How to Resolve the Privacy Paradox and Achieve Customer Personalization
Delivering personalized customer experience (CX) goes way beyond addressing a customer by name in an automated email; it is about knowing the customer’s interests, history and intent, and using this data to create a level of engagement that is authentic and relevant at every stage of the customer journey. According to Xperience, research shows that 71% of consumers feel frustrated when their shopping experience lacks personalization. This leads to customers sharing private information despite their initial discomfort, resulting in what has been termed the privacy paradox.
For organizations to succeed in creating truly personalized CX, they must ensure every interaction is tailored to their customers’ immediate circumstances and current priorities. But there is a fine line between wowing your customers and creeping them out – the line between personalization and privacy.
Holding too much customer information is now seen as problematic, especially in the age of data privacy controversies, such as the Facebook scandal of early 2018 when it was revealed that the social media giant inappropriately shared the personal data of 87 million profiles with a British political consulting firm. Just a year later, Amazon admitted that it employs human workers to listen to Alexa recordings in an effort to improve the digital assistant’s natural language processing (NLP) abilities. Amazon had not informed users that a human could be listening to private recordings of their day-to-day lives.
Despite incidents like these, Facebook is more profitable than ever, and the smart speaker boom shows no signs of abating. Statistics indicate that in 2019, about 35% of households had a smart speaker, and this is projected to increase to 75% by 2025 – not to mention the market revenue projections of $35.5 billion in 2025. According to a recent survey of US consumers who own smart devices, 49% of respondents said they own a smart speaker, despite any privacy concerns. If privacy is so important, why are so many people voluntarily buying products that compromise their privacy? The answer lies in the privacy paradox.
What is the Privacy Paradox?
The privacy paradox is a well-known phenomenon relating to the inconsistency between people’s priorities about personalization and privacy. While most people say that they value their privacy, they nevertheless do very little to protect it and freely give away their personal information.
“Ask 100 people if they care about privacy and 85 will say yes. Ask those same 100 people if they’ll give you a DNA sample just to get a free Big Mac, and 85 will say yes,” said entrepreneur Austin Hill.
According to Gartner, despite doubting that brands will use their data ethically, Millennials are perfectly willing to pass on their personal information in exchange for convenience and personalized experiences. In fact, a study found that 70% of Millennials are willing to let retailers track their browsing and shopping behaviors in exchange for a better shopping experience. Clearly, personalization and privacy have an unequal relationship.
Personalization powers profit
It seems consumers are willing to overlook privacy concerns in return for personalized experiences. However, according to Gartner research, only 12% of consumers say they get customized assistance from brands. This failure to deliver the personalization that consumers demand leads to missed opportunities. In 2017, Accenture reported that 41% of consumers switched companies over a lack of trust and poor personalization, costing businesses $756 billion – and customers’ expectations have only continued to rise.
Consumers value personalized service
Today’s consumers want their lives to be as easy as possible. Businesses hoping to compete in this modern marketplace must adapt their customer-facing processes to ensure every interaction is as quick and seamless as possible. This means not wasting customers’ time, not making them repeat information, and not requiring them to call back to receive service. For example, having the customer’s history on hand before greeting them enables a personalized interaction, allowing an agent to reference their past purchases.
Personalization is a proven strategy across a wide variety of use cases. According to McKinsey’s research, companies that employ personalization yield 20% higher customer satisfaction rates, 10-15% increase in sales-conversion rates, and reduce marketing and sales costs by around 10 to 20%. A Gartner study found even more dramatic results, reporting that the shift from a high effort customer experience to a low effort one cuts costs by 37%. However, providing personalized service requires access to huge volumes of customer data.
What customer data do companies collect?
There are many different types of data that a company may collect about its customers. Each category involves different levels of confidentiality, based on norms and sensitivities:
- Historical data: personal history
- Financial data: investments, possessions or credit score
- Professional data: education and career
- Social data: family, friends, religion, or political affiliations
- External data: demographics, health, or physical characteristics
- Internal data: knowledge, beliefs and preferences
- Tracking data: geolocation, computer device, contact details
Companies must carefully consider how the data they collect relates to different aspects of a customer’s life, and what level of data privacy should be maintained.
Common misconceptions arising from the privacy paradox
Sometimes companies can be too careful when it comes to customers’ data, wary of using it to enrich their experiences due to overblown privacy concerns. It is therefore worth bearing in mind the following:
- GDPR does not forbid monetizing personal data.
- Sharing of personally identifiable data does not require consent.
- Data privacy and data security are not the same thing – privacy concerns the trust relationship between the company and the customer, while security is about the storage and use of that data.
AI technology allows for high levels of customer personalization
With unprecedented advances in technology, AI-powered solutions now have the power to achieve scalable personalization by harnessing huge amounts of data from multiple sources and uncovering patterns in customer behavior. AI uses interaction history to develop a specific profile of each customer, allowing companies to deliver high levels of personalization in customer engagement.
Amazon leads the industry’s CX personalization efforts by using past purchases and viewed product history to recommend additional items. In addition, its highly segmented emails utilize personalization tokens targeted to the individual. Amazon reports that 35% of all their sales are generated by its recommendation engine.
Statista says that 78% to 96% of industry professionals are using personalization, including Coca-Cola, Netflix, Sephora, USAA, and Wells Fargo. For example, in 2017, Netflix added the concept of artwork personalization to its personalized recommendation system for subscribers. Based on detailed user profiles, Netflix’s algorithms choose personalized visuals to accompany each title. For example, those who tend to watch movies of a certain genre might be shown an image reflecting that genre, or users who tend to watch movies featuring a certain actor might be shown a visual with that actor’s face.
Chatbots are another AI-based tool being utilized by a wide range of companies to personalize interactions across almost every industry by enabling automated conversations at scale. For example, a software company’s bot may ask if a customer is a new subscriber or an experienced developer, and tailor the technical language of the conversation based on the response. A travel planning bot may first access a customer’s preferences, and then customize the rest of the interaction based on information already known about the customer.
Privacy Paradox – a balance between privacy and personalization?
More customer data than ever before is available to companies. Smart devices, online activity and other sources generate huge volumes of data, often in entirely new categories. Companies across multiple industries must find ways to leverage this data effectively in order to provide more personalized service while ensuring trust and transparency.
It’s about finding the right balance between personalization and privacy and using the right technology and tools to deliver the best CX based on that balance. The current media focus on privacy runs the risk of scaring companies away from the drive to more personalized services – but with the right approach, personalization and privacy can be a win-win, rather than a zero-sum game.