Big retailers are getting personal. Analysing data has long been a weapon in their armoury to persuade shoppers – inundated with choices on the high street and increasingly online – to buy their products rather than those of their rivals.

Tesco, Britain's biggest retailer, led the way with its Clubcard, a customer loyalty programme introduced in 1995 that gave it a mass of data to mine about how people shop. It could not only analyse consumer habits but also spot gaps in its offerings. As a result, Tesco came to know more about Britons than they perhaps knew about themselves.

But as the consumer environment has become more difficult, and the use of big data more prevalent, retailers have taken their use of data one step further, with personalisation expected to provide further market penetration.

The supermarket sector has also become awash with special offers – in the UK, about 40 per cent of all supermarket purchases are on promotion. Mike Coupe, group commercial director of J Sainsbury, recently likened untargeted promotions to “[throwing] the mud at the wall and seeing what sticks”.

Janet Smith, Tesco’s head of group loyalty, says Britain’s biggest supermarket chain is using Clubcard data to offer more targeted promotions than mass couponing – typically money-off coupons printed in newspapers. “They do drive footfall,” she says of mass coupons, but “they are bland. They are not as effective.” Instead, the company is tailoring the coupons it offers to customers' own preferences, based on their likes and dislikes. “It's really focusing on giving customers discounts on the things they want to buy,” she says.

One of the ways Sainsbury is using the data from its Nectar loyalty card is to offer holders targeted money-off coupons at tills, based on the products their scheme members buy regularly. “That is the other bit of the jigsaw,” says Sarah Warby, marketing director of Sainsbury. “[It is] what the Nectar card tells us that allows the coupon at the till to be really relevant.”

But elsewhere in the sector, personalisation is taking other forms, with some retailers basing offers on web searches that individual shoppers make. Tesco and Sainsbury do not use these methods to decide which promotions they offer to customers.

Online searches can be used to build a demographic profile of a customer. For example, if a shopper is of a particular age or gender, then he or she may need to buy certain products. This data could then be used to send consumers certain offers or promotions.

“A marketeer would tell you it is essentially the same thing that they have been doing for years,” says Mac Macmillan, of counsel at law firm Hogan Lovells. “The difference is the richness of the data and the richness of the profile that you can create. That is the bit that is sometimes unnerving for people when it dawns on them the level of detail and richness of the profile that can be created.”

She adds that such data should also be treated carefully, with the data restricted to prevent it falling into the wrong hands.

The UK’s consumer protection watchdog, the Office of Fair Trading, is also looking at whether online retailers are personalising prices to customers, based on factors such as their browsing history.

Personalised pricing takes the concept of targeted marketing one stage further. The theory is that retailers may not just offer discounts and promotions, but also adjust the prices they offer to a website visitor based on the visitor’s past online behaviour or location.

The OFT first looked at this issue in a report on the “Online Targeting of Advertising and Prices” in 2010. At the time it did not find any evidence that this type of personalised pricing was happening in the UK, but it recognised that the area was still evolving. Consequently, it wants to understand the changes that have taken place since the 2010 study, to ensure that regulatory controls keep pace with technology and business strategy. However, Ms Macmillan says there is little evidence of online retailers engaging in these types of behaviour.

“I have not myself encountered any retailers who are charging more based on data analysis,” she says.

Oliver Bray, a partner at law firm Reynolds Porter Chamberlain, also believes it is unlikely that big retailers would want to engage in these types of practices.

“Aside from the legal and regulatory risks, most of the UK’s main retailers would not want to suffer from the kind of reputational fallout that could stem from targeted pricing,” he says.

“Targeted pricing is potentially very attractive to online retailers because it allows them to charge more to customers that are willing to pay more for their products,” he says.

“However, it’s highly likely that this will result in a breach of data protection and consumer regulation – and anyway, most online retailers won’t risk alienating customers by adopting practices which most customers would perceive as unfair.”

Retailers now find themselves in a new era of customer insight – with the digital age offering a rich seam of information that in previous decades would have been unimaginable. Their survival is likely to depend in part on their ability to navigate the difficult path of offering increasingly sophisticated targeted promotions while reassuring customers that their insights have been gained within the law.

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