Whether a company chooses to pay a data dividend or otherwise compensate customers in some way for the use of their data, a critical issue at play in data ethics is that of transparency.
Data and Privacy

Determining the Best and Most Ethical Use of Customer Data

Photo by José Martín Ramírez Carrasco on Unsplash

Customers are the life’s blood of any business. After all, without your customers, your company wouldn’t exist at all. To serve your customers well, you need to know who they are, what they need, what they want, and how they behave.

However, when you’re serving a large and diverse customer base, particularly if you conduct some or all of your business operations online, it can be difficult to glean such vital customer information. Often, the key to knowing your customer lies in the data each interaction leaves behind. But who, exactly, owns that data? The customer? Your company? Both? Neither?

How you answer this all-important question can profoundly shape both your relationship with your customers and your business processes in general. Indeed, the choices you make in regard to the collection and control of customer data may well define the ideological and ethical framework by which your company operates.

For this reason, it is imperative for business owners to recognize the immense moral as well as financial value of customer data and to appreciate their unique and inevitable obligation to uphold the highest ethical standards in acquiring and utilizing such data.

A Question of Data Ownership

One of the most formidable challenges in determining how to define and implement ethical data practices lies in the effort to determine who does, or should, own the data. Ethical practices, in general, center upon the premise that the individual customer “owns” their personal data, including not only demographic data such as age and gender identity but also behavioral data, such as spending habits and buying patterns.

The presumption of individual consumer ownership of data is particularly evident in the concept of the “data dividend,” which proposes that companies pay a sort of small fee to customers whose data they collect for marketing or other business-related purposes.

This strategy, in essence, conceptualizes the ethical use of customer data as a kind of value exchange: the customer provides the company with something of monetary and/or strategic value (i.e. their personal/proprietary data) and is financially compensated in return. This value exchange model is designed to prevent exploitation, ensuring that companies do not profit at the customer’s expense or without the customer enjoying an equivalent gain.

The Issue of Transparency

Whether a company chooses to pay a data dividend or otherwise compensate customers in some way for the use of their data, a critical issue at play in data ethics is that of transparency. When you operate on the premise that customers “own” their personal data, then ethical practice demands that companies maintain the utmost level of transparency in regard to their practices for collecting, storing, using, and disseminating customer data.

Thus, it is incumbent upon business leaders to ensure that customers are aware of and consent to the acquisition, retention, and deployment of their personal information. Securing the customers’ informed consent regarding data practices, however, is often a far more convoluted process than the current standard, which typically involves only the provision of a “terms and conditions” agreement which the customer must approve before the business transaction can be completed.

Because such agreements often must be consented to before a product may be ordered or a service rendered, the process may be more coercive than wholly volitional, undermining both the transparency and the personal autonomy on which ethical practice is predicated.

Benefiting Customers

As has been shown, ethical business leaders typically operate according to two key assumptions in regard to customer data: that the individual owns their data and that companies cannot exploit customers (or their personal information) for the company’s gain.

While concepts such as the data dividend seek to exchange one asset (the customer’s data) for another (financial compensation), there are, in fact, a number of direct benefits customers can enjoy when they share their data. Data used to facilitate behavioral analytics, for example, can help protect customers against fraud and other forms of identity theft by alerting customers to unusual activity on their accounts.

As the above discussions suggest, ethical practices in regard to customer data are designed to ensure that customers are fully informed regarding the use of their data, that they enjoy an equitable benefit from sharing their data, and that they knowingly and freely consent to the collection and use of their data for a stated purpose and in the manner described.

Ensuring that customers understand, agree, and benefit from the process, as has been shown, can be a laborious process. For this reason, ethical business leaders will be proactive in compiling multidisciplinary teams to decide on the most effective strategies for ethically acquiring and using customer data. Collaborating with technologists, analysts, marketers, legal representatives, and other stakeholders is essential for addressing the problem of informed consent and just compensation in regard to customer data.

The Takeaway

Customer data may well be the fuel that keeps the engine of business humming. That doesn’t necessarily mean, however, that your customers’ private information has been collected, stored, used, or shared in an ethical manner. Ethical customer data processes are deeply rooted in issues of ownership, transparency, consent, and equitable value exchange.

Determining the Best and Most Ethical Use of Customer Data
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