Americans value their privacy, but they are also resigned to giving up their personal data in order to transact with a company. Is there a better way for both sides to get what they want? This opinion piece by Kartik Hosanagar (@khosanagar) and Tai Bendit examines that question. Hosanagar is a professor of technology and digital business at Wharton. He was previously a cofounder of online marketing firm Yodle Inc. Bendit is a senior at Wharton studying economics with a concentration in operations, information, and decisions. He is joining LinkedIn as a business strategy and analytics analyst.
A version of this article was previously published on LinkedIn.
Think about the last time you gave up your personal data to a large corporation. Chances are it was within the last few hours especially if you’ve shopped on Amazon, watched Netflix, or even walked into a Rite Aid, Target, or Macy’s with the store app open on your phone.
And if you can’t remember exactly where you were, you can check out your Google Maps Timeline, which stores a year’s worth of information about the routes you’ve traveled. Did you mean to give up all that data?
Marketers claim that when you give up your personal data, you are participating in a rational “trade-off.” You decide that the benefits of using online tools including search, recommendations and personalized shopping outweigh potential privacy concerns. Indeed, studies have shown that some customers are starting to see targeted advertising as an alternative form of online currency that’s exchanged for free products or customization.
But people also respond more favorably to targeted ads when they have the ability to control their privacy settings. But do we feel that we have that control?
Consider how much you agree or disagree with the following two statements:
1) “I want to have control over what marketers know about me online.”
2) “I’ve come to accept that I have little control over what marketers can learn about me online.”
If you agree with both statements, as 58% of Americans did in a 2015 national survey from the University of Pennsylvania, then you’re part of a generation of consumers going through a process of resignation. We want to control our personal data and how it is used, but we’ve mostly given up.
We spoke with Joseph Turow, professor of communication at UPenn’s Annenberg School for Communication and author of the book The Aisles Have Eyes. He conducted the survey as part of his research on digital cultural industries. The theme of consumer helplessness with regard to data privacy dominated our conversation with him.
Turow’s book is highly critical of the extent of consumer tracking that offline retailers are doing in their stores. This goes beyond just cameras that track aggregate shopper patterns to newer technologies such as beacons that communicate with phones and track movements at the individual level.
“We want to control our personal data and how it is used, but we’ve mostly given up.”
We don’t believe these technologies are half as problematic for the following reasons:
- Online stores track us more extensively and warrant more focus from a privacy standpoint (although that distinction may matter less in an increasingly omni-channel world).
- For beacons to track us, they interact with the store app, which we have to install in the first place — although Turow notes that retailers can also track us through partner apps.
- Consumer data and analytics deliver great value such as personalized recommendations on Amazon and Netflix.
Turow doesn’t completely discount the potential value but isn’t enthused by it either. In fact, he singles out personalized promotions as an example of something that might seem valuable but is not. To see his point, take a look at this next set of statements. Do you agree with them?
1) “Price discrimination is illegal in the United States.”
2) “Most large U.S. corporations engage in price discrimination.”
If you answered yes to the first question, you side with a majority of Americans in 2005 and 2015 surveys, who purportedly believed that price discrimination was illegal both online and in stores. Indeed, there are a host of anti-discrimination, privacy, and consumer protection laws in place.
But most people underestimate the extent to which price discrimination is a reality in a world of personalized promotions. Turow points out that companies are increasingly using personalized discounts to engage in a form of price discrimination that may not be desirable. Stores like Walmart, Target, and Macy’s uses beacons to track where customers are in their stores so its apps can send them personalized offers. You might be standing in the diaper aisle and be sent a better deal than the person next to you. And the algorithm that determines that discount might use all kinds of factors such as past purchases and zip codes to make that decision.
“Is it fair to make [the disclosure of personal information] a necessary condition for a consumer and firm to transact?”
A 2015 White House Report investigating the potential impact of big data on price discrimination raised concerns that some consumers might lose out while being left in the dark. Although personalized discounts have been around for a while, mainly based on broader demographic categories, access to data and technology now allows these companies to seamlessly scale targeted advertising and marketing offers.
So what can you do if this makes you uncomfortable? It’s not clear that walking away is an option either. By refusing to give up your data, you might miss personalized discounts and end up paying even higher prices.
Either way, corporations are teaching us that in order to get along in the 21st century, we need to give up some personal data. One study showed that individuals assign decidedly different values to their personal data, but are in general more willing to disclose sensitive information when others around them are doing the same.
Is it fair to make [the disclosure of personal information] a necessary condition for a consumer and firm to transact? And what is a way forward that does not require us to go back to the world before digital and mobile technologies?
Today, the answer is not so clear. But because the stakes are high, marketers and privacy advocates will continue to work towards a solution.
One potential answer comes from advertising. Driven by their frustration with online advertising, consumers have started installing ad blockers in their browsers. Among my students, more than 50% install ad blockers (almost 75% among my undergraduate students). Ad blocking hurts advertising revenues, so it’s no surprise that this practice has gotten the industry’s attention. To address the issue, the Interactive Advertising Bureau (IAB), an advertising industry organization, has proposed the LEAN advertising program.
LEAN — an acronym for light, encrypted, ad choice supported, non-invasive ads — suggests a number of guidelines aimed at protecting user privacy and improving their overall experience with interactive ads. Among the guidelines is the expectation of compliance with the Digital Advertising Alliance’s consumer privacy program. It’s too soon to tell whether LEAN will be widely adopted, but the initiative shows how consumers can take control and get the industry to take action.