Privacy Payoff: Better Customer Data

False data, false choices: The real costs

The following is reprinted with permission from Privacy Payoff: How Successful Businesses Build Customer Trust, McGraw-Hill Ryerson Ltd., ISBN 0-07-090560-6. Copyright McGraw-Hill Ryerson, all rights reserved.

An opt-in marketing strategy does more than simply earn the trust of consumers. By allowing consumers to control the uses of their personal information, permission marketing increases the likelihood that the customer data being collected and used is accurate and up-to-date. Both consumers and businesses suffer when data is full of errors. When an individual's personal profile is inaccurate or incomplete, there is a greater likelihood of that person being judged out of context or treated unfairly. Meanwhile, there is a high cost to businesses when their customer databases are riddled with errors. A wrong name or address can lead to misdirected advertising, ineffective marketing and wasted resources. Likewise, incorrect customer information can skew the results that are generated from data-mining and business intelligence software, applications that are often used to make critical business and marketing decisions. "It is a truism to say that data analysis can only be as good as the data itself," Bruce Slane, privacy commissioner of New Zealand, once said. Do you want the decisions being made at your company to be based on skewed data?

Sadly, privacy fears in the online world have driven many consumers, when they're given no other choice, to falsify the information they submit to Web sites and services. Studies suggest that between 20 and 50 percent of online users have resorted to falsifying their information when attempting to use a Web site or gain access to an online service. A 2001 survey from Statistical Research of Westfield, N.J., found that one in five Web users have entered incorrect information to protect their privacy while trying to gain access to a Web site.[21] Technology consulting firm Accenture revealed in its own 2001 survey that 40 percent of respondents gave false information to Web sites (similar to the 42 percent reported by Wired magazine in previous years).[22] This figure is even higher for teenagers, of whom 53 percent have given false information to Web sites to guard their privacy, according to a 2001 research brief by Forrester Research.[23]

It may be easy to understand why consumers falsify their information, but it is much more difficult to pinpoint the consequences of their doing so. The risks are many. Businesses may look at that incorrect information and make inaccurate assumptions about a person's lifestyle, likes and dislikes, age, income range, buying preferences and other personal habits that define this individual as a consumer. Once unleashed, incorrect information can "infect" other databases and other businesses, where it may lead to negative consequences: it could prevent someone from getting a job, obtaining a loan, securing an insurance policy or qualifying for a mortgage -- and the person being rejected would never even know it. Even though the individual may have been responsible for the false information (such as when registering to gain access to a Web site), from a utilitarian perspective, it diminishes the benefit to both the company and the individual when they are presented with "false choices" that do not reflect their desired intent.

Privacy Payoff: How Successful Businesses Build Customer Trust
1pixclear.gif
But even when personal information isn't intentionally falsified, databases still have a high margin of error. This margin of error increases as databases get larger and when more sources of data are relied on for collection purposes. An enormous amount of information is gathered on us every day -- from the book purchases we make at Amazon.com to the contest forms we fill out at the grocery store or on a travel Web site. Many businesses rely on data-entry staff to enter this information, and electronic retailers must now ask their online customers to double as data-entry clerks. In both cases, hired staff and customers are equally prone to making typos and other mistakes, and there are often no processes in place for a business to verify the information or to prevent it from being doctored later. The potential for error is amplified when you consider that many of these customer databases are blended together and cross-matched in an attempt to make more complete -- but not necessarily more correct -- profiles. "The more databases involved, the greater the risk that the data is old or inaccurate and the more difficult it is to cleanse," writes Slane.[24]

Large databases are notorious for their error rates - conservative estimates range from 20 to 30 percent. Larry Ponemon, CEO of the Privacy Council, estimates that there is an 85 percent error rate in customer profiles, meaning that in each profile at least one piece of information is inaccurate. "That's huge," says Ponemon. He gives an example of how inaccurate data can lead to damaging assumptions: "One of our clients was a national diagnostics laboratory that sells the results of medical tests, blood work, biopsies, DNA screens. From the results, they try to determine your healthcare needs. Say you don't have AIDS but are taking a drug that's also used to treat it. They could incorrectly conclude you have AIDS, put that in your profile, and sell your data to a hospice. Their profiles were riddled with those kinds of errors."[25] And in the age of the Internet, this misinformation can travel around the planet in seconds, finding its way into other databases and to other people. The worst thing is, most people haven't a clue that inaccurate information about them is being stored or circulated. And most people have no idea of when or how they are being misrepresented, or that decisions are being made without their knowledge that can negatively influence what happens to them.

So what can be done to eradicate this plague of misinformation? As we have already discussed, marketers and other businesses can first discourage the intentional falsifying of information by embracing a permission marketing strategy that lets consumers take control. When consumers feel they are in control, and when the information they provide gives them highly personalized and rewarding service, it is in their best interest to tell the truth. "Be patient," advises Accenture analysts Paul Nunes and Ajit Kambil. "Users are more comfortable revealing information gradually; they become more open to sharing as the perceived value in sharing increases."[26]

But the fact remains that customer database information can still be full of errors because of data-entry typos or the malicious alteration of data, as well as through the acquisition of erroneous data from third parties. This is why marketers should embrace fair information practices, giving special attention to the privacy principles of security, purpose, accuracy and access. Customer data should be properly safeguarded to make it more difficult to erase, alter or distort. The collection and use of this data should be limited to a specific purpose, thereby preventing any existing errors from spreading to third-party databases and making it easier to track and correct the errors. Accurate, complete and up-to-date information should be pursued by regularly verifying the source data. Finally, customers should be given access to their personal information, through protected forms of access, as they are the only ones who can truly verify its accuracy. They should also be given the opportunity to challenge the accuracy of their data and have it corrected, to prevent any future misrepresentation.

Although these privacy principles are aimed at protecting consumer rights, businesses will benefit enormously by ultimately reducing errors in customer databases and eliminating the wasteful use of marketing resources. Who wants to base their business and marketing decisions on inaccurate information? For businesses and consumers, increasing data accuracy is a win-win situation.

The Bottom Line

Marketers will get more "bang for their buck," and will create more trusting and longer-term relationships with customers, if they choose a permission-based approach to their direct-marketing campaigns. Businesses should never assume that people want to have their personal information collected and used in marketing programs. Instead, they should simply ask, promising in return a more personalized and fulfilling online experience. Personalization plus privacy equals profit. If companies can get this formula right, the information they collect will be more accurate, their resources will be more efficiently allocated, and their customers will be more responsive. This is the future of effective marketing in an age of privacy awareness. Why settle for less?

Reprinted with permission from Privacy Payoff: How Successful Businesses Build Customer Trust, McGraw-Hill Ryerson Ltd., ISBN 0-07-090560-6. Copyright McGraw-Hill Ryerson, all rights reserved.

Notes

21 Statistical Research, "How People Use the Internet 2001" (study, June 2001).

22 Paul F. Nunes and Ajit Kambil, "Internet Privacy: A Look Under the Covers" (Accenture Institute for Strategic Change, no date; www.accenture.com).

23 Michael Antecol, with Becky Bermount, "Wired Teens Aren't Naive About Online Privacy" (Forrester Research, July 24, 2001).

24 Bruce Slane, "Data Mining and Fair Information Practices: Good Business Sense" (June 1998; www.privacy.org.nz).

25 Dana Hawkins, "Gospel of Privacy Guru: Be Wary; Assume the Worst," U.S. News & World Report, June 25, 2001.

26 Nunes and Kambil, supra, note 21.

Special Report

Compliance Headaches

Stories in this report:

Related:

Copyright © 2004 IDG Communications, Inc.

  
Shop Tech Products at Amazon