Performance Indicator

Determining the business value of information privacy is not a simple job.

"We need to consider years of data to do it right," says Shankar, who has studied companies such as Intel in his ongoing effort to quantify the relative impact of privacy on trust. He is careful to keep things in perspective.

"Privacy is a necessary condition for building trust, but not in itself a sufficient one," Shankar says.

"We feel there is a strong link between trust and performance. Customer trust is a forward-looking indicator of company performance, not a backward-looking one, like financials. The amount of trust its customers have for a company tells you something about its future."

Other key factors in establishing trust included basic stuff like site reliability and ease of navigation—both within the purview of a CIO—along with perceptions of the overall brand and particular products.

Ponemon has done research on the value proposition of privacy for industries including pharmaceuticals and banking, with an eye to determining metrics for calculating a return on investment in increased privacy.

One study, sponsored by a group of retail banks, looked at the question from three perspectives: customer attrition due to privacy issues; information quality of customers who remain in the system; and overall customer turnover, or churn.

"We found that there is a real economic value to an organization if they manage the privacy relationship well," he says. "For some companies, such as National City, it becomes a competitive advantage."

One of the things the study revealed is that a CIO does the company a favor by making it easy for customers to opt out of particular marketing plans and loyalty clubs, and by making it clear to customers exactly what they are opting out of.

"You need to give the customer the option of being in the system or not," says Ponemon.

Unsurprisingly, companies that do this right typically get more opt-outs, not fewer—but that's a good thing, in his view.

"People tend to opt out because they are very sensitive to privacy," he says. "They would complain if they were unhappy, so you should be glad to have them opt out. They are probably annoyed already." He calls the task of creating the systems to make this easy for both consumers and marketers "a technology challenge, but a must-do."

There is also a cultural challenge within many companies in making the decision not to pursue some business in order to win more—and better—business.

"There is a conscious choice to forego certain marketing techniques by adopting greater privacy rules, in order to enhance customer trust and market more services."

That logic can be a tough sell. Says Ponemon: "The marketing people have as their moral mission the belief that 20 million e-mails are better than 16 million. In this view, fewer opt-outs is a good thing, so they might favor confusing language and tricks to keep people in—when that actually leads to diminishment of effectiveness."

Putting a return on better customer information and improved communication with customers is a developing art.

Ponemon's study showed that marketing campaigns at large retail banks were about 22 percent more successful when they included privacy-enhancing factors such as more flexible opt-out options. The measurable impact on sales showed an increase at one large bank of about $180 million—a small but not insignificant number at such a large company—and an increase in sales at smaller banks on the order of hundreds of thousands of dollars, more than enough to cover the cost of engineering the improved privacy options.

This article was originally published on 09-15-2004
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