September 13, 2004

Albertsons Learns the Legal Dangers of CRM

By Evan Schuman, eWEEK

An oft-heard complaint about retail CRM programs is that they are a waste of money when—as happens frequently—the retailer never uses them to connect with customers or even uses individualized information at all.

The naysayers who said privacy resistance could backfire were given a lot of ammunition recently when $40 billion grocery giant Albertsons was sued for trying to make money off of those CRM names.

The essence of the accusations against Albertsons—which has about 2,300 stores in 31 states operating under the names Acme, SuperSaver, Shaws, Savon, OscoDrug and Jewel-Osco—is that it called and wrote personalized letters to many of its prescription drug customers.

Those communications referenced specific drugs they had been using and encouraged them to either refill them or to switch prescriptions. The letters presented themselves as written by the patient's pharmacist, and the callers said they were either the pharmacist or a "pharmacy technician." The consumer rights group that has filed the lawsuit against Albertsons posted copies of the pitch letters and telephone scripts that they said Albertsons used.

So what's the problem? First, the callers and letter writers were not those customers' pharmacist or a pharmacy technician. They were marketing staffers with either Albertsons or an agency.

Secondly, the communications were pitching drugs that made more profit for the drug companies, but may not have helped—and might have been less effective—for the patient.

The communications also didn't reveal that the drug companies were paying Albertsons to send those communications, at a rate of from $3 to $4.50 for every letter and from $12 to $15 for every phone call. In addition, Albertsons received an incentive payment for subsequent and increased sales of the drugs being marketed, according to the lawsuit.

The 18 drug companies—including GlaxoSmithKline, Eli Lilly, Merck, Novartis, Wyeth and AstraZeneca—provided screening criteria to gather certain kinds of patients from the chain's records, and drug company employees either wrote or approved the content of the pitches, the lawsuit said.

Albertsons isn't talking to reporters about the accusations and issued a statement that famed onetime Washington Post Executive Editor Ben Bradlee would have called a non-denial denial. Albertsons issued a statement that denied something they had not been accused of and didn't address what they had been accused of.

"We highly value and respect the privacy of our pharmacy customers and do not sell, nor have we ever sold, their private information," Albertsons said in a statement. The only problem is that they weren't accused of selling the private information. They were accused of using the private information at the behest of drug companies and of being paid for it.

Even if the accusations are true, it's unclear whether any Albertsons customers would have been medically harmed by the deception. All that customers could have done was go to their physician and ask for a new prescription. In theory, the doctor would have considered the patient's circumstances and made the best decision, despite what the patient had been pitched to seek.

As a practical matter, though, a lot of physicians will tend to give the persistent patient a requested drug—unless there is strong evidence that it would be harmful—and the drug companies know that. Otherwise, patients tend to do what in the industry is known as doctor-hopping: the practice of consumers simply going to another doctor who will write the desired prescription.

The issue here comes down to trust. Customers want to trust that their pharmacists know best and are acting with their best interests at heart. Typically, consumers can purchase the same prescriptions for the same price from many pharmacies, so the only effective pharmacy value-add is service, expertise and advise.

Medicine is an especially touchy area. If they were using personalized letters that were supposed to be from the produce manager pushing McIntosh apples over Red Delicious, this wouldn't be an issue. How Albertsons could have not seen the strong potential for this to blow up is stunning. Was the almost $5 per letter enough compensation to shatter consumer confidence in their pharmacy recommendations?

Like CRM advocates needed another headache. Back in July, Kroger's got into trouble for not using its CRM data to alert customers that they had purchased recalled contaminated beef.

Even among drug store chains, Albertsons is not alone. Rite-Aid, Eckerd and Walgreens have also been involved in similar accusations of over-aggressive CRM usage. In Eckerd's case, the retailer had reached a consent agreement with the Florida Attorney General's Office whereby it agreed to stop using drug logs, which are signed by customers, in direct-mail marketing.

These are crucial retail IT issues because IT execs are going to use these lawsuits as another reason to back off individualized consumer campaigns. The sad fact is that they will be drawing the absolutely wrong conclusions. A good idea poorly executed does not instantly morph into a bad idea.

The individualized information in a well-done CRM program is extremely powerful. The lesson to be taken is that marketers must use the information in ways that customers will value and appreciate. If anyone asks in a meeting, "What if they find out?" that's a pretty good hint that this is not a good implementation.

I've cited before my favorite CRM-aggressive retailer: There you have a retailer who pushes individualized information further than almost anyone and does so with topics that might have been expected to sound all kinds of 1984-like alarms: lists of books read, what DVDs someone even looked at, what kind of images they are attracted to, etc.

And yet Amazon has been able to mostly steer clear of privacy pushback fights. Why? They use the information in ways that most customers appreciate and want more of. That's not easy, but Amazon proves it can certainly be done.

Don't look at companies that try to trick customers or show disregard for their safety or even their money as reasons to not aggressively pursue retail CRM any more than you'd look at Charles Manson or Ted Bundy and say, "See? We shouldn't invite people to dinner anymore."