Sales lost as consumers worry about privacy

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By: Wise Marketer Staff |

Posted on June 12, 2002

Only 30% of online consumers find web site privacy statements easy to understand, and privacy/security concerns are likely to cost online businesses around US$25 billion by 2006, according to a Jupiter Media Metrix report, 'Online Privacy: Managing Complexity to Realise Marketing Benefits'.

While nearly 70% of US consumers are concerned about their privacy online, only 40% read web site privacy statements. The report advises companies to allocate suitable funds for consumer security and privacy education, and to treat online privacy as a strategic marketing initiative rather than a compliance burden. "Neither consumers nor businesses effectively address online privacy issues," said Rob Leathern, Jupiter Research analyst. "In this increasingly complex world, even legitimate businesses will suffer when consumers' perceptions of the control and safety of their personal information online are damaged. Companies should clearly and pervasively communicate their data gathering and use policies to make trade-offs between information and benefits clear to consumers."

Small rewards
The report reveals that 82% of consumers are willing to provide various forms of information to shopping web sites (where they have not yet made purchases) in exchange for something as modest as a US$100 prize draw entry. Consumers are most willing to offer e-mail addresses (61%) and full names (49%), and least likely to provide household incomes (18%) and telephone numbers (19%).

Worryingly, 36% of users are willing to provide a username and password to use web sites - a potential concern considering that other Jupiter research indicates that 53% of online consumers use the same username and password wherever they go online. The firm's analysts found that the majority of consumers seem willing to give their personal information for small benefits because it is not always clear how their information will be used or how widely it will be shared, and the extent of this behaviour varies greatly among different brands, web sites and applications.

Based on its research and analysis of consumer survey data, the firm forecasts that as much as US$24.5 billion in online sales is likely to be lost by 2006 - up from US$5.5 billion lost in 2001. Online retail sales would be approximately 24% higher in 2006 if consumers' fears about privacy and security were effectively addressed. According to the report, companies with poor online privacy practices will see negative effects on their online sales over the next several years, and in off-line sales which will shift to more privacy-sensitive competitors.

How to proceed
The report offers some timely advice for those seeking to increase consumer confidence in both online transactions and personal information sharing:

  • Adopt a segmentation approach to identify groups of consumers that are most likely to respond to privacy marketing (messages directed at allaying the consumer's privacy and security fears). Businesses should proactively communicate and promote their privacy and security policies.
  • Emphasize transparency, security and accountability in both online and off-line consumer communications.
  • Create a privacy council with representation across business units, and increase awareness of privacy and data issues at both the senior executive and rank-and-file employee levels.

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