Consumers value privacy…when the price is right

Personalization of services could mean more than data protection

Consumers will choose a more privacy-friendly provider given that:
…the various providers’ respective privacy policy is made visible and
…the price for a service is the same.

But lower the price of the service and consumers will most likely switch to a less privacy-friendly provider. This is one of the major results of “Monetising Privacy”, a report recently published by Enisa, the European Network and Information Security Agency.

In an extensive lab, field and hybrid experiment, participants were given the choice between two providers with a comparable service. Giving more data to the provider also meant getting a more personalised service in the case of a repeat purchase. And the results are rather telling.

People do care about privacy. But within limits.

As many as 93 percent of participants in the survey’s laboratory experiment said they were either “interested” or “very interested” in whether a firm protected their information. Knowing that 47 percent of service providers treat personal data as a commercial asset and 48 percent share it with third-parties, according to Enisa’s research, makes it all the more relevant a question.

But being interested in personal data protection does not equate to an unwillingness to share such data. Indeed, according to Special EuroBarometer 2011:40, 90 percent of online shoppers state they have disclosed their name and 89 percent have disclosed their address.

Given an equal price and equal amounts of collected data, 60 percent of respondents chose the more data-friendly provider, in Enisa’s research. That firm’s share soared to 83 percent when data gathering differences were made visible.

Yet, once a lower price comes into the equation, the more privacy-friendly firm loses much of its competitive advantage.

About a third of respondents were prepared to pay a mark-up price for privacy when buying something online, but the majority chose to switch to a less privacy-friendly provider, given the price for its services was lower. The numbers are telling again: If the data-friendly provider offered a higher price, then its market share decreased to 31 percent.

In other words, a majority of respondents were unwilling to pay a mark-up price for privacy.

The competitive implications pertaining to the protection of personal data are far-reaching. Personalisation – made possible by a bigger amount of collected data – can make it harder for a consumer to switch provider, because of the time spent giving their personal data, and the tangible return in the shape of a personalised product. The less privacy-friendly provider got indeed a higher share of repeat buyers, compared to the privacy-friendly provider, according to Enisa’s study,

Is it then worth it for a provider to differentiate on data privacy?

Enisa’s recommendation is that users should be given a choice about how much personal data they will disclose. Where we traditionally have compared prices between providers, we might want to compare service providers’ collection and use of personal data in the future, concludes Enisa.

In our eyes, the survey shows that price still is the most discriminatory choice factor for consumers. A perceived cost-saving, and a personalised service outweigh privacy as a choice criteria.

Practical implications

We should bear in mind that the survey only looks at transactions intermediated by money, thereby excluding social networks and free online services. It is also worth noting that respondents were based in the EU, that is, in democracies, where arbitrage between privacy-friendly and less privacy-friendly providers is possible.

Nevertheless, we dare to do some extrapolation:

• Regulation

If personalisation indeed is a competitive advantage, chances are the question of user profile portability will eventually land even higher up on competitive authorities’ agenda.

• Corporate IT

Should the respondents’ arbitrage between privacy and price, with regards to money intermediated transactions, even check out in a wider web service and social network environment, corporate IT policies may need to look at safeguards as bring-your-own-device, BYOD, continues to grow.

• E-commerce

At equal prices, a majority of users will tend to choose a privacy-friendly provider, provided the data collection policy is made visible. It is worth it for an e-commerce site to offer this visibility, for users will tend not to look for it if it is not readily available.

At different price levels, about a third of respondents will still choose the most privacy-friendly provider. A third of the market is still a good business to be had. There is therefore a market for more privacy-conscious users, ready to buy goods and services at a higher price point.

Less privacy friendly providers had a higher share of repeat buyers, because gathering more data enabled them to personalise their service offering. We can draw two conclusions here:

* There is a good market for companies offering lower prices while collecting more data, and hence offering personalisation.

* There is a good chance that, at similar prices, and collecting the same amount of data (thereby offering personalisation), a provider making its privacy policy visible would attract users to a higher extent than a provider not making it visible.

More about Enisa’s report and data protection in the EU

Enisa’s report is available here: http://bit.ly/Igwf8h
DIW Berlin (The German Institute for economic Research) and Kinorix contributed to the report.

Want to read some more on data protection in the EU? Here are some sites of interest.
European Commission’s leaflet about data protection: http://bit.ly/JJx4XK
EU’s data protection minisite: http://bit.ly/I6WSYN

About Close to Market Analytics

Close to Market Analytics provides thought leading actionable analysis on demand. We know the ins and outs of the Nordic ICT market and we analyse systematically the global trends shaping the telecommunications and Internet space. This, combined with our participative approach to analysis and consulting, allows us to provide our customers – telcos, large ICT end-users, vendors, banks and government agencies – with unique, timely and actionable advice. In other words: We turn global trends into actionable analysis locally.

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Marlène Sellebråten
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marlene@closetomarket.com
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