, 2000, 56.
Wiedman, Klaus-Peter. "Customer Profiling in E-commerce: Methodological Aspects and Challenges." Journal of Database Marketing, January 2002, 170.