The Business Case for Privacy

Anagog is a Street Fight Thought Leader.

Historically, most B2C companies have evaluated issues like privacy and personal data through the lens of what impacts consumers. However, it has become increasingly obvious that companies that prioritize customer privacy don’t just see a rise in goodwill; they can actually see the benefits in their bank account. According to HBR: “privacy protection should be a practice as fundamental to the business as customer service.” The case for better customer privacy practices as a smart financial decision grows stronger each month.

5 points to convince your CEO about the business case for privacy and 2 that will earn you your annual bonus 

The problem is that a typical, numbers-oriented, “show me the money” CEO may write off privacy concerns as a fad. Here are some eye-opening points that will help get that skeptical CEO onboard.

1. You can market better

The biggest reason many companies have to deal with privacy issues in the first place is marketing. The expectation of the vast majority of consumers is that all communications, particularly on their mobile devices, will be personalized and relevant, and this is especially true for mobile engagement. Furthermore, consumers are under no illusions about the tradeoff; before the recent dip in consumer confidence, 80% of them stated they are comfortable sharing personal information directly with a brand if it leads to personalized marketing messages. 

So, marketers find themselves stuck between the proverbial rock (meeting customer expectations) and the hard place (navigating privacy regulations). In many organizations, ambitious plans to launch an innovative customer experience have been shelved due to uncertainty regarding shifting privacy regulations. The path to regain marketing agility may be simply to get clarity. Forty-two % of companies said that better awareness of privacy regulations helped them innovate better and investments in privacy made them more agile. These investments can also go a long way towards closing the trust gap that has been created as a result of well-publicized scandals regarding the use of personal data. 

Why is that important? Eighty-eight % of consumers say the extent of their willingness to share personal information is based on how much they trust a company.

2. You will avoid losing customers

We can start with the consumer: Can a company’s privacy practices affect its customers to the point that it drives them away and results in loss of revenue? The numbers support that: a Cisco survey revealed that 32% of consumers surveyed were “Privacy Actives,” meaning that they exhibited all the behaviors that show they are serious about their privacy and are willing to act on their convictions.

One third of your customers are willing to walk away over privacy concerns

First, they care about privacy and want more control over their data. Next, they are willing to act, stating that they would spend time and money to protect their data, that privacy factors into their buying criteria, and that they understand this may result in a higher cost. And finally, they have already taken action in the past and have switched companies due to their data policies and data sharing practices. 91% of them will not buy from a company if they distrust its privacy practices.

Even more distressing news is that these “Privacy Actives” were highly represented in key demographics that are coveted for their purchasing power. The potential loss of one third of a company’s business will have a drastic impact on revenue, and re-acquiring those lost users will require a significant investment in acquisition. 

Do we have the CEO’s attention yet?

3. You will pay less for customer acquisition

Customer acquisition is already increasingly difficult and costly, and the forecast is that things will get worse. Competition is fierce, consumers are flooded with offers, and the window of opportunity to convince a new customer to give you a chance is tightening. Evasive privacy policies and dubious practices make this much worse.

Trusted companies pay far less for customer acquisition

For example, according to the Edelman Trust Barometer: a) Consumers share positive feedback about the companies they trust (41%) and negative reviews about those that they don’t (26%). b) Consumers recommend trusted companies to their friends and family (59%) and publicly criticize the companies they distrust (42%). All this translates into much higher customer acquisition costs for companies with questionable privacy practices, as you have fewer friendly reviews to rely on and more negative feedback to overcome. Loyal customers will always be the best brand ambassadors and therefore your cheapest means of customer acquisition.

4. You will be able to protect your brand (for consumers and shareholders) 

In a survey conducted by the Ponemon Institute, CMOs and IT practitioners agreed that the top threat to their company’s brand value and reputation was a data breach. As brand value is estimated to represent ~33% of a company’s market cap, this is nothing to sniff at.

It’s therefore not surprising that according to a McKinsey study, enterprise organizations now view a brand as a “central rather than marginal element of a supplier’s proposition.” The study revealed that B2B companies with robust brands perform 20% better than companies with weak brands.

When the choice needs to be made between clearer privacy protection policies and risking a 20% dip in performance, few companies will hesitate. It’s no wonder then that 93% of organizations are tracking privacy metrics at the board level. Poor privacy practices are not only a turnoff for consumers; millennial shareholders are not afraid to penalize a company for its privacy practices.

5. The jury is in: It’s not even close

In fact, the debate has already been settled. There is so much riding on the issue of privacy and personal data that investing in more ethical, responsible, and sensible privacy practices is a no-brainer. By some studies, 97% of companies have seen benefits from investing in privacy that range from competitive advantage to investor appeal. Other benchmarks have been even more specific, showing that for every dollar spent on privacy, the average company receives $2.70 in associated benefits. The numbers don’t lie.

The return on investments in privacy is almost 3:1

Sweeten the deal even further by taking it to the edge

Now is your chance to make your CEO look even better because you can help deliver all the benefits of hyper-personalized marketing with built-in privacy that reduces costs and risks even further. 

How? By shifting intelligence to the edge and keeping everything on the device and off of your servers. You will be able to use a wide array of first-party data to highly segment your audience without taking possession of personal data that requires storage, which is both secure and accessible to the consumer, as per the regulations. By relying on the phone’s resources and a device-centric approach towards audience segmentation and engagement, you avoid the ongoing costs for uploading, hosting, securing, processing and archiving huge amounts of data.

6. You will spend less on privacy breaches

Collecting personal data in order to provide a personalized customer experience exposes the organization to a breach. Privacy breaches are a nightmare scenario for any brand; the cost impact of such a breach tends to grow, the bigger the brand. Facebook settled their suit for $5 billion, Equifax was ordered to pay $700 million. Lesser infractions came with 8- and 9-figure fines. 

However, CEOs don’t always like anecdotal data, so let’s look at the numbers. The average data breach can cost $150 per record lost. In the US alone, the 5-year average (2016-2020) for annual data breaches was almost 1300. In 2020 alone, over 155.8 million individuals were affected by data exposures. On the consumer side, in the event of a data breach, 31% of all consumers and 65% of those consumers who had been affected stated that they lost trust in the company. This churn resulted in an average loss of over $3M.

The average churn from a data breach results in a $3 million loss

While there is a hacker attack every 39 seconds, sometimes the biggest threat to the integrity of a company’s systems, and the liability for exposing personal data records, does not come from the outside, as Google has experienced time and again. 

Are you still sure you want to store all that personal data in a cloud? When you create hyper-personalized campaigns while ensuring that personal data stays on the personal device, you won’t need to.

7. Your customers will spend more

When all personal data is kept on the phone (and away from the cloud), your customers are less anxious. When customers learn that you are going above and beyond to keep their personal data private, they will be very appreciative. And when customers realize that by keeping all the data on the phone you can make it more transparent and easier for them to review and control, they will become trusting and loyal. Consumers buy more from the companies they trust (68%) and refuse to buy from the companies that they don’t, and when they return that second time they are a much easier sale (up to 14 times easier). 

Responsible privacy practices create growth

Finally, the test of a good business case is that it is backed by a lot of good data but can be easily summarized: Privacy creates trust. Trust builds loyalty. Loyal customers drive growth. 

Sefy Ariely is head of marketing at Anagog.