Page 327 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes
Example: The most fundamental economic transaction is that of exchange: two individuals
engage in a trade. For example, one person, “the seller” gives another person, “the buyer,” an
apple; in exchange, the buyer gives the seller some money.
Let us think about how privacy concerns enter this very basic transaction. Suppose the seller has
many different kinds of apples (Jonathan, Macintosh, Red Delicious, etc.) The buyer is willing to
pay at most r to purchase a Jonathan, and 0 to purchase any other kind of apple.

In this transaction the buyer would want the seller to know certain things about him, but not
others. In particular, the buyer would like the seller to know what it is he wants – namely a
Jonathan apple. This helps the buyer reduce his search costs since the seller can immediately
offer him the appropriate product. The transaction is made more efficient if detailed information
about the consumer’s tastes is available to the seller.
On the other hand, the buyer will in general not want the seller to know r, the maximum price
that he is willing to pay for the item being sold. If this information were available to the seller,
the seller would price the product at the buyer’s maximum willingness to pay, and the buyer
would receive no surplus from the transaction.

Roughly speaking the buyer wants the seller to know his tastes about which products he may be
interested in buying; but he doesn’t want the seller to know how much he is willing to pay for
those products.

12.2.7 Search Costs

When many people talk about “privacy rights” they are really talking about the “right not to be
annoyed.”

In the “information age” attention is becoming a more and more valuable commodity, and
ways to economize on attention may be quite valuable. Junk mail, junk phone calls, and junk
email are annoying and costly to consumers.
In the context of the apple example described above, it is as though the seller of apples has to tell
me about each of the different kinds of apples that he has to sell before I am able to purchase.

It is important to recognize that this form of annoyance – essentially excess search costs – arise
because the seller has too little information about the buyer. If the seller knew precisely whether
or not I was interested in buying insurance or refinancing my mortgage, he could make a much
better decision about whether or not to provide me with information about his product.
In the context of the apple example: it is in both parties’ interest to know that the buyer will only
purchase a certain kind of apple. The buyer has every incentive to present this information to the
seller, and the seller has every incentive to solicit this information from the buyer.

12.2.8 Secondary Users of Information

When a mailing list is sold to a third party, the relationship between the buyer’s original
interests and the seller’s interest may become more tenuous. For example, suppose the list of
computer magazine subscribers is sold to an office furniture supplier. Some of the people on this
mailing list may or may not have any interest in office furniture.
Even though the first two parties in the transaction – the individual who may want to buy
something, and the seller who may want to sell him something – have incentives that are more
or less aligned, the transaction between the original owner of the mailing list and those to
whom it is sold do not have such well-aligned incentives.

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