Where your personal data goes when you're not looking

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"In 40 years in this industry I've never seen an instance where someone was charged more than the published price," Barrett Glasgow explains. Most of the time, "the question is, will I get a discount?" The answer might depend on factors such as the customer's proximity to a brick-and-mortar competitor. But absent any kind of explanation, people can assume the worst.

And the criteria used for making pricing determinations matter to regulators as well as consumers, says Adler. For example, variable pricing by location might also appear to single out a minority community. "When do price distinctions become price discrimination?" Businesses need to think through that, he says, before they roll out technologies in brick-and-mortar stores as well as online.

Once customers have been identified, he says, it will be possible to use digital signatures to present differential pricing based on whether, for example, a customer's web surfing history shows that they've been comparison shopping online.

Businesses can head off potential issues by providing transparency, allowing customers access to all of data the business has about them, and -- most importantly -- using the data the business has appropriately, Adler says. Unfortunately, he adds, "Companies often default to not disclose."

"Data is increasingly a feature, not just a disclosure that I've given you ways to opt out of marketing," says Polonetsky. Rather than rely on the privacy policy exclusively, the user experience for an online service should let users see how and when data is used to "power the product, to market or to connect with friends" Users can then toggle potentially sensitive features, such as location services, on and off in certain contexts to suit their expectations.

What's more, if 90% of your users aren't having a pleasant experience using the default privacy settings, then something is wrong with your strategy, Polonetsky says. The default privacy settings should match users' expectations without requiring them to read through a lengthy privacy policy to find answers.

Data security

American Express has been a model for transparency, and Amazon.com has been upfront about how it tracks customers to make suggestions about what users might like to buy, Polonetsky says, but many online businesses are far less forthcoming. "Everyone pays lip service to transparency, but with some [companies] you have to do a lot of detective work to understand what they are really up to. Sleuthing is not what users want to do to find out what's going on." The future, he says, will belong to the businesses that understand this.

Opening up

Businesses are slowly beginning to respond to at least some consumer concerns about privacy. For example, Facebook recently decided to allow its users to log into new apps anonymously (although one could argue that it took one step back when it manipulated users' news feeds). Some mobile app vendors offer popular messaging services that can permanently erase messages after a user-determined time limit. And Intellius, which sells personal background checks based on public records, lets users see their own data for free -- and correct it.

For Adler, who helped to develop the program at Intellius a few years ago, the philosophy was simple: "I shouldn't have to guess what information they have and are sharing. I should be able to just look."

More recently, data aggregator Acxiom launched its aboutthedata.com website, which lets validated users see six categories of "core data" used to place them into demographic and interest categories for marketing purposes. Consumers can delete or correct the baseline data, which automatically updates modeled data about the person. However, they can't view the interest and demographic categories to which they've been assigned.

There's a good reason for that, says Adler: The categories and predictive scores used by some companies would be offensive to people, and they would want to know why they were put into those. "No one likes to be labeled and stereotyped, but that's what marketing does. It's about segmentation, and that's often politically incorrect." The industry, he says, will need to figure out how to segment markets accurately and still maintain some semblance of political correctness.

Going forward, Feldman expects people to become even more engaged on privacy issues with the companies with which they transact businesses. "What's changed is now everyone is concerned about privacy. It's much more top of mind."

But companies shouldn't leave it to the lawyers to handle all of the consumer privacy details, says Adler. "The legal department is the wrong place to make decisions about innovation." If the company doesn't have this discussion, it "will either take the conservative approach or innovate in completely irresponsible ways," he says. But things can't keep operating the way they have in the past. One thing is certain, Adler says: "If companies continue to do this in an opaque way, regulators will step in."

Copyright © 2014 IDG Communications, Inc.

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