The link between data security and loyalty

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By: RickFerguson |

Posted on November 1, 2017

data security and loyaltyWith the General Data Protection Regulations (GDPR) coming online in Europe, and high-profile data security breaches happening in the U.S., marketers are increasingly turning their attention to the importance of protecting consumer data. With research showing that data breaches can cost a company the loyalty of its customers, any corporate-wide customer strategy must include provisions both for the protection of customer data and for restoring customer faith in the event of a breach. Loyalty and data security our now linked – and companies ignore that linkage at their peril.

By Rick Ferguson

In 2014, data security specialists Gemalto conducted what is still the most comprehensive survey of the link between consumer loyalty and data security with their survey of 4,500 consumers in Australia, Germany, Japan, the U.K., and the U.S. The survey revealed some eye-opening statistics about the high cost of data breaches:

  • 65% of respondents will never, or are unlikely to, do business with a company that experiences a data breach in which financial data was stolen
  • 37% of respondents will never, or are unlikely to, do business with a company that experiences a data breach in which non-financial data was stolen
  • Only 50 percent of respondents feel that companies take data protection seriously enough

Fast-forward to today: With a data protection bill now wending its way through the British Parliament ahead of GDPR coming online in May 2018, research firm Baringa Partners conducted a survey about consumer attitudes toward data protection. Here’s what they found:

“Our results reveal companies risk losing up to 55% of customers if they suffer a significant personal data leak. We looked at consumer attitudes towards companies in the banking, insurance, energy, and TV, phone and internet sectors. We found that, in the event of a data breach, 30% of people would switch provider immediately and a further 25% would wait to see a media response or what others say and do before switching to another provider.”

And it isn’t just large corporations at risk; in the U.S., a recent Bank of America research report revealed that “nearly 40 percent of consumers have had their credit or debit card, bank account or other personal financial information stolen. And 20 percent of those consumers who have had their information stolen said they would not shop with a small business that has experienced a data breach.”

Not convinced by self-reported consumer survey data? That data is backed up by this little tidbit from Info Security magazine:

“But bigger than putting a dent in brand reputation, cyberattacks and data breaches can measurably affect an organization’s bottom line. As of mid-September, Equifax’s stock prices had slid 18%. And it’s not likely to be temporary. A study done in April by IT consultant CGI and Oxford Economics concluded that severe breaches caused share prices to fall an average of 1.8% on a permanent basis.”

Likewise, a survey of 88 companies by the University of North Carolina revealed that:

“Companies can lose as much as 3 percent of their market value over long run as a consequence of such data breaches… Our research shows that market value of retail service industry companies suffers a harsher negative impact than other industries. Such companies can lose, on the average, almost nine percent of their market value within 30 days of a breach announcement. We believe that the market reacts so severely to breaches for retail sector companies because retail customers are can be fickle and not loyal to brands. Any publicized negative event can lead to switching their business to competing firms.”

If you have responsibility for customer loyalty in your organization, it is therefore imperative that you become a champion of data security – for the impact of a data breach can have a direct impact on your loyalty metrics as well as on the overall financial health of your organization. What impact can you have? Here are a few tips from the experts.

Enlist the CFO. Info Security magazine advises, “CFOs are in a prime position to help build a culture of security throughout an organization by emphasizing its importance to the bottom line, business continuity, competitive advantage, and brand reputation.” Allying with your CFO to stress the importance of data security to loyalty can win the C-suite to your cause.

Communicate the business value of security. IBM recommends: “Everyone in the organization must be made aware of the centrality of data to the business itself… enhanced security measures can lead to improved brand perception among your company’s customers, higher levels of loyalty and greater revenue.” Extending that awareness to your team can help ensure that the loyalty program itself doesn’t become the epicenter of a data breach.

Develop your rapid response plan. Should a data breach occur, UNC highlights the importance of proactive customer outreach: “Companies must establish a post-breach protocol of how they will inform, placate and compensate their customers. A good service-failure recovery has been shown to have the potential to generate goodwill. Customers can forgive and continue their relationship with a company if the data breach is addressed appropriately.”

By assuming an ownership and advocacy role for data security in your organization, loyalty marketers can help themselves maintain and enhance the trust and relationship commitment they have so painstakingly built with their best customers. With new regulations such as GDPR coming online, the price of failure will continue to increase – and that means the time to get serious about data security is now. Your customers will repay you with their loyalty.

Rick Ferguson is Editor in Chief of the Wise Marketer Group and is a Certified Loyalty Marketing Professional (CLMP).