Privacy can help, not hinder, customer trust

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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 we hear 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 increase in privacy-related challenges, issues and, yes, opportunities.

As much as customer privacy gets talked about, what do marketers think about privacy concepts? A few recent studies shed light on how some companies approach customer privacy.

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

While the study found that online retailers are improving their efforts to communicate with customers, it also noted a rise in the types and amount of collected data. More than one-quarter of online retail sites required customers to log in or register before they viewed products or prices. And 20 percent of the companies surveyed required customers to give more than 10 pieces of information about themselves, such as addresses, phone numbers and so on, when submitting a question.

Information is a key ingredient in most marketing outreach programs. Yet the report found that some online retailers did not consistently ask customer permission before using collected data for marketing purposes. Of the firms 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 getting explicit customer permission.

A hindrance to marketing? The Ponemon Institute also released a report recently, "What Marketing Professionals Think About the Value of Privacy to Consumers." The study 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 viewed privacy as a hindrance to their campaigns.

In the institute's study, 51 percent of marketers said their organization's privacy policies made it harder to market to consumers. Three major reasons were cited: fewer customers to contact, higher costs and the inability to use personalization technology. Also, a majority of respondents thought that customer privacy was only "somewhat" important, if at all.

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

Privacy as boon, not burden. Marketers and privacy professionals agree: Customer trust is good, and so is using data to build that trust. Where they diverge, it seems, is how best to use collected data to develop trust. I think both groups can learn something from each other. Marketers are right to recognize the value of customer trust, and customers certainly respond positively to personalized marketing.

However, this isn't the only reason customers have to trust a business. There's also the question of what happens to information once it is collected. As Forrester Research reported, 86 percent of consumers are worried about giving their information to marketers because of privacy and security concerns. Such fears can impede customer trust and loyalty. But the right privacy policies can alleviate this barrier.

"Too many companies fail to understand the strategic significance of privacy within the context of a successful, profitable marketing campaign," Dr. Larry Ponemon of Ponemon Institute said. "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, Ponemon Institute's Responsible Information Management Council will outline how businesses can institute customer privacy to further their marketing initiatives. In this paper and elsewhere, what we increasingly see is that respecting a customer's privacy increases loyalty and trust. Applied properly, that trust can yield a competitive advantage.

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