Privacy Advisor

The Chapell View - Privacy Challenges Also Present Opportunities

November 1, 2006

As with many business environments, direct marketing thrives on customer trust. Maybe customers don't always know why they trust a business - the products are better, or more reliable, or they feel more secure - but customer trust helps drive long term profitable relationships. One element of trust that we're hearing more about these days, especially as the promise of 'personalized' marketing develops, is how information is collected and used. And with such increasing information use comes an increased set of privacy-related challenges, issues - and yes, opportunities.

As much as customer privacy gets talked about these days, what do marketers think about privacy concepts? There's probably not one concise answer to this question. But a couple of recently released studies help to shed light on how some companies are approaching customer privacy.

Increased Collection

A key component of customer privacy is the idea of providing customers notice and choice about your data practices. At the end of August, the Customer Respect Group, a Massachusetts-based research firm, released the results of its Third Quarter 2006 Online Customer Respect Study of Retailers. The report detailed how online retailers stacked up when it came to privacy, communication, and marketing to their customers.

While the Customer Respect Study found that online retailers are improving their efforts to effectively communicate with customers, it also noted an increase in the types and amount of collected data. More than a quarter of online retail sites, the Customer Respect Group found, required customers to log in or register before they are allowed to view products or prices. And 20 percent of the companies surveyed required customers to provide more than 10 different pieces of information about themselves - such as addresses, phone numbers, and so on - when submitting a question.

As we all know, information is a key ingredient in most effective marketing outreach programs. Unfortunately, the report found that some online retailers did not consistently ask their customers' permission before using collected data for marketing purposes. Of the companies surveyed, 15 percent used collected customer data for internal marketing without explicit authorization - and 43 percent shared such data with business partners or other third parties without first getting explicit customer permission.

A Hindrance to Marketing?

These results are supported by another recent study. The Ponemon Institute just released the results of a report, What Marketing Professionals Think about the Value of Privacy to Consumers, sponsored by marketing strategy firm ZOOM Marketing. The study optimistically noted that nearly three quarters of marketers are aware of their company's privacy policies, and have reviewed how these policies affect marketing initiatives. But it also found that most of those surveyed view privacy as a hindrance to their campaigns.

According to the Ponemon Study, 51 percent of marketers said that their organization's privacy policies made it harder to market to consumers. Three major reasons were cited: fewer customers to contact, increased costs and the inability to use personalization technology. And a majority of respondents felt that customer privacy was only 'somewhat' important - if at all.

What responding marketers did feel was important - especially when it came to building customer trust - was the ability to personalize marketing. Although the study didn't ask why, we might surmise that by tailoring their outreach to the interests of each customer, companies believe they will be "giving something back" to customers in exchange for collected data. In that sense, marketers may see a company privacy policy as an impediment, insomuch as it limits the collection of this valuable data. Companies clearly want their customers' trust. However, some may actually view privacy as inhibiting their efforts to build that trust.

Privacy as Boon, Not Burden

Marketers and privacy professionals agree, then - customer trust is good, and so is using data to build that trust. Where they diverge, it seems, is how to best use collected data to develop trust. But I think both groups can learn something from each other. Marketing professionals are right to recognize the value of customer trust - and customers certainly respond positively to personalized marketing.

On the other hand, this isn't the only reason customers have to trust a business. There's also the question about what happens to information once it's been collected. As Forrester Research has reported, 86 percent of consumers are worried about providing their information to marketers because of privacy and security concerns. Such fears can be a real impediment to customer trust and loyalty.

But the right privacy policies can help alleviate this barrier. "Too many companies fail to understand the strategic significance of privacy within the context of a successful, profitable marketing campaign," said Dr. Larry Ponemon of The Ponemon Institute. "Privacy is still regarded as an inconvenience to the marketing community, rather than an opportunity to build strong, long-lasting relationships."

In a forthcoming white paper, edited by Chapell & Associates, The Ponemon Institute's Responsible Information Management Council will outline how businesses can effectively institute customer privacy to further their marketing initiatives. In this paper and elsewhere, what is clear is that respecting a customer's privacy leads to increased loyalty and trust. Applied properly, that trust can provide a significant competitive advantage.

Alan Chapell, CIPP, is president of Chapell & Associates, a consulting firm that helps direct marketers navigate the waters of consumer privacy and develop responsible and effective marketing programs. Chapell has been instrumental in the development of emerging best practice standards for privacy and interactive marketing. He may be reached at +212.675.1270, or via email.