The data retailers collect can also have value to consumers. If retailers use it well, consumers can benefit from better personalisation in product offers, promotions, and communications. As an example, I often find myself down a rabbit hole of music on Spotify enjoying the playlists the algorithm provides based on my listening history. Yet not all consumers find personalisation appealing. In fact, some find it an invasion of their privacy. Think about the last time Google Maps showed you your history without you asking – how did you feel about your phone recording everywhere you’ve ever gone?
This leads to the ‘personalisation-privacy paradox’. In general, consumers value personalisation – receiving recommendations or offers that are relevant to us. Yet, we also value privacy. We prefer not to share all our intimate details where we can avoid it. This creates a conundrum: to get more personalisation, consumers need to give up some level of privacy.
Understanding how different consumers make this trade-off is increasingly important, given legislation is pushing retailers towards opt-in agreements and greater transparency. Reforms have also given consumers more ability to stop their data being collected and used, which can hamper retailers’ broader marketing efforts. Given this, my colleagues and I from Swinburne University of Technology recently conducted a study to explore how consumers approach this personalisation-privacy paradox. The full paper is available in the Journal of Retailing and Consumer Services1. A summary follows.
The 6 consumer segments
We set out to explore the trade-offs consumers perceive in making their data available to retailers; such as the risks of doing so, the value they perceive they get in return, how vulnerable it makes them feel, and the level of transparency and control they feel like they have in the whole process. Then we wanted to know how these views affected whether, and how, consumers made their data available to retailers – which we called the ‘consumer-retailer data exchange’.
We used a technique called latent class analysis (LCA), which is a form of segmentation designed to identify hidden groups among consumers. Rather than relying on specific customer characteristics like age or gender, LCA looks at a whole pattern of consumer attitudes or behaviours to describe quite precise, meaningful groups. This allowed us to consider questions like whether certain segments’ views were affected by things like their general attitudes towards technology or their trust and level of engagement with retail brands.
Six segments of consumers emerged. They differ markedly in the trade-offs they perceive in exchanging their data with retailers, and in how they respond to different ways retailers use their data. Let me introduce them:
1. Indifferent (30 per cent of consumers)The largest consumer segment (almost a third of all consumers) is largely indifferent to sharing data with retailers. They see only moderate value in personalisation but also only moderate risk in data exchange. They won’t necessarily avoid sharing their data, but also won’t necessarily miss the personalisation they would be giving up as a result. These consumers’ psychographic profile shows they tend to be less innovative than others, particularly with regards to technology.
2. Moderate data protectors (29 per cent)
Consumers in the second-largest segment tend to keep data private but are potentially open to sharing if they see value in doing so. These consumers don’t see much risk in sharing data, and don’t feel vulnerable doing so. However, they also don’t see any real value in retailers having their data and perceive a lack of transparency and control over the process. They are comfortable with technology in general, they just don’t see many benefits in the ways retailers could use their data.
3. Extreme data protectors (10%)
Like the previous segment, these consumers also prefer to protect their data. However, this segment does so in a much stronger manner. They also see no value in retailers using their data, and a lack of transparency and control. However, unlike the previous segment, these consumers also perceive a lot of risks in data sharing and feel vulnerable giving up their privacy. As a result, they find personalisation a turn-off, particularly when it is overt, like being identified through a website or in-store. A lack of trust in retailers drives some of these views, as does a lack of engagement with any retail brands.
4. Exchange advocates – transparency (14 per cent)
The final three segments (which we call exchange advocates) all react positively to exchanging data with retailers, but for different reasons. Consumers in this first group do so when they perceive the process is transparent. That is, they feel comfortable sharing data when they feel like they know why and how it is used, how it is stored and so on. As a result, this segment finds personalised product recommendations highly appealing, and is the most likely to continue supporting a retailer after a data breach.
5. Exchange advocates – control (10 per cent)
The second segment of exchange advocates includes consumers who will share data when they have control over the process. They want to be able to opt in or out of data-sharing protocols and have options for how retailers use their data. Compared with transparency-focused exchange advocates, they are less likely to support a retailer if they feel their data has been abused, as it goes against their desire for control.
6. Exchange advocates – paradox (8 per cent)
Finally, we found a segment that perceived both a lot of value and a lot of risk in sharing their data with retailers. They feel vulnerable sharing their data, but also feel like they have some control over the process. These consumers sit right in the middle of the personalisation-privacy paradox. As a result, they are open to personalisation initiatives, but retailers need to make them feel in control and less vulnerable while doing so.
Catering for each segmentA key message of this research is that consumers differ in how they approach sharing their data with retailers. While retailers and researchers get excited about the ways data can be used, and the greater personalisation it can provide, not all consumers share this view. In fact, most consumers are at least indifferent to it and at worst actively seek to protect their data. Given that, here are some practical considerations for retailers trying to navigate the personalisation-privacy paradox.
Tailor your personalisation efforts across consumer segments: Not all consumers value personalisation, and for some it detracts from their experiences. Consider how you can account for the different ways consumers weigh up personalisation and privacy. While you might have the ability to send all consumers personalised offers, some won’t like it when you do. Do you know which segments each of your consumers fits into?
Make data sharing valuable: A key component of making consumers comfortable with sharing their data and receiving personalisation is showing the value it has to them. How can you show consumers how sharing their data will make their experience better? This needs to go further than offering more relevant ads; you must show consumers you can make their experience more efficient, more enjoyable or better suited to their specific needs.
Provide transparency and control: Consumers are generally more willing to share their data if they know how it is collected and used and have some say over the process. Can you show consumers how their data is collected, used, and stored, and give them input into the process? For example, could you let consumers choose from different levels of personalisation based on their privacy preferences? Could you provide more detail about how a certain recommendation was made?
In summary, data has value – but not just to retailers. The consumer-retailer data exchange relies on both retailers and consumers participating. As regulations change and consumer privacy concerns increase, the onus is increasingly on retailers to give consumers compelling reasons to share their data. Those who do will have a competitive advantage, not just in the data they will have, but in the deeper relationships they will develop with their customers.
1 “When and how consumers are willing to exchange data with retailers: An exploratory segmentation”, co-authored with Jessica Pallant, Sean Sands, Carla Ferraro, and Eslam Afifi.