Tuesday, August 14, 2007

Good privacy practices foster competitive advantage?

A Carnegie Mellon University study entitled “The Effect of Online Privacy Information on Purchasing Behavior” gave some interesting insights on how privacy protections impact consumer decision making in shopping online. Robert Gellman of DMNews provides his analysis:

Participants who received privacy information were more likely to buy from sites offering medium or high levels of privacy. Those who did not see privacy information generally made purchases from the lowest-priced vendor. The suggestion is that people will pay a premium for privacy when privacy information is more accessible. Perhaps surprisingly, the effect was pretty much the same for the non-privacy sensitive purchase as for the privacy sensitive purchase.

In the real world, merchants with good and prominently displayed privacy policies compete against others who either do not have good privacy policies or do not promote their policies. Ordinarily, consumers have little control over the privacy practices of those collecting information, but consumers do control who they do business with. The study does not offer direct conclusions about how consumers react in an environment that includes good, bad and no privacy information.

As much as I would like to say that it is good for business to have and display a pro-consumer privacy policy, I don’t think that conclusion necessarily follows directly from the study, although the study supports the notion. Still, the prospect of higher prices for products sold in a pro-privacy online environment should be intriguing enough to attract the attention of any company selling on the Internet. Better consumer privacy protection and higher prices could be a stunning combination. Maybe it’s time to stop fighting privacy and raise your prices.

Safeguarding consumers' private personal information is, however, fairly low cost--perhaps paying a premium wouldn't even be necessary. Protecting privacy is good for consumers and good for business. If only it were practiced voluntarily.

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