Consumer Trends Report — Chapter 2: Consumers and Changing Retail Markets

Chapter 2 — Consumers and Changing Retail Markets

Most expenditures by consumers for goods and services occur through retail transactions. This retail spending accounts for between 50 and 55 percent of Canadian households' consumption (mortgage and rent payments are not considered to be retail expenditures), while retail trade represented 6 percent of GDP in 2001 (Retail Council of Canada 2001).Footnote 42 Of the many factors that have transformed retail markets over the past two decades, one of the most significant is technological change.

This chapter deals with five subjects: the changing retail market structure in Canada, the increasing use of technology in stores, the effect of the Internet on how consumers get information about and buy goods and services, the manner in which technology has changed how people access and spend their money, and the growing presence of marketing in Canadian society.

2.1 The Changing Retail Market Structure

The retail market structure has changed considerably in recent years. A number of large non-Canadian retailers (mainly from the United States) have established a significant presence in Canada, bringing with them new approaches to doing business, such as use of the "big box" retail format, everyday low pricing, and advanced logistic systems. Several Canadian retailers are transforming themselves to compete successfully with these large newcomers, while in some sectors, local independent retailers have disappeared altogether. In the short term, Canadian consumers have benefited from the lower prices and added convenience associated with the changed retail market structure, but, at the same time, the retail environment has become more homogenous and concentrated.

Foreign retailers in Canada

During the last three decades, foreign retailers have increased their presence in Canada. Between 1975 and 1995, the number of foreign retail stores more than tripled, from slightly more than 3000 to approximately 10 000, and their floor area more than doubled (see Figure 2.1). And as of 1996, foreign retailers accounted for about 35 percent of all retail sales in Canada and about 19 percent of all non-automotive sales (Simmons and Kamikihara 1999, 19).

Figure 2.1

Market Share of Foreign Retailers in Canada, 1975-1995

Note : Data for floor area (in percentage terms) for 1975 are not available.

Source : Simmons and Kamikihara 1999, Table 10, p. 19.

The bulk of total foreign retail sales in Canada (approximately 75 percent)is attributable to firms based in the U.S., with most of the rest coming from firms in the United Kingdom (Simmons and Kamikihara 1999, 24). In fact, then umber of U.S. retail chains operating in Canada increased from 10 in 1985 to 185 in 2003. As of early 2003, 11 of the top 20 retailers in Canada (measured in terms of retail sales) were U.S.-owned (CSCA 2003). A recent analysis by the U.S. government identified several factors contributing to the strong presence of U.S. franchises in Canada, including that Canadian consumers readily recognize and are familiar with American products and services due to their "constant exposure to U.S. media, [which] results in very high receptivity even before [American] products and services come onto the market" (Wetzel 2003). Other factors identified are the similarity between Canadian and American cultures and markets (Watson 2000) and the proximity of the two countries, with Canada being an attractive market to U.S. retailers: "Toronto [is] the fifth largest metropolis in North America, and … 55 percent of Canada's population lies between Québec City and Windsor, within 100 miles of the United States" (Thorne 2000).

The importance of small businesses to consumers' interaction with the marketplace

Canada's economic landscape is significantly shaped by relatively small-sized businesses where, according to 2000 Statistics Canada data, around 97 percent of establishments have 50 employees or less.Footnote 45 More specifically:

...small businesses are heavily represented across the entire spectrum of consumer-facing industries, spanning accommodation and food service firms, retail stores, and many professional services firms in fields such as law, accounting, consulting, and medicine. Non-professional services, such as auto repair and contractors, also target consumer business and are heavily represented within the small business sector (TD Canada Trust, 2003).

A number of positive characteristics are associated with small and medium-sized businesses, such as the capacity to respond quickly to changing consumer needs given flat management structures and flexibility and more personalized service for customers. During the course of past consultations on the Competition Act, it has been underscored that "the protection of small and medium-sized businesses is considered one of the derivative benefits of maintaining and encouraging competition, rather than a separate goal of competition legislation" (Public Policy Forum, 2000). From a consumer perspective, it is also believed, however, that transacting with small businesses "exposes the consumer to many challenges and potential market failures in such areas as choice, complaints and redress, information, consumer education, selling practices, repairs and warranties and protecting their consumer interest in general" (McGregor, forthcoming). Given their significant presence in the Canadian marketplace and their unique characteristics compared to larger stores, small businesses are key when developing consumer protection policy options and legislative proposals, which can present different challenges for small businesses to interpret and apply.

Historically, foreign retailers have been responsible for introducing many of the most important structural innovations in the retail sector in Canada, including the "five and dime" store, the supermarket, the discount department store and "big box" stores (Simmons and Kamikihara 1999, 5). In recent years, Wal-Mart in particular has been credited with spurring several retail innovations in Canada, such as technologically advanced distribution centres with efficient cross-docking (merchandise received at a warehouse or distribution centre is not put away, but instead is readied for shipment to retail stores) and electronic scanning and sorting technologies. Researchers from the Centre for the Study of Commercial Activity (CSCA) at Ryerson University observe that intense competition was lacking among Canadian retailers prior to the entry of foreign (especially U.S.) retailers in the 1990s. Without them, the Centre concludes, the Canadian retail sector may have been slower to change and less innovative, possibly resulting in higher prices and fewer choices for consumers in Canada.Footnote 43

Public opinion data suggest that Canadians have mixed feelings about the increased presence of U.S. retail chains in Canada, with equal proportions (28 percent) reporting a positive and negative impact on Canadian consumers (44 percent reported a "neutral or mixed" impact) (Millward Brown Goldfarb 2003, 3–8). Millward Brown Goldfarb conclude:

On the one hand, [Canadians] are happy to have a variety of choice and access to the same products as those in America, but on the other hand [they] worry about the possible dominance of huge, well-financed retailers in the Canadian market and the repercussions this would cause. If the rapid ascension of Wal-Mart to the top of the Canadian discount retailer market is any indication, Canadians are willing to put aside nationalist worries if the price is right (Millward Brown Goldfarb 2003, pp. 3–8—3–9).

Large retailers, foreign and Canadian, are now more common

Most observers agree that at no time in history has retail marketing been evolving as rapidly as it is now, and that the most significant development of the last few decades has been the emergence of big box stores.Footnote 44 In the first study on this issue by Statistics Canada, Genest-Laplante identified three unique categories of big box stores in Canada and quantified the growth (in market share) of these new formats. The first category is supermarkets, with groceries as the main products, and a minimum store size of 50 000 sq. ft. Second are specialty stores — retailers focusing on specific types of consumer goods, such as sporting goods, electronics, toys, drugs and clothing, with a minimum size of between 5000 and 20 000 sq. ft. (depending on the type of goods sold). Finally, there are general merchandise stores with a minimum of 90 000 sq. ft. Since 1989, these three categories have steadily taken a greater share of Canadian consumer sales in their respective markets. For example, by 1996 big box supermarkets had a 35 percent market share of the retail food market (up from about 21 percent in 1989), specialty retailers had 25 percent of specialty retail sales (up marginally from about 21 percent in 1989), and general merchandise stores had a 70 percent share (up from 60 percent in 1989) (Genest-Laplante 2000).

New strategies on pricing

Wal-Mart entered Canada in 1994 with the acquisition of 122 Woolco stores, and "in eight short years, it has easily surpassed the Hudson Bay Co.and its Zellers chain to become Canada's number one retailer. …Wal-Mart [in 2002] effectively controls 38 percent of the Canadian department store market" (Libin 2002). Anecdotal evidence suggests this share continues to grow significantly. Before Wal-Mart's arrival, Canada's retailers mainly operated according to a variable "high low" pricing model, using weekly fliers, loss leaders and specials to attract consumers. However, "to compete against Wal-Mart and one another, Canadian discount and traditional department stores are borrowing some of the U.S. giant's tactics, including everyday low pricing" (Thorne 2000). For example, it was reported in 2003 that approximately 35 percent of Sears Canada's sales are based on everyday low pricing, a substantial departure from its historical method of using frequent markdowns to attract customers (Strauss 2003). The same source reported that Zellers has responded by moving a larger share of its inventory to an everyday low pricing system (96 percent of inventory as of 2002, up from 87 percent in 2000). The end result is that it appears Canadian consumers are benefiting from consistently lower prices due to the introduction and widespread use of everyday low pricing in the retail marketplace.

The growth of big box stores has been facilitated by the arrival of several major U.S. retailers in Canada since 1994, including Best Buy, Old Navy, Home Depot, Wal-Mart, Staples and Winners (CSCA 2003). This big box phenomenon has been an important influence, and a number of large Canadian retailers have since adopted this format, including Rona, Canadian Tire, Danier Leather, Harry Rosen, Jacob, Loblaws Supercentre and Zellers (CSCA 2003). Moreover, big box retailing itself has led to new formats. For example, "power centres" (defined by CSCA as three or more big box retailers with a shared parking lot and typically adjacent smaller commercial services) emerged in Canada in 1992, and numbered 213 as of 2002. Power nodes (which CSCA defines as one power centre with additional big box or power centres within a one kilometre radius, typically centred at a major highway interchange) began to emerge in Canada in the mid-1990s, and numbered 44 as of 2002.Footnote 46 In terms of impact, anecdotal evidence suggests that big box stores encourage consumers to make longer trips to get to them ("destination shopping")and to visit fewer stores per trip (CSCA 2003).

The big box store concept has resulted in changes all along the retail industry's supply chain, from manufacturers, subcontractors, and distributors, to related sectors such as packaging.Footnote 47 Given the scale of the contracts offered by big box retailers, the latter have been in a position to put significant pressure on suppliers to innovate as a means to remain competitive. Industry observers have noted how some manufacturers'relationships with big box retailers have lead to a modified, streamlined supply chain:

In the past, manufacturers created complex product lines, and the costs associated with such variety were simply passed down through the supply chain — to the wholesaler, then to the retailer, and finally to the customer. Big box retailers, however, have squeezed the inefficiencies out of the system by occupying the leading edge of supply-chain automation. They often require a dramatic restructuring of the way manufacturers supply products to market (Schwalm and Hardling 2000, 30).

Beyond automation-based efficiencies, there are other ways in which large retailers are affecting relationships with suppliers:

Retailers in many industries have become bigger in sizes (sic) (e.g. chain stores, big box stores)… Retailers have also started to develop in-house brands so that they do not completely rely on upstream manufacturers' supplies. These changes may have helped retailers increase their bargaining power over suppliers. The retailers with bargaining power are also likely to impose vertical restraints on manufacturers. Examples of these restraints include slotting allowances, listing fees, up front payments, exclusive supply, refusal to stock (or delisting), minimum supply levels, and minimum advertising requirements. The question is whether these restraints are efficiency enhancing and/or anti competitive (Tan, 2001, 14).

In summary, while large retailers' buying power can lower prices, it may also influence what products find their way to store shelves and, therefore, may have longer-term impacts on consumer choice.

Canadians clearly enjoy many of the features of big box stores, including added convenience, longer hours of operation, one-stop shopping, and free and ample parking. Public opinion data from 2003 indicated that a majority of Canadians find that big box retailers provide convenient one-stop shopping (72 percent) and lower prices (68 percent).Footnote 48

But there are disadvantages to big box stores, including crowds, traffic congestion and, particularly for older consumers, very large spaces that can be exhausting and disorienting to navigate. Perhaps the greatest perceived shortcoming of big box stores is a lack of personal service. For example, in a 2003 national poll, only 26 percent of Canadians agreed that big box stores provided better service than smaller stores,Footnote 49 and a 2000 poll of British Columbia residents revealed that a slim majority (51 percent) preferred shopping in smaller stores to big box ones, citing the personal attention and service they receive in smaller shops (see Retail Council of Canada 2000). Considering all factors, however, Canadians appear to appreciate big box stores — some 57 percent agree that "overall, they are good for consumers."Footnote 50

Greater concentration in the retail market

With the growing presence of large retailers over the last decade, Canada has witnessed increasing concentration in some retail sub-sectors, as measured by the market share of the top four corporations.Footnote 51 In fact, between 1998 and 2001, the three most highly concentrated retail sub-sectors in Canada (food, prescription drugs and general merchandising)all became more concentrated (see Figure 2.2). While comparative statistics are hard to find, there is some evidence to indicate that parts of Canada's retail sector are more concentrated than comparable sub-sectors in some of our closest trading partners. For example, in 1998 the largest supermarket chain in Canada had a market share of 31.1 percent (Gomez-Insausti 2000, 19), far exceeding the market share of the largest food retailer in the U.S. (5.8 percent) and Great Britain (15.4 percent) (Hughes 1996). Interestingly, the two least concentrated retail sub-sectors in Canada (household furnishings and appliances, and apparel) became even less concentrated between 1998 and 2001.

Figure 2.2

Market Concentration of Large Retailers, 1998 versus 2001

Source: Gomez-Insausti 2000 and CSCA (Ryerson University)2003.

While data about store closures nationwide do not exist, the impact of selected big box stores on the retail structure in the Greater Toronto Area (GTA) has been analyzed. Between 1993 and 2002, the closure rate for smaller stores located within five kilometres of a selected big box retailer ranged from 26 to 55 percent.Footnote 52

An earlier study in the GTA found that in the first years of competition, the closure rate in a retail category was high as the weakest street retailers were forced out of business,Footnote 53 and that even retailers several kilometres away experienced small losses ins ales in some sectors (Jones and Doucet 1999, 23, 36). Canadian consumers are well aware of these impacts: a public opinion poll in 2003 found that 74 percent of Canadians believed that the arrival of big box stores resulted in fewer independent local stores.Footnote 54

The implications of a more concentrated retail sector extend to the street level, with more homogeneity and less diversity, as independent retailer shave traditionally provided "a social, cultural and economic focus for their surrounding neighbourhoods" (Jones and Doucet 1999, 16). A case can be made that big box stores may result in a less community-oriented retail sector. For example, the GTA study reported a noticeable impact of independent store closures on the "quality" of the shopping experience in the streets of Toronto. While the situation might be mitigated somewhat by a shift to restaurants, high-end coffee shops, and personal and business services outlets, independent clothing and hardware stores generally made way for low-end dollar stores and doughnut shops (Jones and Doucet 1999).

The CSCA also notes that power centres (and power nodes), which are becoming more common in suburban areas, are less community-oriented than traditional shopping centres, many of which are located in older urban or suburban areas and are struggling to compete with the new formats. In general, shopping centres traditionally offer a wide range of community-oriented services, such as medical clinics, post offices, licensing offices and libraries, and local events, such as art fairs and antique shows. Power centres (and power nodes) do not commonly offer these services.

Small businesses are particularly worried about the market dominance of large retail competitors and their potential ability to dictate terms in the supply chain. However:

[for] consumers, the tough negotiating stance with suppliers may mean better prices at the stores. In today's competitive environment, with fewer but larger players, being aggressive with suppliers in negotiating… discounts means retailers can pass those savings along to consumers (Olijnyk 2000, C1, C9).

To date, evidence suggests that the current level of concentration has not harmed consumers in any significant way. In analyzing the closure rates of smaller stores (as a result of competition from big box retailers) in the GTA, CSCA concludes:

The statements that can be made about competition are somewhat complex. There are fewer banners playing in these spaces. But most of these large players are aggressively competing in terms of what they carry, the prices they charge, the hours of business, etc. So there are fewer competitors, who are more competitive.Footnote 55

It appears that consumers are largely unaware of the concentration in the retail sector. While they are aware of the demise of local independent stores, as noted above, the same public opinion research reveals that Canadians believe there is more choice of grocery stores than there was five years ago, even though the market in reality has become more concentrated. Generally, this opinion holds true after controlling for age, community size, household income and other socio-demographic variables. Researchers from CSCA believe that one probable reason behind consumers' opinion about choice is the increase in the number of banners (store names) that each chain has in areas such as the grocery sector.Footnote 56

Analyzing the long-term effects on consumers of increased concentration in the retail sector is complex, currently subject to different views, and certainly difficult for individual consumers to assess.

Research opportunities

Foreign and large retailers have brought about a number of significant changes in consumer shopping. While many academic studies in the last decade have focused on the business perspective of the Canadian retail landscape, more research on the effects on consumers of the increasing number of foreign and large retailers would be useful, including quantitative research on prices, product selection and choice of suppliers.

Other research could include the effect of the homogenization of the shopping experience on regional cultural identities (including a review of the impact of the increasing number of franchise store operations), the effect of the growing non-Canadian retail presence on Canadian identity, the impact of the demise of local independent stores on access to culturally specific goods and services for a diverse population, the effect of innovative retail formats on security (e.g. food security and just-in-time inventory management), the rise of private label brands and their impact on consumers, the effect of power nodes on consumer choice for transport-challenged and low-income shoppers and inner city dwellers, and the environmental impact of big box stores and of regional and suburban shopping.

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2.2 The Increasing Use of Technology in Stores

The development of various kinds of in-store technology in recent decades has led to new in-store services. These technological innovations include the widespread use of bar codes and point-of-service price scanning, related tools such as interactive kiosks, as well as emerging applications based on radio frequency identification (RFID) tags. With these technologies, retailers can manage stock in a more efficient and effective manner and, at the same time, allow customers to conduct transactions or obtain product information and service with minimal assistance from store employees. And, according to a recent survey, Canadians are willing to shop at stores with in-store self-service technology.Footnote 57

The new in-store technology undoubtedly provides a number of benefits to consumers in the form of greater efficiency and cost savings in the distribution system. It also potentially enhances consumers' control over the way they shop, and particularly how product information can be obtained in the store. When this technology is linked to computer-based loyalty programs (in which customers provide information concerning their shopping habits by using a magnetic strip-encoded loyalty card that is "swiped" at the time of purchase), customers can be rewarded for making purchases in the form of discounts on later purchases or free products. These developments also raise significant concerns, however, particularly concerning the ability of retailers to collect, process and track the purchasing habits of consumers. Changes in the in-store shopping experience may also prove challenging for those who are less adept at dealing with new technologies, thereby contributing to the so-called "digital divide."

Bar codes and scanners: cost savings to retailers and a wider range of products

The use of Universal Product Codes (UPCs), commonly known as bar codes, on products is one of the most significant technological innovations in the retail sector in the last 20 years (Nantel 2003). UPCs made their first appearance on product packaging in 1974 and are now found on nearly 90 percent of consumer products sold in Canada.Footnote 58 Together with electronic data interchange systems, bar codes have facilitated the introduction of just-in-time delivery in supply chain management. This, in turn, has meant significant costs savings that can be passed on to consumers in the form of lower prices. In the U.S. grocery industry alone, it is estimated that bar codes provide savings of $17 billion per year (Peters 2002, 66–67). Bar code technology improves the management of voluminous supplies and gives consumers a wider range of products in a store.Footnote 59 Furthermore, with the enhanced sales information provided by bar codes, suppliers and retailers have explored advanced planning and forecasting tools. For one U.S. drugstore chain, use of these tools has resulted in a 65 percent reduction in the problem of stores running out of stock (Global Logistics 2002), which has benefited consumers and retailers alike.

Faster and more accurate checkouts

UPC-related technology has also led to the increasing use of price scanners at the checkout, and right from the early days of their use, customers recognized the benefits in terms of time savings. Ongoing improvements in this technology have further cut waiting times at the cash register, which is especially important when shopping at large high-volume retailers. With Wal-Mart's 65 million transactions each week, for example, cutting just one second off each transaction represents global time saving of 18 000 hours (NCR Corporation 2004). Barcode technology also benefits consumers by generally improving data entry accuracy. A 1996 study in Canada found an average error rate of 6.3 percent, which was at the lower end of findings in other studies (4 to 16 percent rate of error) when cashiers entered prices manually (Competition Bureau 1999).

Use of the bar code/scanner system has not been without some problems, however. In the 1990s, for example, Quebec retailers discovered that provincial legislation that required them to affix price labels on every product created "huge problems, particularly for big box stores and grocery stores that … relied on electronic shelf labels" (Wintrob 2002). One Quebec retail association said not only was the obligation to label "time-consuming and disruptive... it wasn't supportive of new scanning technologies on the market" (Wintrob 2002). At the same time, government and consumer studies continued to document errors with automated price scanning.Footnote 60 Major Quebec retail associations persuaded the Quebec government to exempt retailers that did not price label individual products from the legislation requiring them to do so, if they instituted a policy entitling customers to a discount of up to $10 if a consumer discovered a price discrepancy at the cash register (Wintrob 2002).

Shortly after, the new national Scanner Price Accuracy Voluntary Code was developed by major retail associations, working in cooperation with the federal Competition Bureau, to apply to retailers in all jurisdictions except those which, like Quebec, have specific legislation requiring individual price labelling (Wintrob 2002). As with the Quebec initiative, this voluntary code sets the terms whereby a consumer is compensated when a scanner price error occurs for a non-priced item. In such a case, the item is either offered without charge or with a discount, depending on its price.Footnote 61 However, relying on consumers to track the prices of individual items and subsequently verify these prices at the cash register may be problematic in certain circumstances. For example, when many purchases are made (e.g. a week's worth of family groceries), there may be pressure to quickly process the transaction, thus limiting a consumer's opportunity to review each item's price. A number of emerging technological developments may also prove challenging in this respect. With checkout scanners capable of reading multiple bar codes simultaneously (NCR Corporation 2003), it could become even more difficult for people at checkout lines to verify that all items have been scanned at the correct price. Automated self-checkouts, which have been introduced in some Canadian stores over the past couple of years, may present similar challenges.

Other in-store information tools

Interactive consumer information kiosks are another application of information-processing technology in stores. Kiosks are self-standing structures that often include a computer and touch screen for capturing and displaying information and, in some cases, processing orders. These devices are based on 1980s touch technology, and new applications have grown rapidly since the late 1990s with the Internet (Mulroney 2000, E15). Kiosks have appeared in a number of retail environments in various forms and have facilitated consumers' shopping experience. Examples of such kiosks include gift registries (reported in Nantel 2003),Footnote 62 music sampling stations (Canada NewsWire 2000)Footnote 63 and check-ins at airports (reported in Mulroney 2000). Fast food restaurants are also experimenting with automated ordering stations (Harmon 2003). With these practical applications, kiosks offer consumers convenient and faster value-added interactive services. Kiosk terminals have also been used in retail stores to give consumers a greater range of choices than can be physically made available in the store. For example, kiosks used by Staples in the U.S. are reported to provide customers access to an inventory of 100 000 items, compared to the 9000 items found in a typical Staples store (Chain StoreAge 2001). Such in-store technology is a great boon to customers who, for one reason or another, do not have access to the Internet.

RFID tags to replace bar codes

A much anticipated change in the retail industry today is the likely replacement of the current bar codes with "smart labels" using RFID. This technology will permit the storage of detailed information about individual products and allow that information to be looked up as needed via the Internet (The Economist 2003). Projections regarding the use of RFID tags have been increasing, given that their bulk price of less than US$0.10 is beginning to make them a viable alternative to bar code stickers (Boutin 2003, A15) and that major retailers have started announcing plans to integrate RFID labels in their supply and distribution systems (Jones 2003). The scope off unctions offered by this new labelling technology could significantly increase inventory management efficiency (with potential savings passed on to consumers)Footnote 64 and create a number of other indirect benefits. Its enhanced object locating capacities could mean less frustration for passengers who have lost baggage during air travel,Footnote 65 and would enable businesses to respond more quickly to product recalls.Footnote 66

RFID tags are expected to shift the development of bar code applications from a largely supply-driven focus (e.g. better inventory management) to more customer-oriented applications. As summarized by one analyst, "[while]everyone knows what bar codes are for, consumers just haven't been on the side that reads them" (Burden 2000). By enabling "on the spot"transmission of information, RFID tags and the development of handheld barcode scanning devices will allow consumers to check the price of an item (to make sure it matches the shelf price) and to keep a running total of a basket of goods (Indiana University-KPMG 1999). These applications could facilitate much better comparison shopping (of stores and products) by enabling consumers to "download" detailed information about a product by scanning its tag and accessing wireless telecommunication services.

These projected applications are seen as setting the stage for "significant shifts in power between consumers, retailers, manufacturers and on-line merchants… for example, widespread use of wireless handhelds may turn every bookstore on earth into a showroom for" (Microsoft Research 2000). Furthermore, "the most mundane but essential element of shopping, the label, raises interesting new political issues in a world of wireless devices,"since the ability to both read object tags and connect to the Web for additional information could one day make "it possible for consumer decisions to be influenced at the point of sale by a range of viewpoints that are not now widely heard" (for example, the genetic modification of food or the labour conditions among clothing manufacturers; Microsoft Research 2000).

Protecting privacy and personal information

New product information technology allows for more than just better inventory and accounting. It gives retailers a powerful marketing tool for analyzing sales based on variables such as location, season, hour, price and promotions (Nantel 2003). Combined with consumer information profiles (available, for example, through loyalty card programs), data gleaned from bar code systems tell retailers what types of consumers are buying certain products and in what circumstances. Information that a retailer obtains through a customer loyalty card program can be very extensive (see text box on loyalty cards). When a company can cross-reference both the socio-demographic profile of its customers (age, sex, etc.) and their spending patterns (transaction information about products or services purchased), it can personalize its marketing communications in a way that is likely to be less costly and more profitable than traditional mass media methods (Nantel 2003).

Canadians, however, do not appear to be entirely comfortable with the personalized marketing approach. While a slight majority (51 percent) of respondents surveyed in 2001 indicated that they did not mind if companies they do business with keep track of their purchases, a significant proportion (41 percent) objected to it. When asked specifically if they were comfortable with a company using their personal information to advise them of new products or services that may be of interest to them, Canadians were just as likely to agree as disagree (at 38 percent) (see Ekos Research Associates 2001).

The prospect of using RFID tags also raises a number of questions about the potentially pervasive nature of the two-way communication made possible with the tags. For instance, concerns have been voiced about the extent of information on customers' behaviour that RFID tags could communicate even after the consumer has left the retailer's premises. Such privacy concerns have been heightened by some recent reports of RFID tests planned or conducted by businesses. In a trial run by a U.K. supermarket chain, for instance, it was reported that "the store was automatically taking photographs of shoppers when they picked up a package of Gillette razor blades from the shelf" (Canton 2003, C3). A similar test was reported at a U.S. Wal-Mart store (Wolinsky 2003). Another retailer was boycotted when it revealed that it was considering placing millions of RFID devices in its clothing products to help track inventory (Chai and Shim 2003). Analysts have noted that while"any new technology has certain risks, more controls are needed with wireless information access because an open signal is inherently less secure" (reported in Germain 2003). This has led advocates to demand the mandatory labelling of products containing RFID chips, for example (CASPIAN 2003).

Loyalty cards: What is consumers' personal information worth?

Loyalty programs represent another noteworthy retailing trend of the past two decades, in which product-scanning technologies (using chip-based cards)have played a key role in the development of the most popular programs.Footnote 67 These programs offer free items, discounts and various forms of benefits to consumers. The proportion of Canadians who belong to a frequent user/loyalty program has increased continuously since 1993, from fewer than 40 percent (Millward Brown Goldfarb 2002) to 67 percent in 2003 (Millward Brown Goldfarb2003). However, when asked if they are aware that many of these programs collect, use and disclose information about an individual's purchasing habits so that companies can target them with new products and services, a majority of those participating in the programs said they were unaware (54 percent)or only vaguely aware (16 percent) of these practices (Ekos Research Associates 2001). Therefore, it is not evident that consumers are making informed decisions when subscribing to loyalty programs, and some analysts have questioned whether consumers actually receive sufficient value for the personal information they give to business.Footnote 68

"Digital divide" also a risk

As retailers increasingly adopt self-service technologies (such as self-checkout counters in grocery stores), customers who are less comfortable with these options may face substandard service. Age is often considered a barrier to a consumer's adoption of new technologies. Survey results indicate that while 77 percent of Canadians ages 18 to 34 would be at least somewhat likely to shop in stores that offer self-service technologies, the acceptance level falls to only 45 percent among those 55 years of age or older (see Ipsos-Reid 2002a).

Research opportunities

While bar codes are now in common use in retailing, the ongoing evolution of scanning technologies will require further consumer-focused analysis of how they are likely to either facilitate or challenge consumers' self-checking of prices. Furthermore, it would be useful to pursue analysis of the impact of these emerging technologies, particularly to better understand how they change retail competition and the ways in which some of the savings might be passed on to consumers. The most significant research subject, however, is privacy, since the RFID debate fits within a broader one in which, as noted in the context of a California state legislative hearing, "the major questions relate to sharing of digital information, however that information is collected" (Vijayan 2003).

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2.3 The Internet and the Consumer Marketplace

A growing number of Canadians are using the Internet for a variety of consumer-related functions. The Internet provides many potential benefits, including added convenience and greater access to information as well as goods and services. It has also had an important impact on traditional pricing methods, although there is limited evidence currently available regarding its overall impact on prices. Some concerns have arisen about the accuracy of information on the Internet, the security of transmission of personal and financial information and other consumer protection issues, such as cross-border redress in the context of electronic commerce. Furthermore, not all consumers share equally in the benefits of the Internet, since some are unfamiliar with, or do not have access to, computer technology.

Nonetheless, the proportion of Canadian households with at least one regular Internet userFootnote 69 increased from 29 percent in 1997 to 62 percent in 2002, with the home being the most common location of Internet access (Statistics Canada 2003a). Through the Connecting Canadians initiative, the federal government aims to make Canada the most Internet-connected society in the world.Footnote 70 As the technology evolves and improves, familiarity with it also increases:in 2003, 62 percent of Canadians reported having used the Internet for more than two years, up from 38 percent in 2000 (Ekos Research Associates 2003a).Furthermore, Canadians who are Internet users have been using it more frequently:in 2003, 71 percent reported being daily users, up from 54 percent in 2000 (Ekos Research Associates 2003b). In an international survey on Internet use, 62 percent of adult Canadians reported having used the Internet in the previous 30 days, second only to the United States (72 percent of the general adult population), and well ahead of the third-most Internet active nation, South Korea (53 percent) (Ipsos-Reid 2002b). However, the general increase in Internet use has recently slowed. According to Statistics Canada, the number of households with at least one person using the Internet regularly in 2002 was up by only 4 percent over 2001. The growth rate in 2001 was 19 percent and in 2000, 24 percent (Statistics Canada 2003a).

Convenient access and anonymity can be a dangerous combination!

Canadian youth are a "connected" generation. Virtually all students ages 9 to 17 surveyed in 2001 reported using the Internet at times (Media Awareness Network and Government of Canada 2001, 15). While the main online activities of young people are related to entertainment (downloading music, using e-mail, playing video games, etc.) and school work, 5 percent reported using the Internet for shopping or making purchases (Ibid., 25). However, the convenient access and anonymity of the Internet can prove to be a dangerous combination for young Canadians. Surveys show that more than half (52 percent)of children searching the Internet have accidentally ended up at a pornographic Web site, usually when looking for something else or typing in the wrong URL (Ibid., 63). More than a quarter (26 percent) have deliberately visited pornographic Web sites (Ibid., 64). Some 45 percent have been exposed to a violent or gory Web site (Ibid., 66) or received unwanted sexual comments (46 percent) (Ibid., 76). Parental supervision of their children's Internet activities can be a difficult challenge.

While Canadians' primary online activity continues to be the use of e-mail, an increasing proportion of those online have been using it for consumer activities. According to 2002 survey data, slightly less than half (47 percent) of Internet-using Canadians had comparison-shopped online. Of these, 19 percent had done this at least once during the previous week and 70 percent had done so at least once during the last month (Ipsos-Reid 2002c). Canadians seem particularly interested in using the Internet to get information about high-cost items such as automobiles, personal computers and electronics, but much less so for actually purchasing these things (see Figure 2.3). Nonetheless, the success of companies such as Dell, which has a retail presence but is primarily known for its original business model of selling customized computers directly to consumers via the Internet, shows the potential for an Internet business model for selling expensive products. While 39 percent of Internet users reported making at least one online purchase in 2002, only 9 percent of online shoppers had made at least one purchase in the previous week (60 percent had made an online purchase in the previous month) (Ipsos-Reid 2002c). In general, Canadians appear to be comfortable buying a number of goods online, especially those of relatively low cost, such as books, music, software and clothing (see Figure 2.3).

Figure 2.3

Top Items Researched/Purchased Online

Source: Ipsos-Reid, Canadian Interactive Reid Report, fourth quarter, 2002.

The Internet gives the consumer the edge

Information empowers consumers, helping them in the negotiation process. Researchers note that, from a consumer's perspective, "one of the most important advantages of Internet-based electronic shopping environments relative to traditional, bricks-and-mortar retail settings is the drastically reduced cost of search for information about market offerings" (Triftsand Häubl 2003, 149).

The Internet provides instant access to product information (description, price, availability) and can facilitate rapid and extensive searches that would otherwise not be possible.Footnote 71 Economies of scale justify higher investments in time spent researching product and retailer information for expensive products. Not surprisingly, then, a number of high-cost consumer retail sectors have been adjusting to consumers'newfound information edge, even though final transactions still occur mainly in the merchant's bricks-and-mortar site (see text box).

The Internet has changed the way cars are bought

More and more consumers are turning to the Internet for information about vehicles. A 2003 survey of 1000 Internet-connected Canadians reveals that almost two thirds had at some time searched for new or used vehicle prices, features or related information online (Ipsos-Reid 2003b).Footnote 72 Automotive industry analysts state categorically that "over the past five years, the Internet has been a catalyst for change in the automotive shopping process. … What we're seeing today are consumers that are more empowered than ever before and a dealer body more receptive and responsive to them" (Power 2002). The main advantage of the Internet to consumers is readily available information to compare vehicles and prices.Footnote 73 Before negotiating with a dealer, customers now use online information to determine a reasonable trade-in value for their used car or to negotiate a better price for a new vehicle. This contrasts with the more traditional business-consumer practice, by which "motor vehicle dealers zealously guarded information such as dealer invoice costs to preserve profit margins" (Geist 2000).

Greater and more convenient access to the marketplace

Compared to looking through a catalogue or visiting a retail store, the Internet offers consumers a number of advantages. For one thing, the online marketplace is available 24 hours a day, seven days a week, which is very convenient for today's generally time-constrained households. Furthermore, the Internet enhances consumer choice in a number of ways. For example, consumer scan often examine far larger inventories than are available at store locations. And given Canada's geography, by using a Web site, consumers can easily interact with specialized non-chain sellers across Canada, or internationally. This helps consumers looking for hard-to-find items that are unavailable in their immediate vicinity. Furthermore, certain online business models have emerged to facilitate consumer-to-consumer transactions well beyond what was once feasible. For example, while not all offers may be from individual consumers, 14.4 million articles were available through eBay's online auction Web site (on November 23, 2003), which is many times more than what one could find in newspaper classified ads.

The Internet is affecting traditional modes of pricing

For centuries, bartering was the mode of pricing used in transactions, but with the industrial revolution and mass production, fixed prices became necessary to manage the enormous increase in both volume and variety of products sold over far larger geographic regions (Gressens and Brousseau 1999). As the Internet develops, however, dynamic pricing that varies by transaction is expected to become more pervasive.Footnote 74 Consumers are already exposed to some forms of dynamic pricing, for example, of airline tickets, for which prices of otherwise identical tickets may vary depending on when a consumer buys them. Dynamic pricing on the Internet may offer consumers benefits when they plan their online purchases in order to obtain the optimal price, and they can do so from home. Internet users have accepted some forms of non-fixed prices, such as on eBay, where consumers bid on products, and at reverse auctions such as, where consumers state a price that they are willing to pay. However, broader dynamic pricing on the Internet may prove to be a tough sell, based on the negative consumer reaction generated by's random testing of varying prices to consumers. "There is a huge opportunity, as Amazon saw first-hand, to engender bad faith among customers" as "some, in fact, think companies have a responsibility to offer uniform prices" (Flynn 2001).

The Internet may affect pricing in other ways as well. Perhaps the best example is in the music industry. The ability of the music industry to package and sell sets of songs in albums (when consumers are interested in only one of the songs), and to control the post-purchase reproduction of those songs, has been put to the test by technologies associated with the Internet. This has prompted the music industry to adopt different packaging and selling strategies (see text box).

Internet music pricing will never be the same…

The music sector has been heavily affected by technology. Industry profits have suffered, originally due to Napster, and more recently as a result of other peer-to-peer file-swapping services. Millward Brown Goldfarb states:

44 percent of 18–24 year olds with Internet access say they download music at least once a week. The legal action that resulted in the shutdown of Napster has not slowed the increase in file swapping in recent years. While music companies claim that file swapping infringes on their copyrights, most young Canadians have no moral qualms about downloading music files without paying for them (Millward Brown Goldfarb 2003, 1–19).

From a pricing perspective, the music industry has reacted to this in a number of ways. For example, Apple's iTunes has had success: this $0.99-a-tune system avoids monthly subscription pricing and instead responds to market research indicating that U.S. consumers prefer a price per download (Blackwell 2003). The industry has also attempted to adapt with significant price cuts on CDs in an effort to boost traditional sales (Hamilton 2003). In summary, while the music industry's post-Internet business model has yet to be finalized, one emerging trend is that "the main currency of the record industry is becoming the song instead of the album" (Leblanc 2003, 40).

While consumers have accepted less traditional forms of pricing in some instances, at least one assessment of the Internet's general impact on prices is ambiguous. This empirical study notes:

The review of the literature tends to indicate that the Internet has had a major impact on business practices, but there is no convincing evidence that prices are considerably cheaper on the Internet even for commodity products. Many companies are avoiding the price sensitivity trap by resorting to marketing tactics such as concentration on niche markets [and the] creation of brand image and trust… (Riquelme 2001, 263–272).

Nevertheless, some research suggests that the Internet has led to lower prices in the United States for certain types of goods and services. A study published in 2000 reported that the emergence of online insurance quotes significantly lowered premiums for term-life insurance, while reductions in premiums were not forthcoming for similar services not offered on the Internet, cash value policies, for example (Brown and Goolsbee 2000). Another author, commenting on his study of the Internet's impacts on term life insurance, suggests that:

Industries most likely to experience increased price competition are those that have historically been able to charge higher prices because consumers found it difficult or expensive to compare prices. I would not be surprised to find similar results in markets for other financial services, such as auto insurance or mortgages, although no such evidence yet exists. Our hope is that this work will spawn additional studies examining price effects in other markets (Daniloff 2003).

The Internet also has provided more opportunities for consumers to communicate among themselves regarding their experiences with and opinions of products, companies and business practices. Consumer sharing of feedback about products has been encouraged and promoted by some retailers; for example, publishes consumer reviews of books on its Web site. It also has taken place on Web sites beyond the immediate supervision of the retailers concerned.Footnote 75 The Internet holds considerable promise as a way for consumers to communicate their views to fellow consumers and others, although it is difficult to predict the exact form this communication may take.

Evaluating the information found on the Internet

With the Internet, consumers can easily and quickly retrieve more information than ever before, but this increased access presents challenges. Anyone with a computer and modem can become an electronic publisher on the Internet, disseminating information to a global audience. So while this new medium explodes with information, it also poses a problem: How do you evaluate the quality of the information?Just because a document appears online does not mean it contains valid information. Rather, online information demands very close scrutiny.

Sometimes the consequences of acting on incorrect or outdated information can be serious (for example, with medical, legal or professional advice).Furthermore, in addition to sorting through information of poor quality or from a questionable source, consumers must also guard themselves against information that is deliberately inaccurate. Statistics on Internet fraud are difficult to obtain in Canada, but some American sources suggest it is growing rapidly. The National Fraud Information Center (a project of the non-profit National Consumers League) reported about 10 525 Internet fraud cases in the U.S. in 1999, with total losses of $3 262 834.Footnote 76 By 2002, the number of reported cases of fraud had tripled to about 31 299 and losses more than quadrupled (to $14 647 933).Footnote 77 In addition, the U.S. Internet Fraud Center (jointly run by the National White Collar Crime Center and the Federal Bureau of Investigation) reports that the number of fraud complaints increased from 16 775 in 2001 to 48 252 in 2002,Footnote 78 with dollar loses increasing from US$17 million to $54 million during this period (National White Collar Crime Center and the Federal Bureau of Investigation 2003, 3–4).The report notes that this fast-growing trend may represent the combination of a higher rate of victimization and a greater likelihood of American consumers filing complaints.

Ensuring privacy for personal and financial information

Public opinion data reveal that more Canadians than ever are concerned about Internet security and privacy issues in general, with 71 percent reporting being "very concerned" or "somewhat concerned," up from 61 percent in 1998 (Millward Brown Goldfarb 2003, 8–27). Various sources attribute this growing trend to a number of factors, including high-profile viruses circulating on the Internet, privacy violations by businesses and governments reported in the media, the increasing presence of "anti-spyware"advertising online and general concerns with the security of data transmitted online.

In April 2003, about one in three Canadians reported a breach of personal information they submitted online, up significantly from 18 percent reported in December 2002 (Ipsos-Reid 2003a). By far the most common complaint cited by those reporting such a breach in 2003 was receiving unwanted e-mail (95 percent), but 29 percent reported having their personal data sold or transferred to a third party (Ipsos-Reid 2003a). According to a 2002 survey, more than three quarters of households that paid online during that year indicated that they were concerned, or very concerned, about financial transactions conducted over the Internet (Statistics Canada 2003b). It appears that Canadians are concerned not just with how information is transmitted, but also how it is stored or used once it has been sent:

When asked how concerned they are with various aspects of submitting personal information on-line, Canadians indicate that they are most concerned with the security of databases that house credit card numbers (60 percent are very concerned), followed by 58 percent who say they are very concerned about their credit card information being used for non-authorized transactions once it is in the database of the retailer, and 57 percent saying they are very concerned about their credit card information being intercepted in transit while they are making an on-line purchase (Ipsos-Reid 2003a).

The challenging task of addressing cross border consumer protection issues

Governments are developing harmonized responses to facilitate cross border online consumer sales. In Canada, federal, provincial and territorial ministers responsible for consumer affairs endorsed the Internet Sales Contract Harmonization Template in 2001; since then it has been implemented in a number of jurisdictions.Footnote 79 Model legislation is being developed by the Uniform Law Conference of Canada to address the issue of which jurisdiction's legislation applies to cross-border sales.Footnote 80 Internationally, the United Nations Commission on International Trade Law, with initiatives such as its Model Law on Electronic CommerceFootnote 81 and the Hague Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters,Footnote 82 are developing rules to address Internet applications. The Organisation for Economic Co-operation and Development (OECD) approved, in late 1999, voluntary guidelines for consumer protection in electronic commerce (see OECD 1999) and cross-border fraud (see OECD 2003). Canadian governments are also working with industry and consumer groups to develop consumer protection e-commerce guidelines and voluntary codes for use by online merchants,Footnote 83 and federal-provincial-territorial ministers responsible for consumer affairs approved a voluntary code of practice in January 2004.

Issues related to complaint handling and dispute resolution

Statistics Canada reports that Canadians spent $884 million, or about 37 percent of their electronic commerce dollars, at non-Canadian Web sites in 2002 (Statistics Canada 2003b). When dealing directly with foreign vendors, Canadians are exposed to greater risks than when buying from a Canadian retailer. Foreign businesses operate under different laws and different court systems, potentially making redress complicated and costly. Furthermore, a consumer's provincial/territorial consumer protection agency may not be able to help much when the vendor is located abroad, that is, when there is no physical representative of the business in the consumer's area, so there are, for example, no permits to revoke. When dealing directly with foreign vendors, consumers also must ensure that products meet Canadian safety standards and related laws. Gathering product information can be all the more complex when the vendor is in a country substantially different from Canada.

The "digital divide"

The term "digital divide" refers to the inequality of access to the Internet among the general population, and thus the inability of many people to take advantage of its benefits. Several factors are associated with lack of access to the Internet, with the most prominent being age, income and primary language.Footnote 84 Older Canadians are much less likely to report having access to the Internet: 22 percent of households headed by seniors reported access in 2002, compared to 75 percent of households headed by individuals younger than 35.Footnote 85 This may be partly due to the lack of familiarity of older persons with this technology and also the general format of online information, which may be a physical barrier for elderly Canadians and persons with disabilities. The differences in access according to income are equally pronounced: 88 percent of households in the top quartile report access to the Internet in 2002, compared to only 33 percent in the lowest quartile.Footnote 86 Affordability is certainly an issue, as only 25 percent of those in the lowest quartile reported having access from home, compared to 78 percent of those in the highest quartile.Footnote 87

Research opportunities

Given the Internet's already substantial impact on the interaction of consumers with the marketplace, more research will be required as applications using this technology evolve. How the pricing of various goods and services may be changing as a result of Internet use is one topic that needs attention.

As more is understood about the value-added and empowering use that Canadians make of the Internet in their consumer decisions (online activities, including researching and purchasing), the consequences for the "unconnected"will also need to be further examined. The concrete benefits may, in fact, need to be better communicated to Canadians, in light of recent work suggesting that, beyond cost considerations, a number of non-Internet-users may also be constrained by a lack of interest in the Internet.Footnote 88

In addition, while the difficulties of assessing the accuracy of online information have been well described, solutions have yet to be fully developed and implemented. And similar problems exist when addressing the security and privacy of information once it is transmitted, and the cross-border consumer protection issues that may increasingly arise as the proportion of regular online shoppers continues to rise.

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2.4 Technology's Role in Changing Financial Services

Automated banking machines (ABMs), point-of-sale debit cards and online services are three examples of how various new technologies are revolutionizing the way consumers access and spend their money. But while many Canadians have enjoyed more convenient access to their money, there are costs, liability risks and other consumer protection concerns associated with these technologies. Furthermore, as financial institutions continue to offer new and diversified technological options, some questions have arisen regarding how well consumers who rely on (or prefer) traditional in-branch banking services are served.

Automated banking machines

Compared to 20 years ago, consumers have significantly greater access to their money, partly due to an increasing number of ABMs. Between 1982 and 2002, the number of bank-owned ABMs increased from 965 to 16 546.Footnote 89 Quick access to money was greatly helped, in particular, by the creation of Interac in 1984, which allows card holders to make withdrawals from any ABM on the network.Footnote 90 The significant increase in access locations is reflected in public opinion data: 91 percent of adult Canadians reported that they used a bank machine in 2003, up substantially from 64 percent in 1992 (Millward Brown Goldfarb 2003). In fact, more Canadians today use ABMs as the main way to conduct their financial transactions (40 percent in 2002) than use a teller (30 percent) (CBA 2002).

The use of debit cards

Besides getting their money from ABMs, Canadians have also adopted frequent use of point-of-sale terminals since Interac Direct Payment (IDP) became available nationally in 1994Footnote 91 (see Figure 2.4). Debit cards represent the most frequent method of paying for retail transactions among Canadian ABM cardholders today, increasing from 15 percent of cardholders in 1996 to 49 percent in 2002. By 2000 — within six years of being introduced nationally — IDP transactions had replaced cash as the primary payment method used by ABM cardholders, and by 2002 cash was the primary method of payment used by only 31 percent of ABM cardholders.

Canadians are leaders in use of ABMs

International data for 11 countries reveal that, on a global scale, North Americans have greater access to, and make more significant use of, ABMs than citizens in other countries. For example, in 2001 Canada had the highest number of ABMs per million inhabitants (1142, followed closely by the U.S. with 1137), and made the largest number of ABM transactions per person (47.8, and 47.7 for the U.S.).Footnote 92

Canadians, in fact, rank as the undisputed world leaders in debit card use, making 71.7 debit transactions per person in 2001, which is significantly more than consumers in the next closest country (France, at 60.3). The average value of a debit transaction in Canada (US$27 in 2001) was the lowest in an 11-country comparison, with Japan (US$405) and Switzerland (US$100) markedly standing out.Footnote 93 Thus, compared to consumers in other countries, Canadians appear to be using their debit cards more often, even for frequent low-cost transactions.

Figure 2.4

Interac Direct Payment Statistics, Canada, 1994–2002

Source: Interac Association.

The use of online banking

The use of online banking has also increased in Canada recently. In a 2002 survey of adult Canadians, one quarter of respondents said they had done an Internet banking transaction in the previous month, up from 19 percent just a year before (NFO CF 2003). Public opinion research reveals that, in 2003, virtually all Canadians (97 percent) who bank online viewed this technology positively (Millward Brown Goldfarb 2003). Furthermore, in 2002 the Canadian Bankers Association (CBA) reported that 16 percent of Canadians used online banking for most of their financial transactions, up from 8 percent in 2000 (CBA 2002). The data also suggest that the increase in online banking has come at the expense of ABMs and telephone banking, while there has been virtually no change in the percentage of Canadians using in-branch banking services (30 percent in 2002) (see Figure 2.5).

Figure 2.5

Primary Means of Conducting the Majority of Financial Transactions, 2000 versus 2002

Source: CBA, Technology and Banking: A Survey of Canadian Attitudes, 2002.

Added convenience, but not without some cost and risk

Convenience has certainly been the main reason for the rapid adoption of debit cards by Canadians. Many people use debit cards for a number of everyday transactions. According to a survey conducted in 2002, 57 percent of respondents agreed that the ability to use debit cards improved banking a great deal. Fifty-two percent said the same about the national network of ABMs, and 48 percent about being able to conduct transactions by telephone or online (CBA 2002). Debit cards, which instantly deduct funds from a consumer's bank account, also offer an alternative to using a credit card, which is, in fact, a short-term loan that incurs significant extra costs when the bill is not paid off by its due date. Furthermore, it is relatively easy for consumers to acquire debit cards, as they are available even with low-cost accounts.Footnote 94

The increasing use of online banking can be partly explained by the additional functions it offers. Besides providing access 24 hours a day, seven days a week:

Computer banking continues to grow rapidly while telephone banking has stagnated, likely due to the ease with which more complicated transactions can be done via the Internet. Electronic bill payments (via computer, phone or direct withdrawal) have overtaken traditional methods (mail, teller, utility office). It is entirely possible that these traditional methods will no longer be available in the future as more and more people become comfortable with e-banking (Millward Brown Goldfarb 2003, 7–5).

Consumers must assess the cost of these various options. In a 2001 survey, 71 percent of respondents said that innovations such as ABMs, Interac cards and online banking have increased service charges to consumers when accessing their money to pay for goods and services.Footnote 95 Consumer awareness of this trend is also reflected in complaints data: the Financial Consumers Agency of Canada reported an 11-fold increase in complaints about financial service charges in the first quarter of 2003, most of them related to the new "convenience" fees that nearly all banks now charge when a non-client uses their ABM. Footnote 96 On the other hand, for "connected" consumers (i.e. those using ABMs and online services), virtual banks have consistently offered the least expensive bank accounts packages (Office of Consumer Affairs 2002)Footnote 97 (see Figure 2.6). This trend (relying not only on online banking but virtual banks per se) further underscores the impact the Internet has had on the financial services industry.

Figure 2.6

Lowest Cost Account for Connected Users, November 2003

* Four "smaller" financial institutions are: Desjardins, HSBC, Laurentian Bank and National Bank.

Source: Office of Consumer Affairs (data as of November 2003).

Unauthorized debit transactions have become an important consumer protection concern. They may occur in a number of ways: counterfeit ABM machines, stolen cards, the interception of card information (by "shoulder-surfing"tactics, for example) and the misuse of personal identification numbers (PINs) (when a consumer is careless in concealing it, for example). While information about debit card fraud is difficult to obtain, the City of Montréal Police Service reports that this type of fraud increased 25 percent in 2002, accounting for $37 million in losses, compared to $4.5 million in credit card fraud losses (Armstrong 2002, A7).

White labels, convenience at a price

The introduction of private "white-label" ABMs (those installed and operated by non-financial institutions) can be traced to a 1996 Consent Order from the Competition Tribunal. These private operators charge consumers a convenience fee for using the machine, a portion of which "is usually returned to the owner of the premises where the ABM is located (drug store, gas station, etc.)" (FCAC 2002, 4). By November 2001, independent operators managed more than one third of all ABMs in Canada (FCAC 2002).

The Financial Consumer Agency of Canada (FCAC) reports that the cost of accessing one's money can become quite substantial considering the myriad of potential charges. For example, obtaining $20 can incur fees up to $3.50, which is 17.5 percent of the total withdrawal. A major concern is whether consumers fully appreciate (or have alternatives for avoiding) the current three levels of fees for withdrawing money from an ABM not operated by the consumer'sown financial institution. (These three fees are the regular bank account transaction fee, the Interac network access fee and the new "convenience"fee.) According to survey data reported by the FCAC, the more frequent users of white-label ABMs and other types of ABMs imposing surcharges are younger Canadians, with lower levels of education and household income.Footnote 98

In addition, the liability structure associated with a debit card (for which the PIN is an electronic means of authenticating a user)Footnote 99 sometimes puts consumers at risk for the full amount of the unauthorized transaction, which is a higher level of liability than for other methods of payment. Section 48 of the Bills of Exchange Act states that, for manually signed cheques, the customer is not responsible for unauthorized transfers. Credit card issuers stipulate in credit card agreements that, in the event that a lost or stolen credit card is used in an unauthorized manner, the maximum liability to the borrower is the lower of $50 or the maximum set by the credit card agreement.Footnote 100 But similar protections do not exist for users of debit cards.

The Canadian Code of Practice for Consumer Debit Card Services states that a consumer can be held liable for the full amount of losses if he or she has contributed to the unauthorized use (for example, by writing his or her PIN on or near the card, such as elsewhere in the wallet, using an easily deduced PIN such as one's birth date, or by failing to notify the financial institution immediately on becoming aware of the loss, theft or misuse). Furthermore, some press reports suggest that even when a consumer is reimbursed by a financial institution (when the customer in no way contributed to the fraudulent transaction, for instance), this process can still take several months.Footnote 101 A 2002 evaluation of financial institutions showed that the average rates of adherence to the provisions of the Code by financial institutions were lower for providing information relating to liability for loss than for other Code practices.Footnote 102 Insufficient disclosure may contribute to the fact that this evaluation also found that a large number of card holders are not aware of their potential liability when using their debit card.Footnote 103

New methods of payment, further liability issues

A variety of new payment methods have been developed for the Internet, allowing consumers to easily send (or receive) payments. For example, Paypal (owned by eBay) allows consumers to send money to users with an e-mail address, and Bidpay (owned by Citibank) allows online auction winners to send a U.S.-dollar money order to any seller with a physical address. Other online services facilitate these and other payment transactions (e.g. bank account transfers and electronic cheques). The number of these services is considerable, with a current Web site listing approximately 150 online payment services (Peirce 2003).

These online payment mechanisms give consumers more choices of payment methods than ever before. However, some questions have arisen regarding the liability structures associated with these services. For example, the user agreement for one popular service explicitly states that consumers who accept online payments are subject to a substantial penalty when the buyer makes a credit card charge-back. The online seller could potentially lose the full payment and be charged a large fee after shipping out the product. Each service has its own particular rules and conditions, so consumers need to be thoroughly familiar with them in order to use the services appropriately.

Concerns about continued access to local bank branches

A majority of Canadians (61 percent of respondents surveyed in 2002) continue to report having visited a bank branch in the past month to conduct a transaction with a teller or other branch staff (NFO CF 2003). Nearly one third of Canadians continue to bank mainly in person at a branch, and 47 percent of those older than 55 do so (Canadian Banker 2002). Financial institutions encourage the use of electronic transactions rather than bank branch staff, concentrating their human resources on counselling services as opposed to day-to-day transactions.Footnote 104 This trend towards electronic transactions may therefore also influence branch closures. During 2002–03, the FCAC reported 302 branch closure notices filed (required and voluntary), and it received 213 complaints concerning bank closures and 133 srequests for public meetings related to the closure of 23 branches (FCAC 2003). Branch closures, combined with the increased fees for access to bank-owned ABMs and the increased use of white-label ABMs in areas deemed unprofitable for bank-owed ABMs, have raised concerns that some consumers may face higher banking costs.Footnote 105 Moreover, reliance on new technologies may limit some people's access to banking services:

Using an ABM or Internet banking may not be an option for other reasons, including those related to the natural processes of aging, such as decreased vision or short-term memory loss, or perhaps a sense of mistrust towards technology and lack of access to training or a computer (NSCA 2001).

Public opinion research appears to confirm that some Canadians are challenged by the technology currently available for banking. CBA reported in 2002 that some 27 percent of Canadians did not understand the electronic services available for banking, including 42 percent of respondents age 55 and older (CBA 2002).

Research opportunities

Canadians currently enjoy virtually unlimited electronic access to many aspects of their financial affairs, with significant autonomy for consumers. While knowledgeable consumers certainly benefit from the convenience, further research could examine the effect of self-serve access on less technologically sophisticated users. Specifically, research could address whether greater access to online information and complex financial transactions puts consumers at risk by encouraging self-service when they lack the experience or skill required to judge risk and provide for their own security measures.

Similarly, technology and the Internet enable service providers to enter Canadian markets without having to invest in physical bank branches. Further research could assess the financial options available to consumers who do not want to — or cannot — use some of the technological innovations now offered, including access to financial services, variable pricing, quality of service and levels of choice.

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2.5 The Growing Presence and Changing Forms of Advertising

Consumers are exposed to increasing amounts of advertising, and this advertising sometimes takes new forms, aided by technology. Advertising can benefit consumers by providing useful information to help them make marketplace decisions and by promoting competition and greater choice. However, the pervasiveness of advertising — in schools, on the Internet, on bus shelters and billboards, and even in public washrooms and on garbage receptacles — challenges conceptions of public versus private space in communities. Sometimes, such as with product placements in television programs, marketing techniques maybe so subtle that it may not even be clear to a consumer that advertising is occurring. On the other hand, the intrusive character of some Internet marketing techniques — unsolicited e-mails and pop-up boxes, for example — have also raised concerns.

Consumers are bombarded with an estimated 4000 promotional or advertising stimuli each day (Léger and Scholz 2002). The Canadian Radio-television and Telecommunications Commission (CRTC) reports that $7.5 billion was spent on advertising in Canada in 2002, or $241 per person (see Figure 2.7). Since 1995, advertising revenues grew by nearly 40 percent (current dollars), while spending per capita (adjusted for population growth) increased by 31 percent. These growth rates exceeded the corresponding inflation rate (14 percent from 1995 to 2002), but paralleled more closely the growth (in current dollars)in Canada's GDP per capita (33 percent).Footnote 106

Figure 2.7

Advertising Expenditures, Canada, 1995–2002

Source: Carat Expert, as quoted in: CRTC. Broadcasting Policy Monitoring Report: 2003.

Per capita figures calculated using Statistics Canada, CANSIM, series v466668.

In 2002, print media (newspapers and magazines) accounted for almost half (45 percent) of advertising revenue in Canada (see Figure 2.8). Television accounted for about one third (34 percent). Given that Canadians view an average of 21 hours of television per week (Statistics Canada 2003c), the importance of this medium is apparent. While representing a smaller proportion of total revenue, other forms of advertising have been growing quickly over the last seven years. Billboard and Internet advertising accounted for the smallest share of revenues in 2002, but have both grown at an above average rate since the mid-1990s.

Figure 2.8 — Advertising Revenue By Media

1 Includes private conventional, CBC/SRC, specialty services, other public, educational, religious and not-for-profit services. Back to text
2 Excludes classified ads. Back to text
3 1996 data (the first year Internet data were published); growth rate calculated for 1996–2002. Back to text

Source: Carat Expert, as quoted in CRTC. Broadcasting Policy Monitoring Report: 2003.

($ Millions)
($ Millions)
Share of
2002 Total
Television1 1878 2595 34 38
Daily Newspaper2 1323 1682 22 27
Radio 769 1077 14 40
Magazine 621 983 13 58
Weekly Newspaper 615 770 10 25
Billboard 167 321 4 92
Internet3 2 116 2 583
Total 5373 7544   40

Businesses' promotional activities are increasingly underestimated when only advertising revenue trends for the above-mentioned mass media are considered. The data do not account for the more customized, "relationship marketing" approach which has emerged from:

…the paradigm shift that the marketing/advertising field has experienced over the last 10 years or so.… Advertisers are increasingly experimenting with new ways of developing relationships with consumers. Traditional media, such as TV, are being downplayed in favour of innovative vehicles, events and ways of creating buzz (Dunne 2004).

For example, HBC, in creating its custom magazine Living Spree, has started Canada's first measurable direct-to-consumer publication (Young, 2003). As expressed by the company's vice-president of marketing,"by targeting distribution of the magazine to select households and then monitoring how recipients use the coupons and other inducements to shop,… the retailer can get a clearer idea of which consumers respond to which marketing messages" (Flavelle 2003). Today's information systems and data mining technologies have been a significant factor enabling such personalized marketing trends. As noted in a report on the U.K. advertising sector: "Improved techniques in customer relationships marketing and database management have allowed for better targeting of direct mail and …with consumers being bombarded with increasing numbers of commercial messages, personalization has become more important" (Lee 2003).

For example, an estimated 13 billion pieces of direct mail are delivered in Canada each year — more than 1000 pieces per home (Recycling Council of Ontario, 2000). And while research suggests a response rate of only 0.46 percent for basic mailings, personalizing it by applying database information increases the rate by 500 percent more than the initial 0.46 (Biback 2001). Such sophisticated market segmentation services are now offered by corporations, such as Canada Post. It can create a neighbourhood clustering system, by bringing together a variety of data, from census information to consumer surveys (Canadian Press Newswire 2000).

Companies will seek to further incorporate customer relationship management practices into their marketing campaigns. This will undoubtedly raise additional privacy issues. Consumers who want to receive better service and offers of more direct relevance to them will have to weigh the trade-offs involved, as businesses will require the collection and use of personal information to develop better targeted offers and, in turn, improve their sales and profits.

Canadians are exposed to significant amounts of American advertising

The United States accounts for roughly half of worldwide advertising expendituresFootnote 107 and, on a per capita basis, spends far more on advertising than other similar advanced economies (see Figure 2.9). A number of factors (proximity, common language, extensive trade relations) favour the cross-border movement of U.S. mass communications into Canada, including advertising. For instance, U.S. print advertising was imported directly via the 540 U.S. magazine titles that entered Canada in 2001, with a circulation of 8.7 million Canadians, carrying a variety of American ads (Magazines Canada 2003).Footnote 108

Figure 2.9

Per Capita Advertising Expenditures, 2002

Source: Zenith Optimedia. 2002. Converted to per capita figures using United Nation's population data for 2001.

Access to American television programming also gives Canadians significant exposure to U.S. advertising. While CRTC regulations allow Canadian broadcasters to substitute Canadian ads for American commercials in certain circumstances (and hence generate revenues),Footnote 109 there are many instances in which U.S. commercials air in Canada. For one, the signal substitution rule does not apply to foreign television services (such as the growing number of pay and specialty channelsFootnote 110)when this programming is not simultaneously broadcast in Canada. Also, the many Canadians who live near the international border can, with a good antenna, pick up American signals directly (Canadian Communications Foundation 2001). Some Canadians (broad estimates range from 520 000 to 700 000 active systems in Canada)Footnote 111 also receive U.S. signals directly by satellite via the "grey/black" market.

In some cases, Canadian exposure to American advertising can be problematic. For example, pharmaceutical products advertised on American television, in U.S. publications and over the Internet may not be available in Canada. Furthermore, direct-to-consumer advertising of prescription drugs is regulated differently in Canada.

Prescription drugs: The potential confusion created by cross-border advertising

Direct-to-consumer advertising of prescription drugs in Canada, relative to the United States, is subjected to a greater number of specific regulatory requirements. Health Canada notes that prescription drug advertising "still reaches Canadians from the United States via print, television and the Internet in increasing volumes" (Health Canada 1999). More recently, the Internet has further broadened the advertising "spill-over effect" because"you can find out everything you want about any drug, even the experimental ones" (Vogt 2001, A18). This situation is confusing for consumers: 57 percent of Canadians recently surveyed thought that, at present, prescription medicine scan be advertised directly to the Canadian public (Ipsos-Reid 2003c). Moreover, the "spill-over effect" exposes Canadians to messages about drugs that may not even be approved or available in Canada.

Advertising benefits consumers

Advertising brings a number of consumer benefits, such as lower search costs, since information is conveyed about many more products than is possible for consumers to see when they shop. Many Canadians rely on flyers and newspaper advertisements as well as radio and television ads to alert them to low-price sale items. Advertising may also facilitate consumers' understanding of a product's attributes, although consumers must realize that advertising is not always objective and impartial. Brands, created by marketing efforts, simplify consumer choice in that they suggest to buyers which products are high quality and which are inferior. One advertising industry representative has stated that "brands were the first piece of consumer protection" (The Economist 2001). Furthermore, studies on the role of advertising have for quite some time identified its potential to promote competition and greater consumer choice:

Those who have defended the role of advertising in our economy have argued that it tends to encourage competition in various ways. Advertising is said to reduce the opportunities for firms to earn local monopoly profits by making product information available to a larger number and wide redistribution of consumers. Also, advertising enables firms, both young and old, to introduce new products and gain market acceptance for them much more rapidly than would be possible without advertising (Spencer 1967, 77).

Finally, advertising revenues partially or fully pay for a significant proportion of entertainment services. Overall, Canadians appear to recognize some benefits to advertising: while the vast majority of Canadians (88 percent) are certain that they are exposed to more advertising today than they were 10 years ago, only 31 percent find its volume unacceptable (Léger and Scholz 2002, 25). The fact that many people buy and wear articles of clothing that prominently display company logos suggests that many do not find this sort of commercial exposure unacceptable.

Concerns about rapidly increasing advertising

Proliferating advertising is raising concerns about the definition of public versus private space, however. While outdoor advertising represented less than 5 percent of advertising expenditures in 2002, it was purchased by 90 percent of Canada's top 200 advertisers in 2000, up from 65 percent in 1995 (Powell 2001). As a marketing analyst observed:

It seems that anything is fair game as a venue for out-of-home advertising: bicycles, garbage cans, taxi hubcaps, urinals, office buildings, the CN tower, mall food courts, golf course holes, parking lot boom gates, subway trains, grocery carts, and even apples and bananas in the produce section (Powell 2001).

The visual dominance of advertising is another concern, for "digital-imaging and output devices have made it possible to produce bigger, cheaper and higher-quality boards than ever before" (Diekmeyer 2001, D2). A recent public space debate resulted in a Supreme Court decision that supported a city's ban on large billboards, a by-law created in part to prevent the intrusive presence of advertising in public spaces (Makin 2003, A17).

The public versus private debate: Advertising in schools

There are many forms of advertising in schools today, including, for example,market-driven teen magazines,Footnote 112corporate-sponsored events, promotional materials and corporate giveaways. A number of teacher associations have spoken out against this trend, concerned that commercialization "privatizes public space" and that schools, as an integral part of the institutions of democracy, should provide an "education that prepares people to participate as critical citizens in that public space" (Kuehn 2003). Financial constraints are often cited as the rationale for schools'interest in commercial agreements. However, even when presented with the argument that advertising may allow schools to receive financial assistance, services or equipment, 7 out of 10 Canadians surveyed in 2000 still felt that advertising has no place in schools.Footnote 113 Recently, in response to concerns about obesity in children, some changes with respect to the presence in schools of products that are the subject of significant levels of marketing exposure have occurred: "the Canadian soft drink industry has decided to pull all its carbonated beverages from elementary and junior high schools in the country by the beginning of the next school year … [and] has already begun talking with schools to reword contracts to conform to the new rules" (Lau 2004).

While television has been a major advertising medium for some time, a growing trend over the last two decades, especially in the United States, has been the use of "product placements," the presence of a brand name product in core program content. This is also true of some feature films. This marketing strategy has grown "as networks become increasingly nervous about the impact of digital video recorders like TiVo, which allow viewers to skip commercials" (Bauder 2003, D03). Canadians are exposed to product placement advertising, since a significant proportion of our television and cinema programming originates from outside Canada (mainly from the U.S.). Two thirds of television viewing by Canadians in 2001 was of foreign programming (CRTC 2002, 46), and over 98 percent of film distributors' revenues (commercial cinemas and drive-ins) in 2000–01 came from foreign productions (Statistics Canada 2003d). Product placement in music videos in particular is seen as a growing trend that allows marketers to circumvent technologies that allow skipping commercials, and to target the lucrative market of Canadian teenagers. In the words of a music industry media consultant:

Why pretend? Shoot the video and the TV ad at the same time … Straight ads alone don't cut it anymore. I think hip hop is the fastest growing sort of marketing arena that's out there. It's just the kids see it, they want it, they get it. It's as simple as that (CBC 2004).

Advertising directed at younger children also poses particular challenges. Research shows that children between the ages of two and five cannot differentiate between regular television programming and commercials (Media Awareness Network 2003a). Until about age eight, children do not understand that advertisements are not always portraying a reality (Media Awareness Network 2003a).Footnote 114 Based on focus-testing among families regarding television ads for toys, the Canadian Toy Testing Council concluded that one of the biggest problems with toy ads is the exaggeration of product claims, so that young children think a toy can actually do a lot more because of the way it is portrayed in advertisements.Footnote 115

Advertisers are increasingly targeting the young

Today's kids are considered to be the most-marketed-to generation in history (Media Awareness Network 2003b). One estimate suggests that American children are exposed to 40 000 television ads per year, up from 20 000 ads in the 1970s.Footnote 116 Even preschoolers are being exposed to more marketing (Media Awareness Network 2003a), with research indicating that children as young as age three recognize brand logos (Fischer et al. 1991). The U.S. National Institute on Media and the Family states:

In the past the most effective way to sell children's products was through mom and dad. Now the opposite is true, children are the focal point for intense advertising pressure seeking to influence billions of dollars of family spending (National Institute on Media and the Family, 2002).

Internet advertising: new forms and new issues

On the Internet, a growing number of prominent listings produced by Web search engines are based on paid advertising. One prominent search engine company disclosed in 2003 that 150 000 advertisers had paid to be included in its paid listings program (Liedtke 2003). Consumer advocates are concerned that concealment of the paid advertising "may mislead search engine users to believe that search results are based on relevancy alone, not marketing ploys" (Commercial Alert 2001). A survey of American Internet users concluded that "users are largely unaware that search engines may not be neutral guides to the on-line world," since fully three in five users"do not know that search engines are often paid to list some sites more prominently than others in their results" (PSRA 2002). A review subsequently conducted by the U.S. Federal Trade Commission (FTC) in 2002 agreed that "while many search engine companies do attempt some disclosure of paid placement, their current disclosures may not be sufficiently clear" (FTC 2002).A more complex form of paying for Internet exposure, known as paid inclusion,Footnote 117 has been called problematic by U.S. regulatory agencies.Footnote 118

Internet advertising began with relatively harmless approaches such as banners,Footnote 119 first displayed in 1994.Footnote 120 As their novelty and effectiveness waned and as technological applications became more sophisticated, Web marketers adopted a greater variety of methods, including placing ads that obscure content for a brief period or use sound to attract attention (Olsen 2002b), and interstitials. Interstitials come in two forms: small windows that pop up as you browse Web pages and entire screens that appear as you move between pages.

As the marketing potential of online technologies has been explored, a number of less reputable forms of advertising have been used, with consequences for the Internet user that can go beyond annoyance. These include "mousetrapping"Footnote 121 and covertly downloading advertising material onto a user's hard drive without informing him or her or requesting permission to do so (Olsen 2002b).In other cases, confused consumers may think that pop-up downloads are necessary plug-ins required to view desired material. But the impact of pop-up download scan be troublesome. Some have redirected consumers to adult-oriented Web sites or installed new dial-up programs that replace existing accounts with expensive 1–900 numbers (Olsen 2002b).

Disclosure problems involving adware software

Adware is a software application that, when downloaded onto a computer, can track Web-surfing habits so advertisers can tailor their messages to a user's preferences. When visiting a Web site to rent a car, for example, the program may prompt a pop-up box to open with promotional information about a competing car rental business. Adware is typically acquired by users in exchange for the download of free software, such as file-sharing applications. It has been the subject of many complaints that "reflect growing turmoil in the Internet advertising industry, which increasingly has embraced intrusive, flashy and experimental ad tactics as on-line advertisers try to lure customers" (Walker 2002, E6). While certain consumers may find this exchange beneficial (they obtain free software), a number of adware applications have come to be described as "spyware," in light of poor disclosure practices, which imply that users do not know they have installed such software, and given that some spyware applications are designed to resist removal. Privacy advocates are therefore concerned that "these deceptive applications compromise users' control over their own computers and Internet connections, and over the collection and sharing of their personal information" (Berman 2004).

Another important issue with online marketing is the growing volume of unsolicited e-mail (known as spam), which has skyrocketed in recent years and now accounts for an estimated 30 percent or more of Internet traffic, up from 10 percent just two years ago (Industry Canada 2003). It is feared that the flow of unsolicited e-mail "may lead to significant disruptions and inefficiencies in Internet services."Footnote 122 According to the Canadian Marketing Association, "For reputable marketers, [unsolicited e-mail] has the potential to destroy consumer trust in the Internet" (CMA 2003).

Consumers, at the same time, face a number of costs associated with spam, such as the amount of time that can be lost scanning through e-mail to identify wanted versus unwanted messages (a process aided, but not always perfected, by spam filters). Furthermore, the enormous volume of spam raises consumer fraud risks; the FTC reports that a majority of spam messages contain false information (FTC 2003a).

The economics of spam

The growing amount of spam in circulation is due, in part, to its special characteristics. An e-mail campaign can be brought to market faster (1–3 weeks, versus 6–8 weeks for direct mail), with a quicker response-cycle (24–72  hours, versus 2–6 weeks)Footnote 123 than a traditional campaign. The most important factor, however, is its very low cost for the sender where, as noted by the Canadian Marketing Association:

… there are some instances where the consumer will bear a cost because of the choice of media employed by a marketer. … unlike more established media where the marketer pays virtually 100% of the cost of communication, the cost of e-mail marketing is largely borne by the consumer in the form of charges for connect time (CMA, 2001).

The cost per e-mail sent can amount to little more than a fraction of a penny (compared to direct mail's postage fees), hence providing a powerful incentive. Spammers in fact appear to be able to work even with a consumer response rate of only one hundredth of 1 percent, versus direct mail's general average of 2–3 percent (Kapica 2003).

Telemarketing is another widely used means of marketing, and it too has benefited from technology and changes in telecommunication service markets (e.g. lower long distance charges). Certain uses of the new telemarketing tools, such as predictive dialers, have raised concerns as some consumers experience inconveniences like silence or "dead air" when they answer their phones — which can be especially frightening for seniors (Gustavson 2001, 16). A recent legislative "do not-call"initiative launched in the U.S. aims "to give consumers an effective choice about stopping unwanted and intrusive telemarketing calls" (FTC 2003b). In Canada, the Canadian Marketing Association has a national do-not-call program that applies to its members, but consumer complaints are said to have continued because "many telemarketers who are not CMA members have consistently refused to restrain their activities to a degree that consumers find tolerable" (Gustavson 2002). A 2001 survey revealed that 61 percent of Canadians chose the statement, "I would like to stop receiving all telemarketing calls to my household, even if it means I may miss out on a really good opportunity,"while only 38 percent chose "I don't mind receiving telemarketing calls because I can always say no or not answer the phone" (PIAC 2001). In March 2001, the CRTC began a review of the current rules that apply to telemarketers and invited the public to give their views on a number of issues.The Commission's recent decision has strengthened existing telemarketing rules "by reinforcing the rules governing company specific do not call lists, by imposing additional identification procedures, and by imposing rules governing predictive dialing services" (CRTC 2004a).Footnote 124

Telemarketing aimed at vulnerable persons can also be used for fraudulent purposes. Between August 2002 and February 2003, the Canadian Competition Bureau received more than 500 complaints about telemarketing fraud from other law enforcement and government agencies, including the Canadian Anti-Fraud Centre and the U.S. FTC, and various Better Business Bureaus and attorneys general offices in the U.S. (Competition Bureau 2003). The Deputy Commissioner at the Competition Bureau has stated that:

Cooperation among law enforcement agencies both domestically and internationally means that deceptive telemarketers will be vigorously pursued no matter where they locate. This concerted effort of law enforcement agencies working in partnership has resulted in over 900 criminal charges against individual telemarketers and their companies in the past three years as a result of investigations led by the Bureau (Competition Bureau 2003).

Research opportunities

Since technological developments favour the new advertising methods or the expansion of existing ones, ongoing analysis of its effects is required. For example, more needs to be understood about how advertising influences children, a generation growing up with unprecedented exposure to commercial messages. Furthermore, with the Internet continuously changing how marketers communicate with customers, a definition of acceptable practices is still unfinished business. Other technological developments, such as the personal video recorder, which can automatically delete commercials as it records programs, are modifying the "paid for by advertising" model applied to content programming- and the impacts of yet-to-be developed economic models for creating entertainment content may be significant, perhaps including increased costs for consumers. As such, advertising's changing role in the provision of entertainment services (a growing household expenditure) will also provide for useful studies in the future.

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Footnote 42

Retail trade in the data on GDP by industry excludes vehicle sales and other sub-sectors. When considering a broader measure of "total retail sales" (which includes the automotive, clothing and other sub-sectors), the value of the sector exceeds $300 billion (see Statistics Canada 2004), as opposed to about $60 billion under the definition of retail trade.

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Footnote 43

The source of this observation is a letter from Tony Lea and Ken Jones (CSCA), April 2, 2003.

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Footnote 44

For example, see Simmons 2000, 17, Genest-Laplante 2000, 1, and Jones and Doucet 1999, 1.

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Footnote 45

See Statistics Canada, "Establishments by industry".

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Footnote 46

Source: Letter from Tony Lea and Ken Jones (CSCA), April 2, 2003.

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Footnote 47

For example, an article highlighting a report from researchers at Packaging Strategies notes that "This ongoing migration of the North American consumers to the 'mega format' retailers has already had a profound effect of shifting the decision-making power in regard to the packaging of the retailed products from their manufacturers to the retailers, 'who are becoming dictatorial about which products they carry, as well as calling the shots on the packaging those products come in.'" See Canadian Packaging 2003.

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Footnote 48

Question commissioned by the Office of Consumer Affairs for the Environics Research Group's Focus Canada survey, 2003.

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Footnote 49


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Footnote 50

Ibid. Twenty-three percent neither agreed nor disagreed with the statement, and only 20 percent disagreed.

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Footnote 51

This figure corresponds with the concentration ratio (i.e. the sum of the market shares of the four largest corporations).

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Footnote 52

For example, a 26-percent closure rate was recorded for hardware stores located within five kilometres of a Home Depot, and for pharmacies located within five kilometres of a Wal-Mart. The closure rate for bookstores located near a Chapters/Indigo was highest:55 percent. Source: CSCA 2003.

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Footnote 53

In some sectors, such as bookstores, the authors found a small retailer's best strategy might be to locate near a big box outlet, but to provide specialized or niche products in order to benefit from the increased traffic associated with the large-format store.

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Footnote 54

Question commissioned by the Office of Consumer Affairs for the Environics Research Group's Focus Canada survey, 2003.

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Footnote 55

CSCA reply to questions from Industry Canada, April 9, 2003.

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Footnote 56

For example, Loblaws Companies Ltd. operates grocery stores across Canada under various banners including Loblaws, Provigo, SuperValu, The Real Canadian Superstore, Cash & Carry, No Frills, Maxi and Valumart.

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Footnote 57

Sixty-four percent of those polled said they would be willing to shop at stores with in-store self-service technology that allows them to conduct transactions or obtain product information and service without the assistance of a store employee (Ipsos-Reid 2002a).

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Footnote 58

Electronic Commerce Council of Canada, reported in Nantel 2003.

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Footnote 59

Without bar codes and scanning, the number of items carried by supermarkets would likely not have risen as fast as it has over the past two decades. For example, the median number of items carried by U.S. supermarkets rose from 13 000 in 1980 to 37 000 in 2001 (Martinez and Stewart 2003).

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Footnote 60

See, for example, The Globe and Mail 1997; also Competition Bureau 1999.

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Footnote 61

Scanner Price Accuracy Voluntary Code, Code of Practice, (2002).

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Footnote 62

The Hudson's Bay Company has experimented with terminals for a bridal gift registry: products one wishes to receive as gifts are scanned and recorded in an accessible database.

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Footnote 63

Web Bar Listening Posts in certain stores offer Internet access to a database of song samples from virtually any compact disk in the store just by scanning the CD's bar code.

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Footnote 64

Studies have found that RFID systems can improve demand planning forecast accuracy by 20 percent, decrease inventory by 30 percent and cut distribution centre labour costs by up to 40 percent. See Renshaw 2003. Analysts have estimated that "Wal-Mart could save $8.4 billion a year by 2007 by installing RFID in many of its operations." See Khermouch and Green 2003, 42.

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Footnote 65

The programmable characteristic of RFID tags could allow for an alarm to sound when luggage is being loaded on the wrong plane. See IBM Global Services 2001.

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Footnote 66

A tire maker "is experimenting with RFID technologies that allow it to hunt down products in the case of defects or a recall." See Hines 2003.

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Footnote 67

Such as Air Miles, Club Z/HBC, Shoppers Drug Mart.

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Footnote 68

In one reported example, $1100 worth of purchases were required to obtain a reward with an approximate retail value of $0.99. See Menzies 2001.

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Footnote 69

Statistics Canada's definition of "regular" is quite broad. A "regular-use household" includes all those who responded affirmatively to the question "In a typical month, does anyone in the household use the Internet from any location?".

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Footnote 70

In particular, the discussion of Canada's SchoolNet and the Community Access Program.

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Footnote 71

See, for example, Olsen 2003, which reports on's recent introduction of a tool that lets people search the entire text of many books it sells.

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Footnote 72

An online Canadian has been defined as "a Canadian adult who spends at least one hour online per week."

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Footnote 73

This was the greatest advantage reported by 42 percent of Internet users who used the Internet as a vehicle-buying resource tool (see Ipsos-Reid 2003b).

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Footnote 74

According to one account, "price discrimination is expected to become more pervasive, not only because so much personal data are being collected in on-line commerce but also as technology, in the name of protecting copyrights, limits what people can do with on-line content" (Associated Press 2003).

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Footnote 75

For example, the

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Footnote 76 Watch - 2001 Internet Fraud Statistics.

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Footnote 77 - 2002 Internet Fraud Statistics.

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Footnote 78

These figures refer to the number of fraud cases forwarded to law enforcement agencies on behalf of victims, and not to total complaints.

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Footnote 79

Internet Sales Contract Harmonization Template.

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Footnote 80

Uniform Law Conference of Canada.

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Footnote 81

United Nations Commission on International Trade Law.

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Footnote 82

Hague Conference on Private International Law.

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Footnote 83

Canadian Code of Practice for Consumer Protection in Electronic Commerce.

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Footnote 84

Education is another factor with respect to the digital divide, but this is highly associated with income.

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Footnote 85

Statistics Canada: b/arts54a.htm.

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Footnote 86

Statistics Canada: b/arts56a.htm.

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Footnote 87

Statistics Canada: b/arts56b.htm.

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Footnote 88

Dryburgh 2001 reports that only about one quarter of Canadians surveyed in 2000 that had not used the Internet in the last 12 months were interested in using it.

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Footnote 89

Figures are based on an aggregate total for eight banks. Source: Canadian Bankers Association.

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Footnote 90

Interac Association.

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Footnote 91


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Footnote 92

Interac Association.

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Footnote 93

Data source for this and the previous paragraph is the Interac Association.

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Footnote 94

See Department of Finance Canada 2003. Eight financial institutions committed to offer low-cost accounts that meet the guidelines set out by the government to ensure that all Canadians have access to affordable banking services. These guidelines include the use of a debit card as part of a low-cost account.

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Footnote 95

Question commissioned by the Office of Consumer Affairs in 2001 as part of the Environics Research Group's Focus Canada survey.

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Footnote 96

In the last quarter of 2002, two consumer groups launched a protest concerning ABM convenience fees, urging consumers to boycott these charges and to express discontent by writing to bank presidents and government bodies such as the Financial Consumer Agency of Canada.

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Footnote 97

See Office of Consumer Affairs (Industry Canada) 2002 for the definition of "connected consumer"and a discussion of the report's methodology.

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Footnote 98

Financial Consumer Agency of Canada 2002, reporting results from Ipsos-Reid 2001.

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Footnote 99

Note that due to this means of authentication, the onus is placed on the consumer to prove a fraudulent transaction has occurred. While this is generally easy to do with large-scale scams, it can be quite difficult in isolated incidences.

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Footnote 100

For example, see Mosaik MasterCard Legal Reference, section L.3.

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Footnote 101

"At Least 50 Lose Money in Ottawa ABM Scam," Canadian Broadcasting Corporation Online News (October 24, 2003) and "Police Warn Against Bank Card Fraud," Canadian Broadcasting Corporation Online News (December 3, 2002).

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Footnote 102

For example, the rate of compliance when examining the extent to which the financial institutions specify that cardholders are not liable for losses resulting from circumstances beyond their control was only 53 percent. See Ekos Research Associates 2002.

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Footnote 103

For example, more than half (57 percent) of respondents erroneously disagreed with the statement that they would not be reimbursed for money taken by someone else using their card if their PIN was based on a number found in another document.

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Footnote 104

For example, see Breton 2000, A7. [Translation] "By reducing counter service and replacing it with automated services, it allows us to increase the consulting staff, says André Cajolais, communications advisor, Fédération des caisses Desjardins de Montréal."

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Footnote 105

Specifically, if banks deploy ABM alternatives only when they can make a profit, then "'white-label'or 'no-name' ABMs will move into these areas, offering vulnerable consumers limited service at unacceptably high prices." Public Interest Advocacy Centre, a letter to the Honourable P. Martin P.C., M.P., Minister of Finance (October 12, 1999).

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Footnote 106

GDP data from StatisticsCanada, CANSIM, series v646937.

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Footnote 107

In a December 2003 press release, Zenith Optimedia reported that the U.S. accounted for 45.6 percent of worldwide advertising expenditures (major media) in 2002, which is broadly comparable to Universal McCann's estimate of 52.9 percent for 2001.

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Footnote 108

The Canadian magazine industry association, however, also notes that only 16 U.S. titles make the top 100 list for magazine circulation in Canada.

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Footnote 109

See Section 30 of the Broadcasting Distribution Regulations.

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Footnote 110

See CRTC 2002. Statistics on Television — Audience — Viewing Share by Station Group show that the audience share (all-day, for all persons aged 2+) of U.S. and non-U.S. pay and specialty services increased from 5.5 percent in 1993 to 13.4 percent in 2001.

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Footnote 111

For example, see the Canadian Coalition Against Satellite Signal Theft 2003.

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Footnote 112

See, for example, Bell 2003, which reports that "ad-driven teen magazines produced for distribution in Canadian secondary schools … began with the Winnipeg magazine What 16 years ago and have grown to incorporate Verve, Fuel and, most recently, Faze, with a combined circulation of more than a million copies."

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Footnote 113

Canadians Say No to Advertising in Schools, results from an Environics survey conducted on behalf of the Canadian Teachers' Federation.

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Footnote 114

The identification of toddlers as a consumer market has been associated with the marketing of merchandise on the popular pre-school TV programs Barney and Teletubbies. See Media Awareness Network 2003a.

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Footnote 115

Reported in "Ads Aimed at Kids," Marketplace, Canadian Broadcasting Corporation, November 14, 2001.

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Footnote 116

Robinson, Tomas N. et al. "Effects of Reducing Television Viewing on Children's Request for Toys: A Randomized Control Trial," Journal of Developmental and Behavioral Pediatrics (June 2001), p. 179, as quoted in Assadourian 2003, 48.

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Footnote 117

Paid inclusion implies that companies accept fees to "crawl" Web sites more often — it can therefore affect results returned to the Internet user if the program's underlying search engines review particular Web sites' content more often or more deeply than otherwise.

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Footnote 118

"The U.S. regulatory agency said that so far, it's pleased with efforts to disclose ads as 'sponsored' when they appear on top or adjacent to query results. But a more complex form of paying for exposure within search results, called paid inclusion, remains worrisome for consumer watchdogs and the FTC." From Olsen 2002a.

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Footnote 119

A relatively small box with text and graphics, placed at the top or bottom of the screen with a link to the advertiser's home page.

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Footnote 120

Morgan Stanley Dean Witter Equity Research, An Analysis of Internet Advertising and Online Advertising, .

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Footnote 121

The launch of multiple windows when a user tries to exit a Web site.

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Footnote 122

Prepared Statement of the FTC on Unsolicited Commercial eMail Before the Committee on Commerce, Science and Transportation, U.S. Senate (May 21, 2003).

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Footnote 123

The source, as quoted in the Canadian Marketing Association's "The CMA Guide to E-mail Marketing" is Forrester Research, Jupiter Communications, DMA.

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Footnote 124

On September 28, 2004, the CRTC approved a request by the Canadian Marketing Association (CMA) to stay the Review of telemarketing rules (Telecom Decision CRTC 2004-35), pending the disposition of the CMA's application to review and vary this Decision (see CRTC 2004b).

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