Q a _the_privacy_personalization paradox

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Why Read This Report
Marketers today find themselves in a Catch-22. On the one hand, their customers want to be recognized
and rewarded for their loyalty with better-tailored content and offers. On the other hand, those same
consumers condemn the practices of data collection, data mining, and predictive analytics when they
learn how data is used to meet their needs. So how should marketers respond? This report answers the top
questions we hear from clients about how to balance the desire for data-driven personalization with their
customers’ desire for better data privacy.
Questions
1. Do consumers really care about privacy?
2. But don’t customers also complain about irrelevant communications?
3. Is it better to skip personalization altogether?
4. Where is the line between“cool”and“creepy”?
5. What tools can I use to balance the privacy-personalization paradox?
6. How should I communicate the exchange of data for value to my customers?
privacy and personalization aren’t mutually exclusive
Today, most companies simply can’t afford not to know their customers well.1
They collect and analyze
first-party data such as transactions, digital behaviors, and social interactions. They share data with
business partners and buy third-party data from vendors promising the vaunted 360-degree customer
view.2
This is all in the interest of anticipating the needs and desires of increasingly fickle and demanding
customers. But in the process of capturing all this data, many companies find themselves defending their
actions to customers, to regulators, and to the media. Why? Because despite the demand for relevance and
recognition, customers are loathe to think that their data is out of their control, and that it’s being used not
just for preferential treatment, but potentially to discriminate against them too.
Q&A: The Privacy-Personalization Paradox
Strike A Balance Without Losing Competitive Advantage Or
Consumer Trust
by Fatemeh Khatibloo
with Srividya Sridharan, Eve Maler, and Sarah Takvorian
June 3, 2014

Q&A: The Privacy-Personalization Paradox 2
© 2014, Forrester Research, Inc. Reproduction Prohibited June 3, 2014
1. Do consumers really care about privacy?
It’s true that most consumers have an aspirational attitude toward privacy: They say they want to
control their own data, but they don’t really know what that means. Consumers continue to share
extremely sensitive personal data in their profiles, despite reporting in our research that they don’t
trust social media companies (see Figure 1). But that’s not the whole story. Increasingly, consumers
are using in-browser tools like ad blockers and cookie trackers to limit how much data they “leak”
as they go about their digital lives. They use anonymous search engines like DuckDuckGo and block
apps that ask for too much information.3
And, as recent data breaches have shown, customers take
their money elsewhere if they don’t trust what you’re doing with their data.4
So consumers do care about privacy, but they define it differently than marketers.5
Figure 1 Consumers Don’t Trust Companies To Keep Their Data Safe
Source: Forrester Research, Inc.114783
“Which of the following types of companies do you believe are trustworthy
when it comes to keeping your personal information secure online?”
Source: North American Technographics® Media And Advertising Online Benchmark Recontact Survey, 2013
Base: 5,012 US online adults 18+
(multiple responses accepted)
Insurance
companies
Email providers
Government
organizations
Brick-and-mortar
retailers
Mobile phone
providers
Home cable
providers
Social networking
websites
Mobile applications
Banks
Healthcare
companies
45%
25%
24%
13%
15%
7%
5%
16%
20%
Investment
companies
9%
12%
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010101010101010101
010101010101010101
010101010101010101

2. But don’t customers also complain about irrelevant communications?
Of course they do. And while they seem most frustrated by over-messaging and mistargeted ads,
the real problem is poor customer recognition across all touchpoints. But there’s a silver lining here:
Most of your customers, if they trust you, are willing to share more data with you in exchange for
value (see Figure 2). And customers are savvy — they know that when they sign up for a loyalty
program, there’s an implied exchange of points or discounts for better data.6
So if you play your privacy cards right — by being transparent, offering meaningful choices, and
providing some control over personal data — you’ll actually earn the right to ask your customers
what they want to hear from you, when, where, and how. There’s no third-party data source in the
world that can offer you that level of accuracy!7
Figure 2 Most Consumers Are Willing To Exchange Data For Value
Nothing would motivate me to share personal
information with companies
42%
Faster customer service 11%
Higher quality customer service 15%
Easy identification via saved information 15%
VIP perks (e.g., reservations, skipping lines) 16%
Entry into sweepstakes or prize drawings 14%
Exclusive deals/discounts on products that you
identify as being of interest to you
16%
Exclusive deals/discounts on products and
services with that company
21%
Loyalty program points 28%
Cash rewards 41%
Source: North American Technographics® Media And Advertising Online Benchmark Recontact Survey, 2013
Base: 5,012 US online adults 18+
(multiple responses accepted)
“Which of the following would motivate you to share your personal information with
the companies and service providers you interact with?”
Tangible value
Convenience
and service

3. Is it better to skip personalization altogether?
No — personalization is extremely powerful if it’s done well. But it’s important to align the
“emotional quotient” of personalization to 1) how data is collected and used, and 2) your customers’
expectations. In other words, will your customer be put off by a personalized message, or could it
cause problems for her? This should drive decisions like whether to personalize at the individual
or household level, and which communications should be recognizably personalized versus which
should be presented more generically.
For example, if you’re communicating about personal health products or services, keep
personalization at the individual level only in channels that are unlikely to be seen by others, like
email or a sealed direct mail piece. If, however, you’re communicating via a potentially “shared”
medium — like a browser-based display or circular — it’s best to limit the outward use of
personalization, keeping the messaging at a household or aggregate audience level.
4. Where is the line between “cool” and “creepy”?
Despite the rhetoric about this so-called line, the reality is that there isn’t a one-size-fits-all answer.
For example, Disney’s MagicBand experience lets cast members at theme parks greet your child by
name, and most customers think that’s incredibly cool. But when Target uses analytics to customize
coupons for a potentially pregnant customer, most people think that’s extremely creepy, even though
it’s arguably less intrusive than the Disney example. So what’s the difference?
The first is choice: Disney’s program is 100% opt-in, while Target doesn’t let customers opt in (or
out!) of the use of their data for analytics. The next is transparency: Disney explains clearly and
succinctly how it uses data and how it keeps kids’ information safe; Target’s cross-channel data
use feels secretive. And finally, there’s value: Disney’s value proposition is in line with visitor
expectations: It delivers a better, more memorable, frictionless experience, from hotel to park and
back again. In the Target case, the tradeoff isn’t so clear: Is the exchange of an intimate personal
condition worth a few dollars off a package of diapers? Certainly not to everyone.
5. What tools can I use to balance the privacy-personalization paradox?
The single most powerful tool in a marketer’s arsenal is the preference center. This user-facing portal
lets customers customize everything from product and content interests to channel preferences
and frequency/timing of communications (see Figure 3). But don’t consumers just opt out of all
communications if given the choice? Actually, no. When consumers get meaningful choices —
instead of just binary opt in or out — they are more likely to tell us what they prefer. In fact, nearly
a third of consumers have used a preference center to indicate their channel preferences, and 27%
have used one to indicate their frequency or interest preferences.8

Also, enlist your technology management peers to identify ways to better protect customer privacy
while you’re developing customer analytics.9
For example, if you use an analytics service provider, be
sure you strip personally identifiable information (PII) before sending the provider your customer
data. And consider aggregating and/or anonymizing older customer transaction data, since it is
unlikely to be of much value at an individual or granular level.
Figure 3 Michaels Stores Makes Building A Profile Easy With Personas
Source: Michaels Stores website
6. How should I communicate the exchange of data for value to my customers?
First, determine the questions your customers typically have when they read your privacy policy:
Are they concerned about where their data from wearable devices is stored? Do they want to know
whom you share their loyalty card information with? With these concerns in mind, explain your
data collection and use practices in a simplified, plain-English version of your privacy policy.10
This
builds trust and ensures that customers won’t be surprised by how you use their data. Finally, look
for opportunities to provide notice and choice at specific points in your customer interactions. For
instance, your website’s registration, checkout, and confirmation pages are all prime candidates.

Your privacy communications should explain 1) when you collect data, 2) what you do with
customers’ data, 3) whether you sell or share their data, and 4) whether you delete their data if they
ask you to (see Figure 4). More importantly, you must explain why you ask for certain data and the
consequences if a customer decides not to share. For example, you might explain that blocking or
deleting cookies could limit the functionality of your website, so a customer isn’t recognized when
she returns later that day.
Figure 4 Privacy Pages Should Explain Data Practices Clearly
Source: Nestlé website
Source: Google website
Nestlé explains when and where it collects data, including nonmarketing interactions4-1
Google’s global privacy policy provides meaningful choices to control data use4-2

Supplemental Material
Methodology
Forrester conducted the North American Technographics® Media And Advertising Online
Benchmark Recontact Survey, 2013 fielded in June 2013 of 5,028 US individuals ages 18 to 88. For
results based on a randomly chosen sample of this size, there is 95% confidence that the results have a
statistical precision of plus or minus 1.4% of what they would be if the entire population of US online
adults (defined as those online weekly or more often) had been surveyed. Forrester weighted the
data by age, gender, income, broadband adoption, and region to demographically represent the adult
US online population. The survey sample size, when weighted, was 5,012. (Note: Weighted sample
sizes can be different from the actual number of respondents to account for individuals generally
underrepresented in online panels.) Please note that respondents who participate in online surveys
generally have more experience with the Internet and feel more comfortable transacting online.
Endnotes
1
Forrester believes we have entered the age of the customer, a 20-year business cycle in which the most
successful enterprises will reinvent themselves to systematically understand and serve increasingly powerful
customers. For more information, see the October 10, 2013, “Competitive Strategy In The Age Of The
Customer” report.
2
Organizations can’t achieve a 360-degree customer view without sharing data collaboratively with
complementary business partners. Forrester calls this approach adaptive intelligence. See the May 8, 2013,
“Introducing Adaptive Intelligence” report.
3
Source: “Android Flashlight App Developer Settles FTC Charges It Deceived Consumers,” Federal Trade
Commission press release, December 5, 2013 (http://www.ftc.gov/news-events/press-releases/2013/12/
android-flashlight-app-developer-settles-ftc-charges-it-deceived).
4
In the aftermath of a massive data breach in November 2013, Target’s fourth-quarter sales fell 3.8 percent
from the year before, and transactions were down 5.5 percent. Source: Elizabeth Harris, “Data Breach Hurts
Profit At Target,” The New York Times, February 26, 2014 (http://www.nytimes.com/2014/02/27/business/
target-reports-on-fourth-quarter-earnings.html).
Then, on March 28, 2014, Standard & Poor’s cut Target’s credit rating, citing the breach’s “lingering effect on
consumer traffic through the first half of 2014.” Source: Andria Cheng, “Target credit rating cut by S&P after
data breach,” Market Watch, March 28, 2014 (http://www.marketwatch.com/story/target-credit-rating-cut-
by-sp-after-data-breach-2014-03-28).
5
To learn more about the new paradigm of privacy for marketers, see the December 19, 2013, “The New
Privacy: It’s All About Context” report.

Forrester Research (Nasdaq: FORR) is a global research and advisory firm serving professionals in 13 key roles across three distinct client segments. Our clients face progressively
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© 2014 Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRankings, and Total Economic Impact are trademarks of Forrester
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located at www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. 114783
6
For example, only 28% of online adults say they’d be likely to stop shopping at a retailer that was tracking
their transaction history via a loyalty program, versus 46% who would do the same if a retailer was tracking
in-store behavior using the customer’s cell phone. Source: North American Technographics® Media And
Advertising Online Benchmark Recontact Survey, 2013.
7
Practicing contextual privacy will encourage more sharing and help consumers understand how and why
you use their data. For more information, see the December 19, 2013, “The New Privacy: It’s All About
Context” report.
8
Source: North American Technographics® Media And Advertising Online Benchmark Recontact Survey,
2013.
9
To learn about common inquiries surrounding identity-enabled customer interactions, see the March 22,
2013, “Inquiry Spotlight: Consumer-Facing Identity, Q4 2012 To Q1 2013” report.
10
While we don’t imagine that the multipage privacy policy or terms of use will disappear — they are legally
binding agreements, after all — we do suggest that companies take a two-tier approach to their consumer-
facing privacy pages. Provide a simplified set of information outlining your approach to contextual privacy,
but let customers drill down to get further information if they wish to.

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