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The privacy fallacy

Protecting customer privacy eats up costs, right? Actually, one consultant argues that, if you do it right, it might actually make you money.

ATLANTA -- Several years ago, a well-known technology manufacturer implanted chips in its printers to monitor how well the equipment worked and then notified customers when service was needed. Privacy experts balked. Yet when the printer maker took its case to customers, they saw the value.

"It wasn't the chip that was the issue, it was how it was communicated," said Larry Ponemon, a privacy guru and principal with Norwalk, Conn.-based consultancy Peppers & Rogers Group.


Businesses don't typically greet privacy as a money-making or ROI-generating imperative -- but those that leverage it appropriately often find it bolsters the bottom line, according to Ponemon.

"If you do it right, you turn hazard and risk into opportunity," he said.

At the Smart CRM conference, Ponemon said that companies that communicate their privacy policies and take an "advocacy role" toward their customers make those customers less likely to jump ship.

And the benefits don't stop there.

Other privacy-related pluses include increased customer loyalty; reduced opt-out and increased opt-in rates for marketing campaigns; better data quality; a better corporate image; and a stronger brand. In fact, a recent survey found that 36% of businesses see privacy as part of their brand or image in the marketplace.

Organizations can quantify some of those improvements. They also can calculate the losses from failing to earn their customers' trust, Ponemon argued.

He said that the biggest costs in privacy breaches don't come from the incidents themselves. Rather, businesses pay a far steeper price when these glitches blow up into crises and "the CEO's picture winds up on the cover of The Wall Street Journal."

Bottom line: It's cheaper to prevent failure and instill trust than to do damage control after the fact, Ponemon said.

Research Ponemon conducted in late 2003 found that customers do not like businesses to sell their information, but they don't mind if it's shared with third parties, as long as companies are honest about the sharing. Consumers are also not interested in seeing the information businesses collect about them, but the study found they do feel security should be integrated into corporate privacy policies.

Complicating privacy matters these days is a slew of laws dictating how companies can market to customers.

Jim Needle, a database marketing manager at Best Software Inc., said that his company runs hundreds of campaigns every year. A typical contact list contains 300,000 customer names. Complying with the laws -- and protecting privacy -- means vetting each of those names against the national "do not call" registry and complying with the newly enacted "can spam" law.

He said that doing so isn't cheap, but it's necessary.

"If we upset the customer by contacting them too frequently or contacting the wrong person, that affects [the campaign]," Needle said. Third-party list rentals that offer less information about customer preference and less accurate data complicates matters.

Ponemon said that customers are generally more forgiving than businesses may think. In fact, studies have shown that a typical customer won't stop doing business with a company until two or three breaches have occurred.

"Most people are willing to give you a shot," Ponemon said. "But they have to believe you are doing your best to protect them."

TechTarget is the organizer of Smart CRM and owner of the family of Web sites that includes


Special coverage: Smart CRM East

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