The New Kludgeocracy

If you are not familiar with the term “kludgeocracy,” take a look at the paper by Stephen M. Teles over at New America. Basically it describes the patchwork of policies and regulations that have become a crazy-quilt of “clumsy and temporarily effective solutions” to problems identified in American policy.  I wrote about this topic in 2013 over on the SCHEV Research blog, bringing together the ideas of the kludgeocracy, Big Data, and personalized public policy. I want to revisit these ideas outside the realm of public policy.

I know someone who is a “returner.” This person shops insanely. Buys things and takes them home to see if they “work.” Often they do not. So, they will take them back to the store for a refund or credit. Over the years I have warned them that this cost the stores money, even without considering various efforts at fraud (e.g. I bought a scale at Walmart and opened it at home to find someone had returned their nasty old scale in the package of the new one), and that someday returns, even with a  receipt would not be allowed.

And so we are coming to that day. Return policies at big box retailers are changing. I think WalMart now allows only three returns without a receipt per year, another national retailer, only three returns  per year, period. Think about this. I’m not sure people really think about closely and completely their transactions are being tracked. It’s not just the purchases, but the returns as well. It’s everything.

My friend’s experience is highlighting to me how much return policies are changing. At one national chain, this person’s purchase history was inexplicably “lost” or at least “unfindable” during a four-week period in which the chain’s return policies became much more restrictive.

Retail businesses often live or die at the margins of cost and revenue. It is clearly rational to me that they attempt to do anything to reduce marginal costs and increase marginal revenue. With Big Data and predictive analytics, it would seem to be rational to know your customer’s purchasing habits (and corresponding return habits) to not only advertise to them based on those habits (which is a policy action) but to grant them enhanced status or benefits, also based on those on those habits. Of course, the reverse is true – assign lessened status and benefits.

In other words, I see a day where return policies are determined for very small groups of customers (basically to ensure some veneer of legality and pretense of equity of treatment – really, I mean individuals). For example, your purchase receipt might allow you to return an item for refund or credit within 24 hours while mine might allow me 30 days since I don’t return things (I tend to accept and own my mistakes).

When a store or chain has your entire purchasing history accessible to each transaction, all sorts of possible kludges are possible. All of which are as specific to you as the business can get away with. Further, when multiple store brands are owned under the same corporate entity (TJ Maxx, Homegoods, Marshall’s) the data collection gets larger. When corporations buy and sell customer data from each other, it get’s even larger. They can build a profile of you, of each of us, that allows opportunity to maximize revenue – which is really all that matters.

I think this is happening now, or will very soon. What should the public policy kludge be in response? It seems to me that upfront disclosure and transparency are the minimum. Perhaps the number and demography of people in one’s “policy group” should be at the heart of the disclosure. For example, Google Fit will tell me I have been more active than 96% of Midlothian, VA in the last week, but I have no idea what that means. I know it is of Google Fit users, but is that 10 or 10,000? What’s the distribution across the population? How do they compare to Garmin Connect users in Midlothian (which gives me a somewhat lower ranking)? Basically once a person has been reduced to a number or complex set of numbers which affect their ranking or the benefits they receive, they should be given enough information to allow them to modify their behavior and improve their ranking, if they so choose. Like a credit score.

The kludgeocracy in Corporate America is here. It is not a black box, but an interconnected series of black boxes based on algorithms written by people that have basically one view of how things should be and have been told to “reduce costs, increase revenue and profit.” At least I know that as a middle class, middle-aged white male, these kludgeocracies will tend to benefit me. But, I’m pretty sure that’s wrong.

Actually, I know it’s wrong.

 

 

 

 

 

Be nice. It won't hurt either of us.

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