|May 21, 2001|
When To Share
Wal-Mart and other companies reassess their data-sharing strategies.
By Christopher T. Heun (email@example.com)
|More on customer data:|
al-Mart Stores Inc. revealed last week that it will stop selling its point-of-sale data to market-research companies. That strategic sales information is used in industrywide reports that are available to the retaileróbut also to its competitors. As companies like Wal-Mart refine their collaborative-business strategies, they're sharing more data in some cases, but clamping down in others.
Continental Airlines Inc. recently decided that to be eligible for contracted discounts on air travel, business customers must hand over their travel purchasing data to a third-party data company. Also, Palo Alto Medical Foundation this summer will become one of the first health-care companies to share medical records online with patients and physicians to improve patient care.
It's not uncommon for businesses to share data with partners, though they're careful about what they release, and to whom. In a recent InformationWeek Research survey of 375 IT managers, more than half of respondents say they share order-management, collaborative-planning, and marketing data with supply-chain partners, but only about 20% share weekly sales data. Among the concerns: 70% say increased competitive challenges can result from this kind of collaboration (see "Collaborative Business," May 7, 2001).
Since 1991, Wal-Mart has provided data to six market-research firms, which combine those numbers with sales information from scores of other retailers to create industrywide profiles. For its efforts, the Bentonville, Ark., retailer received a small fee and the reports. But now Wal-Mart has decided that sharing that information helps others more than it helps itself. "Our competitors were getting more out of the third-party data aggregation than we were, so it made more sense for us to stop," a Wal-Mart spokesman says.
Wal-Mart, which operates one of the world's largest data warehouses, is in a position to exercise its will. "They have access to performance metrics in their stores that no one else has access to, and they're improving the way they leverage that information," says Gene Alvarez, program director of Meta Group. Booz-Allen & Hamilton VP Timothy Laseter agrees: "Wal-Mart has the scale to do it on their own. This is just reinforcing the clout Wal-Mart has, and how they're openly wielding it."
Continental Airlines last month began requiring that businesses receiving discounts from the airline funnel data on travel purchases through Continental's preferred third-party data company, the Prism Group in Albuquerque, N.M. But such seemingly simple changes in how data is handled can raise concerns among partners, customers, and suppliers.
Cheryl Hutchinson, global travel manager for American Management Systems Inc. in Fairfax, Va., says the new terms make her uneasy. Before Continental changed its policy, her travel agency sent the airline market-share reports on just two figures: the total spent on Continental and the total spent on all others. Prism says it will break down the purchasing data it gets into the same two categories and share only those numbers with Continental. But Hutchinson, whose company spends $125 million a year on travel and entertainment, doesn't want to give all of its travel purchasing details to Continental's technology partner.
"I don't have a relationship with PrismóContinental has that," she says. "I don't care how many nondisclosures they sign. Why would I want Prism to have all the data on the 75,000 tickets we buy every year?"
Continental says the point is simply to get all the data it needs from all its customers in the standard format that Prism provides. For example, the Prism system recognizes that a traveler who flies from New York to Chicago and then an hour later from Chicago to Los Angeles is actually flying coast to coast and reports the two tickets as a single cross-country trip. Previously, some customers might have reported it as one trip and others as two. But with its 2001 contract with Continental sitting on her desk, Hutchinson finds herself torn over whether to sign it. "We're still negotiating," she says.
Her concerns may be well-founded. Since 1977, Thor 24, a consortium of travel agencies, has negotiated hotel discounts for its members. Last month, it shared its most recent rates with Galileo International Inc., a travel-distribution company that links travel agents with the inventory systems of airlines, hotels, car-rental companies, and cruise lines. The problem: Galileo passed along those discounted rates to all agents that use its systemó42,000 travel agencies in 107 countriesóalong with a complimentary membership to Thor 24 for any agency that used the rates. The hotel suppliers in the program say they're upset by the move. "It's a question of who owns the rate, and does the distribution company have the right to show one customer's rates to others," says Caryl Helsel, who heads distribution for the Kimpton Group Hotels of San Francisco and is president of the Hotel Electronic Distribution Network Association. "We expected to offer that rate on a limited number of rooms, not on every room offered to their entire audience of travel agents."
Wal-Mart's recent move also promises to have ramifications. The question remains whether its competitors and suppliers will be able to continue getting enough data without the retailer's participation. Late last year, ACNielsen held meetings between Wal-Mart and its suppliers, at which it provided data on Wal-Mart customers' shopping habits and demographics. It also developed analytic software for Wal-Mart and its suppliers. It's not sure how last week's news will change things. "For the immediate future, we're trying to keep the lines of communications with Wal-Mart," a spokesman says. "If it comes to pass that the data flow stops at the end of July, we have alternative solutions."
The NPD Group in Port Washington, N.Y., another market-research firm affected by Wal-Mart's decision, plans to survey 300,000 online consumers each week about their purchases. But with nearly $200 billion in annual revenue, Wal-Mart's sales data may be irreplaceable. That data is often the leading indicator for manufacturers on the popularity of new products, and it gives competitors a peek at the success of particular marketing campaigns, says Janet Suleski, a senior analyst with AMR Research.
Toymaker Mattel Inc. uses NPD's market-research data. Bennett Wolk, director of consumer research, says the third-party data shows product performance relative to competitive brands. "The more retailers [that participate], the more complete the information," he says. The data Mattel gets directly from retailers such as Wal-Mart is only on Mattel toys. With Wal-Mart dropping out, "the aggregated data won't be quite as meaningful as it could have been," he says. And he notes that Wal-Mart could be hurting itself with the move. When manufacturers act on the information and make better decisions, it improves business for everyone.
Still, most analysts agree that Wal-Mart's suppliers will be safe. The retailer will continue to give detailed information about sales and inventory in every one of its 2,634 stores and supercenters to Wal-Mart's 10,000 suppliers via SupplierLink, its proprietary supply-chain system, which is fed by a database that contains more than 100 terabytes of sales data, analysts say. Wal-Mart also is live on a private trading platform from Atlas Commerce Inc., letting Wal-Mart consolidate its purchasing globally and bring suppliers online to bid on contracts.
Procter & Gamble Co. subscribes to Information Resources Inc. and Nielsen Data. "But as a valued vendor of Wal-Mart, we also work with Wal-Mart using shared data to develop mutually beneficial plans," says a spokeswoman for P&G. "We'll continue to work with Wal-Mart, as well as our data suppliers, to determine what alternative methods there might be for accessing the market measurement data."
Wal-Mart's competitors, meanwhile, are collaborating on three exchanges being built for retailers, manufacturers, and raw-material suppliers. Kimberly-Clark Corp. in Dallas is testing i2 Technologies Inc.'s collaborative-planning, forecasting, and replenishment software with Target Corp., in Minneapolis, on the WorldWide Retail Exchange. About 55 major retailers and manufacturers now use sophisticated CPFR software. According to AMR's Suleski, retailers spent $13 million on collaborative apps last year; by 2004 they'll spend $243 million.
That's because collaboration lets manufacturers and distributors manage their inventories to ensure that popular products don't go out of stock. But despite those merits, analysts say retailers will seek the upper hand. "If I know if your product is helping me, and I let you know that, you may not give me the markdown or promotion that I'd like," Meta Group's Alvarez says. If a supplier thinks it has a poor-performing product and the retailer knows otherwise, it will keep that information to itself.
Other businesses are reassessing their use of data for different reasons. Patient medical data offers collaboration benefits for Palo Alto Medical Foundation, a 400-physician practice that's part of the $3.5 billion Sutter Healthcare network in Sacramento, Calif., which is exceeding privacy standards set by federal law, says Paul Tang, chief medical information officer. Within two months, the health-care company will deploy software to create reports based on patient data. It will be able to cull information on which of its patients have had mammograms and contact those who haven't, for example. Physicians also are collaborating with specialists by viewing patient records online in real time. "Sharing medical data electronically has significant benefits," Tang says.
The same can probably be said for all industries. But as data collection and analysis becomes more sophisticated, companies' handling of that information surely will, too.--with Eileen Colkin, Robin Gareiss, Alorie Gilbert, Steve Konicki, Cheryl Rosen, and Rick Whiting
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