Companies Adopt New Strategies for Gathering Personal Information under Europe’s Tough New Data Privacy Rules
Nicholas Oliver, CEO of London startup People.io, gathers lots of personal information about users of his mobile app: age, sex, location, profession, relationship status, and more—and uses it to send them targeted advertising. It sounds like just the sort of business model that might be in jeopardy once the European Union’s sweeping General Data Protection Regulation (GDPR) takes effect on May 25. But Oliver is not worried. His company, which provides market research for companies and gives them a pool of potential recipients of targeted advertising, makes it clear to customers why they are handing over their information. It also pays them to do so.
Consumers accrue points for answering questionnaires and for viewing advertisements that brands push through the app. The points can be cashed in at merchants such as Amazon, Apple, and Netflix. “We don’t want to hide the monetary value of people’s data,” Oliver says. “We want to make it explicit.” A growing number of companies are considering similar incentives as they seek to persuade consumers to let them collect and keep personal data once the GDPR comes into force. The law requires companies either to secure customer consent to process the data or to state a “legitimate interest” in keeping it. Under the new rules, aimed at giving consumers more control over their personal information, people can request a copy of the data from companies—and ask that it be erased. Companies that lose users’ trust may find that aggrieved customers simply take their data away.
Gaining permission to collect data—and hold on to it—is a major concern for companies. Strategies include loyalty points programs, product discounts, and special services. Online shoe merchant Zappos.com, for instance, offers parcel tracking only for registered customers. And greeting card merchant Paperchase has a loyalty points program that requires customers to provide their e-mail and home address and consent to marketing messages. There are pitfalls in trying to get more information out of people. One-third of customers will abandon an online purchase if asked to register first and hand over personal information, according to the Baymard Institute, a Danish e-commerce research firm.
“It’s about how you use GDPR compliance to also create things that people want,” says Laurence John, the founder of a London company called Ctrlio that helps price comparison websites create customized promotions for customers. John’s bet is that people will find sufficient value in personalized offers—timed, say, for when they are shopping for a new phone contract or insurance policy—to let Ctrlio hold their data. “The more information you share with the marketplace, the more tailored offers you will receive,” he says.
For merchants, Ctrlio offers better insights into exactly what motivates customers: how price-sensitive they are and the product features they value most. And because GDPR allows almost unlimited processing of data that is fully anonymized—stripped of identifiers such as names, addresses, and phone numbers—Ctrlio also aggregates information for consumer-facing companies such as phone carriers, insurers, and energy suppliers. Among Ctrlio’s customers is German price comparison site Verivox AG. “Ctrlio helps us better understand the price sensitivity of the market and to target individual customers,” says Klaus Hufnagel, Verivox’s managing director. He sees GDPR as a double-edged sword. While it makes it easier for people to delete their information, it also makes it easier for them to take data to a competitor. To keep customers from defecting—and perhaps woo some from rivals—Hufnagel is considering a loyalty points scheme similar to those offered by airlines.
Christian Huber, the Data Protection Officer at German semiconductor manufacturer Infineon Technologies AG, says GDPR could be a big opportunity for companies that use it to build trustworthy reputations. “If you can show you’re compliant and act transparent on data protection, then that can lead to a competitive advantage,” he says. “Everyone wants the data they’re sharing to be safe.” For companies that depend on personal information but are not consumer-facing—such as online ad brokers—figuring out how to deal with data in a post-GDPR world is more complicated. These businesses often rely on large databases containing information they themselves did not collect, so obtaining consent to use what they have is nearly impossible.
Instead, such businesses are relying on GDPR’s rules on aggregate information to establish entities called data trusts. By grouping together, they could potentially get access to wider market insights and they can share the expense and expertise needed to anonymize the data. International Business Machines Corp. and MasterCard Inc. announced plans for such a trust in mid-March. The group, called Truata, will anonymize data and then analyze it for corporate clients—telling them, for instance, how price-sensitive their customers are or what products are most popular in areas they serve. This will enable businesses to extract insights from the data without having to hold on to the personal information long-term. Says Barry Smyth, a computer science professor at University College Dublin and a Truata board member: “If we can’t, as technologists, enable businesses to continue to maximize the promise of data while protecting the rights of consumers, then we all stand to lose.”
Walmart and Humana Team Up for the Medicare Market
Walmart, the giant retailer, is constantly looking for ways to expand its business. Humana, the health insurer, is watching the consolidation taking place in its industry and looking for a partner. Now it appears the two companies are exploring ways to strengthen their ties, the latest sign of the disruptive pressure that is forcing new alliances in the health and retail industries. Walmart is unlikely to end up taking over Humana, but the deal could result in a financial and operating partnership around prescription drug sales or insurance coverage. While much of the focus in retail is geared toward millennials, Walmart’s discussions with Humana involve another large and lucrative market—the health care needs of Americans over 65. Walmart shoppers tend to skew older, with an average age of 50, according to Kantar Consulting. An effective way to reach those shoppers is to provide products and services around health care.
Walmart and Humana already have some synergistic ties. Since 2010, they have sold a co-branded prescription drug benefit for Medicare recipients, which offers savings on certain drugs bought at Walmart’s pharmacies. The two companies are discussing how to expand that partnership in ways that would help drive more traffic to Walmart’s 4,700 United States stores, while increasing Humana’s enrollment. As part of that initiative, analysts said, Walmart could open urgent care clinics inside its stores or hold community events, like bingo nights, that cater to enrollees in Humana’s insurance plans. A deal could be a way for Humana to increase its enrollment, while driving more traffic to Walmart’s stores. “Seniors will come into their stores, visit the pharmacy, see a doctor and do some shopping while they are there,” said Ana Gupte, a senior analyst at Leerink, a small investment bank specializing in health care.
Two months ago, Amazon, JPMorgan, and Berkshire Hathaway announced that they wanted to form some sort of health care venture for their employees, indicating a willingness to shake up the insurance market. Rising health care costs and the prospect that Amazon will make inroads into the pharmacy business and the broader health care industry have set off a spate of deals. Last year, CVS Health agreed to acquire Aetna for about $69 billion in a deal that the companies said would reduce costs and increase health care services through retail clinics. This month, the insurer Cigna agreed to buy Express Scripts, the pharmacy benefit manager, for $52 billion.
But last year, a federal judge blocked a proposed merger between Aetna and Humana over antitrust concerns. With the threat of competition rising, and with an uncertain antitrust and regulatory environment in Washington, Humana and other insurers have been forced to look for new partners, like retailers. Ms. Gupte predicted in a research note in December that Walmart and Humana might soon pursue a deal.
Humana’s largest block of business is in private Medicare Advantage plans for older Americans. Because of the way it is paid by the government, the company makes more money if it can lower the overall costs of caring for its customers. In recent years it has begun investing in its own health care clinics and teaming up with medical providers who can help it manage customers with chronic conditions and try to keep them out of a hospital. The Walmart deal could provide an opportunity to substantially expand that effort, by housing retail medical clinics in rural communities around the country. “The strategy is aimed squarely at the senior market, to leverage retail Walmart’s presence to redefine primary care in Medicare Advantage,” John Gorman, the Executive Chairman of Gorman Health Group, a consulting firm for government health businesses, said in an email. “Walmart has hundreds of pharmacies, and Humana is investing heavily in Conviva, its clinic business. Imagine those two side by side in every Walmart store.”
But there would be challenges. Neither company has extensive experience in providing health care directly; doing so well could be crucial to their integration. And while some of the major insurers contend that these kinds of tie-ups are aimed at lowering costs for consumers and controlling health care costs over all, there is little evidence so far that consumers will benefit if more consolidation leads to less competition.
For decades, Walmart has driven growth by running stores that sell everything from eggs and light bulbs to pocketbooks, and dominating local markets with the lowest prices. The rising threat from Amazon has forced the company to re-engineer its brick-and-mortar network and make a string of online acquisitions, including the hip men’s clothing line Bonobos and Jet.com. But the company has never strayed far from its core retail operations. The shifting whims of consumers have forced Walmart and other retailers to look more radically for other ways to bring customers into their stores. Last month, the supermarket operator Albertsons said it would buy the remnants of the Rite Aid drugstore chain. Its bet is that the increased foot traffic to its in-house pharmacies, which will be rebranded Rite Aids, will also bring more customers to the food aisles. “It is not necessarily about synergies,” said Brian Owens, vice president of retail consulting at Kantar Consulting. “This gives Walmart another opportunity to keep the shopper in their box.”
The Good News Is . . .
- New orders for U.S.-made goods rebounded in February, boosted by strong demand for transportation equipment and a range of other products, pointing to a strengthening manufacturing sector. Factory goods orders increased 1.2%, according to the Commerce Department. Orders for transportation equipment soared 7.0%, lifted by a 26.2% jump in the volatile orders for civilian aircraft. There were also increases in orders for machinery, which rose 1.2%. Orders for mining, oil field and gas field machinery, motor vehicles, electrical equipment, appliances and computers also showed strong growth.
- Lennar Corp., one of the nation’s largest homebuilders in the U.S., reported earnings of $0.53 per share, an increase of 231.3% over year-earlier earnings of $0.16 per share. The firm’s earnings topped the consensus estimate of analysts by $0.07. The company reported revenues of $3.0 billion, an increase of 27.5%. Management attributed the results to strong demand in the housing market and the positive results from its recent acquisition of CalAtlantic.
- Buyout giant Carlyle Group will buy Australia’s Accolade Wines from a local private-equity firm for $770 million, underscoring the investment appeal of China’s wine market. The sale of Accolade, Australia’s No. 2 wine producer and owner of the Hardys and Banrock Station labels, by CHAMP Private Equity comes as Australian wine exports struggle to keep up with growing demand from China’s middle-class. The Australian export bonanza has been spurred on by a free-trade agreement between the countries since 2015 which has seen China cut import tariffs on Australian wine from as high as 20% to about 3%. Australian wine sales to mainland China jumped 63% to a record $651 million in 2017, putting Australia behind only France, official figures show. Australia’s winemakers expect to benefit further from China’s plan to raise tariffs on U.S. wine imports.
Guide to Low Budget Investing Options
One of the most common myths surrounding investing is that it is necessary to have a large sum of money to get started. In reality, it is possible to build a well-rounded portfolio on a small budget of a few thousand or even a few hundred dollars. When operating on a limited budget, the key is to choose investments that offer the most value for every dollar. Below, we offer a guide to some low budget investment options that you can use whether you are starting off with $500, $5,000 or something in between. Be sure to consult with your financial advisor to determine if these investment strategies are suitable for your situation.
Investing $500 – At first glance, $500 may seem like a relatively small amount to work with, but it can go farther than you might think. Exchange-traded funds or ETFs, for example, are an attractive option for investors who are comfortable taking on a higher degree of risk but do not want to pay higher fees. Compared to a traditional mutual fund, ETFs are actively traded on the market and they typically feature a passive management structure, which translates to fewer fees. Because they tend to have a lower turnover, exchange-traded funds are also more efficient in terms of how frequently taxable events occur. Another great, low-fee alternative is a dividend reinvestment plan or DRIP. With this kind of plan, companies allow you to buy shares of their stock and reinvest any dividends earned automatically by purchasing additional shares or fractional shares. This is a good choice for smaller investors because it is possible to purchase shares at a discount and without paying a sales commission to a broker. All that is needed to get started is enough money to buy a single share of the company’s stock.
Investing $1,000 – With $1,000, it is possible to branch out a little more with your investment strategy. Keeping fees to a minimum is still a priority, but investors can move beyond ETFs and consider other options, such as index funds. An index fund is a type of mutual fund that tracks a specific market index, such as the Standard & Poor 500 or the Dow Jones. Like exchange-traded funds, index funds are also passively managed which means a lower expense ratio to contend with. They are structured to match or beat the market, which is a positive in terms of their overall performance. Because they are linked to a broader index, these kinds of funds also offer more exposure to different asset classes. Purchasing individual stock shares can potentially generate higher returns for investors with a higher risk tolerance. Investing in individual stocks that pay dividends is a smart strategy when your budget is set at $1,000. Unlike a DRIP, investors have the option of receiving their dividends as cash payouts or reinvesting them to purchase additional shares. This can be an effective way to create a passive income stream with very little invested up front.
Investing $2,500 to $3,000 – Moving up the ladder, the question of what to do with an extra $2,500 to $3,000 ultimately depends on your goals and risk tolerance. Investors who prefer to play it safe with a larger sum, for instance, may be better off parking it in a certificate of deposit or using it to purchase short-term treasury bills. The growth potential is limited with these types of investments, but the returns are more or less guaranteed and there’s virtually zero risk involved. Peer to peer lending, on the other hand, offers the potential to earn significantly higher yields. Crowdfunding platforms like Lending Club and Prosper allow non-accredited investors to partially or fully fund loans for borrowers. As the loans are repaid, each investor receives a share of the interest in proportion to the amount they have invested. Generally, annual returns fall in the 5% to 8% range but they can climb higher for investors who are willing to take a chance on high-risk borrowers who may be paying interest rates of 30% or more.
Investing $5,000 – The possibilities become even broader at the $5,000 level. One avenue worth considering is making an investment in real estate. While $5,000 is not sufficient to purchase an investment property, it is still enough to allow investors to add real estate holdings to their portfolio in one of two ways.
• The first option is investing in a real estate investment trust (REIT). A REIT is a corporation that owns individual properties or mortgages that produce a continuous stream of income. When you invest in a REIT, you are entitled to a share of the income generated by the underlying properties. REITs are required by law to payout 90% of their income to investors as dividends annually. REITs can be traded or non-traded, with the latter carrying much higher upfront fees.
• Real estate crowdfunding is the second option. Following the SEC’s final ruling on Title III of the JOBS Act, real estate crowdfunding platforms are now in a position to accept investments from both accredited and non-accredited investors. Many platforms set the minimum investment for gaining entry to private real estate deals at $5,000. Investors can choose between debt and equity investments in commercial and residential properties, depending on the platform. Returns for debt investments may range anywhere from 8% to 12% annually, while equity investors may see higher yields with increasing internal rate of return (IRR) for the project itself.
Get Started, but Mind the Fees – Becoming a successful investor depends primarily on what you do with your money rather than how much you have to invest. While it may take longer to build up a solid portfolio using smaller amounts, it’s better to move slowly than put it off altogether. When investing with less, pay close attention to the fees associated with a particular investment, which could shrink any returns you’re anticipating.