Forge relations with consumers and avoid mistrust to better leverage user data

Companies need to develop and follow a systematic customer strategy first to leverage the value of consumer data. Then allocate the right organisational skills, resources, processes, and systems to acquire, retain, and recover value from mutually beneficial customer relationships.

By Siddharth Shekhar Singh

Published: Dec 1, 2021 06:20:39 PM IST

Updated: Dec 2, 2021 02:49:55 PM IST

Recent studies have shown that most US consumers believe that personal information collected by firms poses more risk than benefits

Image: Shutterstock

If data is the new oil for the economy, then it must be inflammable too.

The world’s dominant technology platforms collecting data of billions of users are feeling the heat as they face a barrage of antitrust lawsuits in the US and other parts of the world over their use of data. Data has always been a tremendous competitive advantage for businesses—provided it is safely handled, used justly and not stored for long—almost the same principles as applicable to hydrocarbons.

Harnessing data for communications, accurately figuring out customer behaviour, and promoting new products are some of the great benefits of data in marketing. But along with the many benefits of digital, it also poses fresh challenges for marketers. In recent instances, we saw these lawsuits arising from perceptions of monopolistic behaviour by certain firms in their use of consumer data for business activities.

I have been studying the challenges posed by digital marketing for some time now. My recent paper in the Journal of Retailing, titled ‘Insight is power: understanding the terms of the consumer-firm data exchange’, looks at this in granular detail. Our research builds on four key fields that comprise public perception about terms of exchange of data.

We identify these as data ownership, data intimacy, data permanence and data value. Based on these, we identify some essential factors that could better the ability of firms to leverage consumer data and factors that enhance the risk of signalling disrespect for consumer privacy.

In the age of social media, new digital solutions, and the advent of the Internet of Things, voluminous consumer data is generated daily. It has led to some adverse effects on consumer mindsets. Studies in the US from 2019 have shown that more than 60 percent of consumers feel they cannot get through a day without being tracked.

Big data comes with inherent risks for retailers, as we see in the increasingly changing legislations, be it from the General Data Protection Regulation for the European Union or the several litigations under relevant Consumer Protection Acts against Big Tech firms across 36 states in the US.

Interestingly, recent studies have also shown that most US consumers believe that personal information collected by firms poses more risk than benefits. This is clear as studies find that more than 25 percent of US consumers, like many in India, use technologies to block or mask personal information or personalised advertising on devices.

Data breaches are another factor that makes consumers wary. While firms in the US and the EU have paid major fines for these breaches, in India, popular tech firms that face data breaches are mostly let off with an online apology. Examples like these put consumers at the inherent risk of facing cyberattacks or becoming victims of cyber-surveillance.

However, the horizon in India is about to change soon, for good or better.

Firstly, the Personal Data Protection Bill, which is under the works with a Joint Parliamentary Committee. And secondly, for a Committee of Experts formed by the Ministry of Electronics and Information Technology (MEITY) and headed by Kris Gopalakrishnan, which is in the process of firming up regulations around responsible use of non-personal data by startups and firms via wide public consultations.

The committee suggests creating an authority that monitors the usage and mining of non-personal data as well. In all fairness, there is an excellent probability that in future, handling data would entail newer challenges for firms, even though in the past, some businesses—both private and public—have managed to slip regulatory actions easily after data breaches.

For all businesses, collecting voluminous, high-quality data and/or using state-of-art CRM technologies may be necessary for competitive advantage. However, these are not sufficient for success. Companies need to develop and follow a systematic customer strategy first to leverage the value of consumer data. Then allocate the right organisational skills, resources, processes, and systems to acquire, retain, and recover value from mutually beneficial customer relationships.

These steps are necessary for tackling much more than fall out of data breaches. Our research also investigates perceptions detrimental to business. Firms must avoid incentive misalignment (mismatch with consumer expectations of the value from their data), prolonged data storage (storing data longer than consumers’ perceived expiration date) and precision of consumer profiling (non-beneficial profiling, which triggers unease with consumers).

This multi-university research provides evidence for best practices to improve consumer perception and avoid regulatory actions triggered by misuse or mishandling of consumer data. This article also poses 11 future research questions from everyone’s (customers, manufacturers, retailers and channel intermediaries) perspective.

Some of the questions of imminent importance we look at are when to compensate the consumer for their data, how consumers perceive allocation of value and benefits of exchanging data, or even if channel intermediaries should facilitate data interoperability and transparency.

(The author is Associate Professor of Marketing at the Indian School of Business and co-author of the book ‘Digital Marketing: Strategy and Tactic; Wiley, 2020’)