"Since information helps markets work better, the cost of privacy is less efficient markets," writes Paul H. Rubin in the Wall Street Journal (8/30/10). That's the first of Paul's ten rebuttals to what he sees as "fallacies" about privacy. His point is that, contrary to what some may believe, our privacy is not free, given "a strong trade-off between privacy and information." Paul also says that the costs of privacy are not "borne by companies" because "consumers get tremendous benefits from the use of information."

He notes, for example, that Google's various free services are "all ultimately funded by targeted advertising based on the use of information." Naturally, Paul also forwards the most common anti-privacy argument -- that when ads are targeted, consumers "get better and more useful information more quickly." He further contends that the quality of those services would decline if Google didn't have the information required to "better target searches," for example. "Shorter retained search histories mean less effective targeting, " he writes.

Refuting the argument that privacy invades our personal space, Paul points out that most information is used anonymously. He says that information-based price discrimination "makes it possible for firms to provide goods and services that would otherwise not be available, "and that less privacy creates greater safety, since information is used to combat identity theft." Opt-in doesn't benefit consumers, says Paul, "since the use of information is generally benign and valuable." And he says consumers should not be irate over how their information is used, "because there is no harm from the way it is used."

"I understand that advertising supports the internet, but I am a little spooked out," says Senator Claire McCaskill in a New York Times piece by Miguel Helft and Tanzina Vega (8/30/10). She adds: "This is creepy." The senator is among several lawmakers considering regulations on "remarketing," or the practice of tracking consumer behavior online to serve up targeted ads. Zappos is among the most enthusiastic proponents of the practice, but it appears that some backlash may be brewing.

If you've ever shopped at Zappos, you may have noticed that items you viewed but didn't purchase show up in ads on sites -- YouTube, Facebook or MySpace -- that you subsequently visit. "It's a pretty clever marketing tool," says Julie Matlin, who found herself being followed around by a pair of shoes she had viewed on Zappos. "But it's a little creepy, especially if you don't know what's going on." Julie was even more chagrined when she found out she was being followed by ads for a dieting service.

Aaron Magness of Zappos says that's why each ad has a link to an explanation for it along with an opt-out option (which few apparently take advantage of). However, Joseph Turow of the Annenberg School says that simply telling people what's going on isn't enough. "When you begin to give people a sense of how this is happening, they don't like it," he says. And Alan Pearlstein of Cross Pixel Media, suggests it's overkill and thinks the approach could be more subtle by featuring general coupons versus specific items, for example. "What is the benefit of freaking customers out?" he says.

Fred Taylor Jr. is not officially the "chief apology officer" for Southwest Airlines, but he might as well be, reports Terry Maxon via McClatchy/Tribune News (8/24/10). Fred, along with two assistants, sends brief emails of apology to passengers when something goes wrong. Usually it's relatively routine stuff, like delays. But sometimes it's kind of crazy, like the time a female passenger started chewing on a seat cushion, and then doffed her top and ran down the aisle.

In such cases, Fred's apology goes something like this: "On behalf of Southwest Airlines employees, I extend my apologies for any disconcerting feelings you may have had as a result of the bizarre behavior or one of your fellow travelers. Certainly, your patience and cooperation while the local authorities responded to the situation and conducted their respective investigation is greatly appreciated -- I imagine the wait was a bit of a hassle as well, and I'm sorry for the inconvenience."

Such apologies are normally sent within 24 hours of the incident, and are accompanied by some kind of gift, "usually a voucher in dollars that can be used on their next Southwest flight." Southwest has been apologizing like this for 10 years and it helps. According to the U.S. Department of Transportation, "American, Northwest Airlines, US Airways and United Airlines all have complaint rates more than five times as high as Southwest's," which has the industry's lowest complaint rate. Delta's is more than nine times higher than Southwest's.

Lenny & John's in southeast Brooklyn is like any other pizza parlor, only different, reports Michele Monteleone in the New York Times (8/15/10). It's got pizza boxes stacked to the rafters. It's got those little plastic shakers of red pepper, garlic and oregano. A slice is two dollars and most days a pie is $13. But the one thing it's got that maybe other pizza parlors don't have so much is really powerful customer loyalty.

"Just last week I had 10 guys in here, all grew up in the neighborhood but now live in New Jersey, Staten Island, Long Island," says John Scandiffio, who opened Lenny & John's with his brother-in-law, Lenny Maffie way back in 1969. "They found each other on Facebook," (fan page) says John, "and they ended up over here." Rick Gonzalez says it's because Lenny & John's (video) is like the Cheers bar. "The food is great, the customer service is great, and there's always a friendly face," he says.

But there's more. Shortly after Nine-Eleven, John "hung an American flag on the back wall ... One by one, emergency workers stopping in for a pie to take with them to Ground Zero began ripping badges off their uniforms to hang on the flag. Today, 77 badges are on the flag" and John says he has hundreds more at home. "So many of the customers, I grew up with them, and when they come through the door it's like seeing family," he says. Lenny & John's is located at 2036 Flatbush Avenue near Avenue P.

A former Expedia executive is launching a loyalty program that enables independents to compete with the big hotel chains, reports Elizabeth Olson in the New York Times (8/3/10). Jeff Low, along with "e-commerce veterans of Amazon, Microsoft and Zillow ... has signed up 79 hotels in 63 cities" in Stash Hotel Rewards. All of the participating properties have three-star ratings or higher, and the idea is to give travelers more choices.

"Travelers said they often felt forced to make a frustrating trade-off," says Jeff. "An independent hotel offers a more memorable, personalized guest experience, rather than the same bland room and identical bed in the big-box hotel just to earn points." The concept is poised to work equally well for the hotels: "Independent hotels can now say that we've got what you're looking for, and there's also something in it for you, the traveler," says Jan Freitag of Smith Travel Research.

The independents certainly could use a boost. Occupancy at independent hotels dropped 8.9 percent last year and rates dropped by 9.5 percent, according to Smith Travel. The Stash Network is less expensive for hotels than other online booking sites, which typically charge 25 percent per booking, versus seven percent via Stash. Jeff Low says he hopes to have signed an additional 200 upscale independents by next year, which would put Stash in a league with Hyatt, which has 240 properties, and on the trail of Starwood, which has 500 in the US.

"We are looking at different ways that customers can provide us value for the value we provide," says Bank of America spokesperson Robert Stickler in a Wall Street Journal piece by Dan Fitzpatrick (7/16/10). "That can be the way they interact with us," he continues, "how much business they bring us, and if all else fails it can be a monthly fee." That's the strategy at Bank of America, which has "some sort of banking relationship with half of all US households," once "the expected new era of regulatory restrictions" takes effect.

It's a strategy involving the "retraining employees in its 6,000 branches" and it is captured in a single word, "Guest." It's actually an acronym: "G is for 'genuine welcome,' U means 'undivided attention,' E is for 'empowered,' S stands for 'solutions' and T is for 'thank you.'" But its effect, apparently, is to invite customers to stop talking to tellers and use the ATM machines outside instead because it's cheaper, for the bank. Soon, it will be cheaper for its 55 million customers, too.

Bank of America is introducing a new type of account where if you agree to bank only online and by ATM, your account is free. But if you still want to talk to a teller and receive paper statements, it's $8.95 a month. The bank is doing this, in part, because the new banking regulations outlaw overdraft fees, which will eliminate $2.2 billion of its revenues. In fact, as of last year, "fees and service charges generated $6.8 billion, or nearly half the revenue in the bank's deposit business." Next window please.

Three years ago, on the cover of the Hub's July issue -- always our "brand identity" issue -- we featured BP (link). We would laugh about the irony if the reality weren't so tragic. An oil company bent on projecting a "green" image certainly made for a good story at the time. It's hard to resist the allure of such a narrative when success might make a real difference in the world.

Clearly that will never happen when the storyline is just a tactical cause-marketing come-on that nobody believes is for real. For a brand to re-badge itself as completely as BP apparently had once hoped requires a profound cultural shift that evidently never happened there. For me, the memorable thing about our BP story was the way Ann Hand, then its marketing chief, framed it. Ann clearly was proud of Helios House, which was BP's "sustainable" gas station. But her main focus was less on "green marketing" than on creating a better customer experience.

"It just felt like it was a worthy cause to try to get after the guest experience rather than just accepting the self-fulfilling prophecy that buying gas is a bad customer experience," she said. Had BP succeeded in this modest goal, it wouldn't have prevented the oil spill. But we can still give Ann Hand credit for recognizing that improving a brand's identity can be as simple as making something as mundane as filling your gas tank more pleasant. That doesn't help the planet right now, but it's a cause worth considering.

In diabetes, Walgreens sees a great opportunity to build customer loyalty, reports Dana Mattioli in the Wall Street Journal (6/7/10). The retailer's research shows some "4,000 new diabetes cases being diagnosed each day." It also reveals that many diabetics are "confused about managing the disease and the advice they received." In response, Walgreens "has trained 500 pharmacists to work closely with diabetes patients."

So far, Walgreens has implemented its program in eight regions and plans to roll it out "nationally by the end of 2010 ... and extend similar services to customers with asthma and hypertension." Colin Watts, the chief innovation officer for Walgreens, comments: "We think we'll see a stronger degree of patient loyalty, and we want to get a bigger share of the patient wallet."

American Express is also investing in better customer service by "getting call-center agents to focus less on resolving calls quickly and more on building customer loyalty." Instead of answering the phone with "Thank you for calling," reps instead say "How is your day going?" Yes, it's all a prelude to a sales pitch. As Tina Waters of Comcast explains: "Our primary focus has been on ensuring that we're delivering superior customer service and that clears the way for us to be able to up-sell."

The real battle for loyalty between mobile phone carriers isn't the one centered on Apple, Android and BlackBerry, reports Damon Darlin in the New York Times (6/13/10). While it's true that some "55 million people worldwide use iPhones ... there are billions of feature-phone users worldwide." Feature phones are the basic models that can place a call but can't connect to the internet, and "are discounted by carriers or offered at no cost."

This reality was recently noted by Bill Gurley, a venture capitalist, who writes a blog called abovethecrowd. The thing is that these billions of feature-phone users "will make the move up to smartphones as the cost of both the phones and the service drops (And it will. The cost of delivering bits drops about 50 percent with every generation of network technology)." Because of this, Bill suggests that the Android doesn't need to be as good as the iPhone to prevail.

"It only needs to be as good as an Apple phone to entice new customers," he writes. "Which it is." Once Android has those customers, chances are it will keep them, not necessarily by making improvements to the phone, but by raising the barriers to switching to a point where, for one reason or another, it's too bothersome to switch. And as soon as they've got you hooked, they can raise their prices on you. Economists refer to this little trick as "switching costs," while marketers probably would call it "loyalty marketing."

What comes after the circular?  Retailers pinpoint better ideas. By Spencer Hapoienu. (more)