Why Personalization Matters for Consumer Privacy

User data provides companies with rich opportunities for creating personalized experiences and tailoring services to customer needs. At the same time, recent high-profile abuses of consumer data have raised concerns over how companies can strike the right balance between personalization and privacy. To help inform decision-making, we recently ran a survey asking people about their views on the benefits of personalization, brand tracking of their activities, and the trade-offs between the two. The survey included 1,012 U.S. consumers between the ages of 18 and 70 who had purchased online in the past six months.

Across the board, people are concerned about brands tracking their activity, but the level of concern varies across activity type. Some 40% indicate they are not as concerned about their content consumption, purchases, online searches, and even opt-in wristband (such as Fitbits) usage being tracked and captured. The use of machine learning and advanced analytics capable of “hacking the consumer” by tracking digital content consumption and search behavior doesn’t seem to lead to increased customer anxiety.

The level of concern rises, however, with activities that are often considered more intrusive. These include algorithms having full-text access to emails, the use of facial recognition in physical stores, and voice recognition devices listening in while connected in homes.

How Perceived Benefits and Demographics Affect Privacy Concerns

As the benefits of personalization become more attractive for surveyed consumers, the level of concern about privacy declines. Not surprisingly, receiving individualized pricing in the form of discounts for a product or service that consumers really wanted was among the most favored benefits for data use, with 57% expressing excitement. Coming in second, with 55% expressing excitement, was receiving a free product or service that consumers wanted but felt was too indulgent or not high enough in priority to purchase themselves. Interestingly, receiving dedicated concierge services and personalized advice came in at the bottom of the list of customer delights (less than 25% excitement each).

Concern over data practices increases with age, however, while excitement over free benefits declines. Some 65% of those under age 24 are not concerned about companies analyzing their buying patterns compared with 30% for those over 65. Similarly, for younger consumers, the better the benefit, the less concerned they are about privacy compared with other age groups.

Income levels don’t seem to affect the benefit-privacy concern trade-off on privacy, but education does. For the least-educated cohort (individuals who did not complete a high school degree), privacy concerns drop a full 20% for personalized benefits they value the most — including raffle entries for very expensive products (for example, a car) and indulgent experiences (for example, meeting a celebrity) — when compared with less-valued benefits, such as personalized advice on managing money. The benefit-privacy trade-off spread becomes less pronounced as education levels rise — up to a point. That trend, however, does not extend to the most educated (those with graduate degrees), who show less privacy concern and more excitement about personalized benefits than the college-educated cohort without advanced degrees.

Geography also plays a role. Urbanites overall are more excited about personalized benefits and less worried about privacy than those in rural settings. While the reasons for this aren’t entirely clear, there are a couple of theories as to why this might be so: One is that urbanites are more frequent consumers of media and so are more used to tracking technologies in general. Another is that in many cities, there are more cameras in use and consumers are becoming more accustomed to them.

The only gender-specific observation that came through in the data is that women are generally more excited than men about indulgent products and services, and about individualized discounts for products or services they really want. Another factor also matters: time spent on social media. The survey data revealed that the more people use social media, the lower their levels of concern tend to be.

The implications for companies and brands are twofold when it comes to gaining customer loyalty and mitigating privacy concerns:

1. Understand the ins and outs of your consumers’ preferences. Companies need to analyze consumer preferences to develop a clear understanding of what benefits each demographic values the most. By delivering on those benefits through personalized offers, companies can mitigate some of the consumer data privacy concerns. This requires companies to invest in deep consumer research, ongoing testing of the effectiveness of offers, and advanced analytics to provide deeper levels of insight.

2. Communicate and educate on the link between consumer data collection and personalization. Companies that do this best focus on communicating in simple terms, clearly defining the benefits, and being transparent about the types of data collected and how it is secured. They often communicate this information within the typical user’s onboarding or sign-up experience. Today’s best practices tend to be in the financial sector, where customer data is sensitive by nature and the need for trust and transparency is critical.

The privacy debate is far from over. But by understanding what people truly value, companies can do more to build trust with their customers.