Case: Capital One’s Online Profiles

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In 2010, Capital One Financial Corporation began using special software to createinstantaneous profiles of visitors to its website. Constructed from information such as recent purchases, web browsing history, and geographic location, these profiles were used mainly to determine which credit card offers to display on a visitor’s computer screen.136

Customer Profiles

In the case of one customer, Carrie Isaac, Capital One’s website used “cookies” left by other websites, her Internet Protocol (IP) address, and other technical information transmitted by her computer to conclude that she was a member of the “White Picket Fences” group, a profile for customers who are thought to be middle-class parents who live in a metropolitan suburb and have reliable creditworthiness. Capital One used sophisticated algorithms to determine correctly that she was female and a young parent and that she earned approximately $50,000 annually, had attended, and shopped at discount department stores. On the basis of this information, Capital One’s software displayed a credit card designed for people of average creditworthiness with no annual fee and an initial monthly interest rate of zero percent, increasing to 19.8 percent thereafter. Overall, Capital One’s inferences about Ms. Isaac’s identity were accurate.

The same appeared to be true of another potential customer, Paul Boulifard. Capital One’s website focused on Mr. Boulifard’s residence in Nashville, Tennessee, and his interest in travel. It displayed the “VentureOne Rewards” credit card to him, which allows the accumulation of points that can be used to purchase airline tickets. The images surrounding this card included a beach scene and the slogan “Still Searching? Get double miles with Venture.”

In the case of Karyn Morton, however, Capital One’s software was less accurate. Ms. Morton was profiled as a member of the “City Roots” segment. Capital One accurately determined that she was a homeowner living in Detroit, a member of the National Association for the Advancement of Colored People (NAACP), and a regular reader of major newspapers. It inaccurately inferred that Ms. Morton was retired without children, had little education, and was living on a modest income of $28,000. She actually earned three times that amount, was 33 years old, and held a law degree. Capital One offered Ms. Morton two credit card options, one for individuals with average credit scores and an interest rate of 24.9 percent and one for customers with excellent credit scores and an interest rate of 13.9 percent.

Use of Profiles

Capital One emphasized at the time that it did not use the information gathered in a visitor’s online profile to determine who actually received certain lines of credit. It used only the concrete information voluntarily offered by a customer on a credit application for such purposes. Capital One, therefore, did not violate the Equal Opportunity Credit Act, a federal law that prohibits banks and other lenders from targeting or restricting financial services based on race, ethnicity, national origin, or residency.137 Capital One claimed that it simply made an “educated guess” about what it thought customers would want and featured products based on those inferred preferences.138

Capital One’s efforts at product placement were not unique. Other online retailers have used similar methods in setting online prices.

In 2012, Orbitz, the online travel site that provides low-priced deals on car rentals, hotel rooms, and airfares, offered the same products to different customers at different prices.

Customers who used desktop computers with an Apple operating system paid 30 percent more for hotel rooms compared with customers who booked the same rooms using computers with a Microsoft operating system.139

The office supply giant Staples has sold products at different prices depending upon a customer’s proximity to competitors’ stores. A recent investigation found that theStaples.com website displayed different prices to different people by “estimating” their location based on their computer’s IP address. Staples considered the distance from a competitor’s store, such as OfficeMax or Office Depot, and if a store was located within 20 miles, then a discounted price was shown.

Profiling Technology

Capital One arguably refined a common practice. Marketing decisions involving product placement and pricing have long been guided by the concept of “segmentation.” The marketplace is composed of groups of customers—or segments—with different experiences, demographic traits, and preferences. The rise of information technology and e-commerce has enabled marketers to modify the manner in which they sell products based on their knowledge of the segment to which a potential customer belongs. Segments provide a useful, if imperfect, guide to quickly predict a customer’s likely purchases.

Capital One’s software was engineered by a little-known supplier, [x+1], Inc. Neither this fact nor the exact methods employed by the profiling software were disclosed to visitors on the website. Capital One did disclose that it collected and used visitors’ IP addresses, browser and operating system information, “cookies” placed by other websites, navigation preferences, social media activity, and geographic data. These disclosures, however, were placed within the “privacy” section of Capital One’s website, located at the bottom of the user’s screen in small font. This is typical in the online commercial environment. Internet users are rarely cognizant of how they are being profiled, and privacy disclosures are not easy to find without some effort.141 Users also expect their online activity to take place in a market that provides impersonal, even anonymous, interaction. This expectation is apparently important to Internet users. Marketing studies142 indicate that consumers typically find product and price customization problematic when there is a lack of transparency regarding the customization efforts. When consumers expect standardized sales experiences, customized experiences are considered unfair, but if there is an expectation that product offers or prices will differ between consumers, then variations are perceived as less problematic.143

Capital One’s algorithms were focused exclusively on the information that could be gleaned from visitors’ computers at the moment that they started using Capital One’s website. More advanced technology exists, however, which can combine the up-front data provided by a visitor’s computer, web browser and IP address with larger sources of data that contain historical records of Internet transactions, in-person retail purchases, and e-mail addresses.144 This technology could conceivably enable customer profiling that combines online with offline behavior. It also holds the prospect of eliminating anonymity in Internet transactions. As more data, such as ZIP codes, telephone numbers, birth dates, e-mail addresses, and online social activities, are accessed and used by online advertisers, the accuracy with which companies can place a customer within a segment, or even construct a concrete identity profile, is increased. This capability would expand and refine the ability of companies like Capital One to customize experiences for each consumer.

Question: What is the problem of this case. Does Capital One's have any issued that use customer online profile to clarify their requirement? Can you point out of each problems of this case?

Ahmad, S. N. B. B. (2010). Organic food: A study on demographic characteristics and factors influencing purchase intentions among consumers in Klang Valley, Malaysia. International journal of business and management, 5(2), 105.

Quah, S. H., & Tan, A. K. (2009). Consumer purchase decisions of organic food products: An ethnic analysis. Journal of International Consumer Marketing, 22(1), 47-58.

Shaharudin, M. R., Pani, J. J., Mansor, S. W., & Elias, S. J. (2010). Factors Affecting Purchase Intention of Organic Food in Malaysia's Kedah State/FACTEURS INFLUANT SUR L'INTENTION D'ACHAT D'ALIMENTS BIOLOGIQUES DANS LA RÉGION DE KEDAH EN MALAISIE. Cross-Cultural Communication, 6(2), 105.

Wee, C. S., Ariff, M. S. B. M., Zakuan, N., Tajudin, M. N. M., Ismail, K., &Ishak, N. (2014). Consumers perception, purchase intention and actual purchase behavior of organic food products. Review of Integrative Business and Economics Research, 3(2), 378.

Prepare a consumer report using the 4 articles above as main references. You may also want to do additional academic reading that is relevant to answer this assignment question.

Summary of consumers’ perception towards organic food products in 1500 words.                                              

In April 2010, a gold mining company, Cahaya Emas was formed. Cahaya Emas had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. The gold mine, located on a remote island in the East Coast of Peninsula Malaysia, supposedly had so much gold that the actual price of gold on the open market dropped significantly due to the anticipation of an increased gold supply. Within a few months, thousands of Malaysian – big-time investors, pension and mutual fund, managers and many small investors, including factory workers – got caught up in “Gold fever”. The company’s stock price shot from pennies to more than $250 per share before a 10-for-1 stock split was announced. Thousands of investors believed they were on the verge of becoming millionaires.
Two years later, the president and CFO, who are also the founder of the company were found committing financial statement fraud which went on for about two years. The president and the CFO were the fraud perpetrators. Kate, the accountant was aware of the financial statement fraud being committed by the management of her company, but she never reported it.
As is the case with many frauds of this type, numerous class-action lawsuits were filed against Cahaya Emas management, alleging that they misled the shareholders.

REQUIRED:
A.   Discuss some of the possible reasons for Kate’s hesitance to come forward to report the financial statement fraud.
B.   What were some of the perpetrators’ motivations to commit financial statement fraud?

On July 1, 2010, ABC co. had a cash balance of $10 000.During July the following summary transactions were completed.

1.Received $1,200 cash from customers on account.

2.Received $2,400 cash for services performed in July.

3.Purchased store equipment on account $3,000.

4.Paid cash $ 2000 for a one – year insurance policy.

5.Purchased supplies on account $1,200.

6.Paid creditors $4,400 on account.

7.Performed services on account and billed customers for services provided $1,500.

8.Signed a contract with Alex company to buy furniture of $2 000 next month.

9.Received $800 from customers for future service.

10.Paid salaries of $ 5 000.

11.Rent of $400 was unpaid at July 31.

Required:

(a) Journalize the transactions.

(b) Post to the cash ledger account.

Milner Brewing Company experienced the following monthly sales (in thousands of barrels) during 2010:

  
Please fill the blanks in the table below to answer these three questions: (round to the nearest integers)
(a)        Develop 2-month moving average forecasts for May through July.
(b)        Develop 4-month moving average forecasts for May through July.
(c)        Develop forecasts for February through July using the exponential smoothing method (with w = .5). Begin by assuming  .

10. You have monthly data on gasoline prices in two cities—Vancouver and Toronto, for the years 2006–2010. In each month of each year, you observe the average price of gasoline in each city. Prices in Vancouver are usually higher than in Toronto, but the cities follow similar price trends, as prices rise in the summer months and respond similarly to demand and cost shocks. However, there are month-to-month fluctuations for various reasons.

    Starting from January 1, 2008, Vancouver imposed a carbon tax which was expected to be reflected in higher gasoline prices. Explain how you would use a difference-in- differences framework to estimate the effect of the carbon tax. Carefully define any new variables you need based on the data provided. Then, write down a line of R code which will run the regression you need. Make sure you point out which regression coeffcient is the desired estimate.

The Daily Show. A 2010 Pew Research foundation poll indicates that among 1,099 college graduates, 33% watch The Daily Show. Meanwhile, of the 1,110 people in the poll with a high school degree but no college degree, 22% watch The Daily Show. A 95% confidence interval for pCollegeGrad−pHighSchoolpCollegeGrad−pHighSchool, where pp is the proportion of those who watch The Daily Show, is (0.07, 0.15). Based on this information, determine if the following statements are true or false, and explain your reasoning if you identify the statement as false.

1. At the 5% significance level, the data provide convincing evidence of a difference between the proportions of college graduates and those with a high school degree or less who watch The Daily Show.  ? True False

2. We are 95% confident that 7% less to 15% more college graduates watch The Daily Show than those with a high school degree or less.  ? True False

3. 95% of random samples of 1,099 college graduates and 1,110 people with a high school degree or less will yield differences in sample proportions between 7% and 15%.  ? True False

4. 90% confidence interval for pCollegeGrad−pHighSchoolpCollegeGrad−pHighSchool would be wider.  ? True False

5. A 95% confidence interval for pHighSchool−pCollegeGradpHighSchool−pCollegeGrad is (-0.15,-0.07).  ? True False

Pool Corporation, Inc., reported in its recent annual report that "In 2010, our industry experienced some price deflation. . . . In 2011, our industry experienced more normalized price inflation of approximately 3.5% overall despite price deflation for certain chemical products.'' This suggests that in some years Pool’s overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year.

Purchase and sales data are presented below.

Required:

1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods.

2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?

The multiple regression model is estimated in Excel and part of the output is provided below.

Question 8 (1 point)

Use the information from the ANOVA table to complete the following statement.

To test the overall significance of this estimated regression model, the hypotheses would state

there is    between attendance and the group of all explanatory variables, jointly.

there is    between attendance and the group of all explanatory variables, jointly.

The test statistic is calculated as

   /    =   ,

which follows an F distribution with    numerator and    denominator degrees of freedom. Based on the p-value of 0.272, we    the null hypothesis at a 5% level of significance, meaning that the relationship between attendance and the collective group of explanatory variables    statistically significant.

Word Bank:

85052151is not1.33no significant relationship3.39E+081.13E+0836.46E+09reject767980a significant relationshipfail to rejectis

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QUESTION 33

1. The level of frictional unemployment is determined by

   		the flows of people into and out of employment.
   		the duration of the spells of unemployment.
   		the level of excess demand.
   		technological changes

2 points   

QUESTION 34

1. Employment contracts for the majority of American workers take the form of

   		formal documents precisely specifying in advance the obligations of each party
   		oral agreements that can be legally enforced when necessary.
   		a broad set of informal understandings between each party.
   		collective bargaining agreements made between an employer and a union.

2 points   

QUESTION 35

1. Suppose that the compensating differential associated with working in a noisy workplace is

   $500 per year. This $500 payment can be interpreted as

   		the amount sufficient to attract any worker to the noisy environment.
   		the amount that the marginal worker is willing to pay for a quiet environment.
   		the minimum amount necessary to attract a worker to the noisy environment
   		the most that any worker would pay for a quiet work environment.

2 points   

QUESTION 36

1. Demand deficient unemployment results from

   		a general slowdown in business activity.
   		real wages being inflexible downward
   		changes in the skills required of workers.
   		Both a and b