Ethical, Privacy, and Security Issues in Marketing Analytics: The True Cost of Data

3162 words (13 pages) Essay in Technology

08/02/20 Technology Reference this

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ABSTRACT

The analytics industry is currently booming with the vast amount of data being created that is available for analyzing. This is especially true in the marketing world, which can provide companies with a good return on their investment with marketing analytics. Companies are collecting customer data at increased rates and are able to piece together the data to build customer profiles that generate information that potentially should be kept private. This paper explores the different data collection methods and  types of data collected used for marketing analytics. It is important for consumers to understand what kind of data is collected about them. It is also important that consumers realize that companies may use analytics to build a more complete personal profile by piecing together their data. This paper’s main objectives is to not only provide people with the knowledge of what data is collected, how it is collected, and ethical, privacy, and security issues with the collection and analytics of this data, but to also make people aware that they are often times giving away their data for free services offered by companies. Consumers need to realize that there are tradeoffs between privacy and convenience.

INTRODUCTION

Technology, something that is powerful, ever-changing, and even scary, has changed the way that the world operates. Every year there are new technologies that change the way that people live. Take a look at how the use of smartphones has changed people’s daily lives. Just 10 short years ago, who would have imagined that items could be purchased through a “smartphone” using a mobile payment solution, that a “taxi” could be ordered with a mobile application, like Lyft or Uber, or that people would be paying to stay in a stranger’s house, instead of hotels, using an application like Airbnb (Hartsman, 2018). Within the last 15 years, fast internet started becoming readily available for most Americans (Fischer-Baum, 2017). In fact, according to Fischer-Baum, it wasn’t until 2013 that there were more smartphones used in America than “dumb phones”(2017). This rise of fast internet, through home broadband, and the growing use of smartphones has created a treasure trove of data just waiting to be analyzed.

This data, which is constantly growing in volume, has led to the use of analytics to gain insights from the data. It has created opportunities for companies to not only understand its consumers better but also to predict what they may want in the future. Accurate data, that can be analyzed, is valuable to companies. In fact, Wedel and Kannan call data “the oil of the digital economy” (2016). Companies are using data analytics to market to their customers and to gain new customers. This is could lead to several different issues related to ethics, privacy, and security for the people these companies are targeting.  As the volume of consumer data has risen, so have the number of data breaches by hackers. This data is not just valuable to companies, it is also valuable to hackers, who are able to sell consumer data or gain monetarily through the data they have breached.

This paper will attempt to address the ethical, privacy, and security issues that are currently arising from the use of marketing analytics. Some of the questions include: where is the data coming from, how is the data collected, how is the data protected, and are the consumers being properly informed when their data is breached?

To fully understand why there are issues of ethics, privacy, and security in marketing analytics, it is important to know what marketing analytics is and how it is being used by companies. Wedel and Kannan (2016) define marketing analytics as the following:

 “Marketing analytics involves collection, management, and analysis – descriptive, diagnostic, predictive, and prescriptive – of data to obtain insights into marketing performance, maximize the effectiveness of instruments of marketing control, and optimize firms’ return on investment (ROI).”

This definition highlights the three main components of how data is used in marketing analytics through collection, management, and analysis. It also defines the overall goal of marketing analytics or “the why” of marketing analytics, which is to maximize a “firm’s return on investment”.

Companies are using analytics to marketing analytics to make better, more informed decisions from the insights gained from the data. There are several ways that analytics are being used in marketing like offering a more personalized customer experience, find new customers, improve marketing strategies, and offer a new line of products. Bhandari, Singer, and Van Der Scheer (2014) give an example of a home appliance company that used marketing analytics to improve its overall marketing strategy. This company had been spending a large portion of its marketing budget on traditional media advertisements like television, print, and display. However, analytics showed this company that customers typically looked for home appliances on retailers’ website. This home appliance company then increased its advertising budget for distributor website content, which led to a 21 percent increase in e-commerce sales for the company (Bhandari et al., 2014). Another example highlighted by Wedel and Kannan (2016) is how Groupon sends daily emails to individual subscribers with personalized deals based off of the data that it collects about its users. Companies, like Amazon and Netflix, are also using recommendation systems to offer a more personalized experience for their customers (Wedel & Kannan, 2016). These companies are using past customer data to offer new products or services that match the customer’s profile based off of the customer’s past preferences (Wedel & Kannan, 2016).

As previously shown, it can be extremely valuable for companies to apply analytical models on customer data. However, two questions that arise is what type of customer data is collected and how is the data collected? The types of data that are collected for marketing purposes has evolved over the years. Data has been collected for marketing purposes for around 100 years. In fact, according to Wedel and Kannan (2016), the first type of data collected for marketing purposes was survey data in 1910 by the Curtis Publishing Company. The rate at which data is created has exponentially grown over the last few years and one of the main reasons for this is the rise of devices connected to the Internet as illustrated in the graph to the left. An article by Fischer-Baum (2017) shows how the explosion of devices has happened in the last five to ten years. For instance, in 2008 only 8 percent of videos (TV and movies) were watched by streaming, however, 56 percent of videos were watched by streaming in 2016.

Roberts (2014) breaks down the types of data collected for marketing purposes into four different categories: identity, descriptive, quantitative, and qualitative data. Identity data includes data like name, date of birth, address, telephone, account information, email addresses, and social security data (Roberts, 2014). This type of data is what many people consider to be “personal data” and is what many hackers target during data breaches. Descriptive data includes data like family data, lifestyle data, and career data. Family data is information like marital status, number of children, and age of children. Lifestyle data is information like property ownership, cars, or pet ownership (Roberts, 2014). Quantitative data is the data that companies may often analyze to gain insights that help them improve the service or products they are offering to their customers. This kind of data includes transactional information, communication information, online activity, customer services information, and social network activity (Roberts, 2014). The last category of data that marketers use is qualitative data, which can be important in developing “connections” with customers. This type of data includes customers’ attitudes towards different products and services, opinion data, and motivational data (Roberts, 2014).

The collection of data is where the real questions of ethics and privacy arise. There are many different methods that companies use in the collection of data. One of the most common ways that companies collect data about customers is through loyalty programs. First, it is an easy way to collect data about customers that can be specific, including what promotions they will respond to or what days they prefer to shop (Ucros, 2018). This is a major way for companies to build customer profiles for personalized experiences. Also, companies can track mouse movements on websites by using heat maps (Ucros, 2018). Location data is collected through GPS tracking on your phone, like Location Services on the Apple iPhone. Ucros (2018) says that “every time you download an app or check-in on social media, your location data is stored. Also, according to Ucros (2018), companies can track a phone signal to collect data on where you go throughout the store. Two of the most prevalent and personally invading ways that people’s data is being collected is through social media and cookies, which effectively allow websites to track your Internet browsing data (Ucros, 2018). When a user accesses a website, the website gains access to the user’s web browser, enabled plugins, browser language, screen resolution, web history, geolocation, online transactional data, and profile data (Zawadzińskik, n.d.).

The methods through which companies track and collect user data opens up many ethical, privacy, and security issues. It is important to distinguish the difference between ethics, privacy, and security. Ethics is defined by Merriam-Webster (Ethic, n.d.) as “the principles of conduct governing an individual or group”. Merriam-Webster defines privacy as “freedom from unauthorized intrusion” (Privacy, n.d.). Security is defined by Merriam-Webster (Security, n.d.) as “measures taken to guard against espionage or sabotage, crime, attack, or escape”.

Some of the ethical issues with marketing analytics revolve around the collection of personal data. While it may not be illegal for companies to collect consumer data, it can cause feelings of mistrust from consumers just from them perceiving these actions as something that is not mutually beneficial. It is easy to question the ethics of companies that collect consumer data just to sell it for financial profit. Companies like this do exist. They are called data brokers (Naylor, 2016). Furthermore, it is questionable ethics for a company to collect consumers’ data without them knowing. Consumers should be aware when a company is using their data to build personalized profiles. All of these cases are legal for companies to do. They can track, collect, and sell consumer data easily because there are no online privacy laws in the United States (Naylor, 2016). Also, it is reasonable to question whether analytics should be used on consumers’ data. Ethical issues arise when companies not only have consumers’ data but when they use analytics to piece together data to build a complete profile of the consumers.

It is easy to feel like data brokers and other companies that collect personal consumer data are unethical due to an invasion of privacy. According to Leonard (2014), consumers can feel like their privacy is being invaded due to the “creepiness’ or “spookiness” of data collection. It can feel like “big brother is always watching them” to users and can raise concerns about “lack of transparency, control, or accountability (Leonard, 2014). An example of how a consumer may feel like her or his privacy is being invaded is when advertisements start popping up on her or his browser that are relevant to items they have been shopping for on the Internet. This obviously shows the consumer that her or his online activity is being tracked. As Leonard (2014) puts it, in most cases consumers know that their geolocation is being tracked when they enable geo-location services on their mobile devices. Furthermore, consumers understand that they gain benefits by signing up for loyalty programs, which in turn, allow companies to gather data about the consumers. Many consumers know that they are giving away some of their data and allowing companies access when they give their email address away for the instant 10 percent discount on their purchases. Many companies offer services and even products to consumers for the price of their data. Leonard (2014) refers to this as the “exchange of personal data for free services”. The major privacy concerns arise when companies fail to inform consumers that they are collecting their information. Also, a major privacy concern for consumers is when companies collect data from multiple sources and then piece the data together to get a more complete profile of consumers. “However, combining data sets has led to the ‘mosaic effect,’ yielding information on consumers that should be private but yet is revealed in the integrated data” (Wedel & Kannan, 2016). Companies will gain consumers’ trust by being open and upfront about their data collection and data usage policies and practices. There is no need for companies to be secretive about wanting consumers’ data as it can be mutually beneficial to both the company and the consumers. It allows the company to better understand the consumers and offer them better products, while it allows consumers to have free services or discounts from loyalty programs.

There are some major security concerns as well with the vast amount of data that is stored in customer databases. It is the company’s responsibility to protect their customer data from data breaches. Many customers trust companies with sensitive and personal data, as previously mentioned, like social security numbers, addresses, credit card information, and family information. Every day there are news reports of companies which have had their data breached, often affecting millions of customers. According to Wedel and Kannan (2016), there have been more than 5,000 data breaches in the last 10 years with an average cost of 4 million dollars per data breach. Large companies such as Target, Home Depot, and Sony have recently been hit with data breaches and with cloud storage, it is predicted that data breaches will become more and more common (Wedel & Kannan, 2016). One of the main causes of these security breaches is the fact that “privacy laws and security technology has not kept up with data collection” (Wedel & Kannan, 2016). One solution is for companies to build in privacy measures and security safeguards into their analytics design (Leonard, 2014).

 

CONCLUSION

In conclusion, there are many questions that have and should be asked about the ethics, privacy, and security around marketing analytics and the collection of data that enable marketing analytics. First, is it ethical to collect the vast amount of data about consumers and then sell it to the highest bidder, as data brokers do? Also, should companies be performing advanced analytics which allows them to build a profile about consumers when the consumers do not realize what exactly they are giving away? Consumers may know that they are giving away some information, but little do they know that companies will piece all the data together to know a lot more about the consumers than they would ever want. Also, privacy concerns arise when companies fail to tell consumers their intent of collecting the data. The best policy for companies is openness and transparency. It will gain consumers’ trust and benefit companies in the long-run. Last, the protection of consumers’ data is very important for companies. After companies gain the trust of consumers, it is their responsibility to ensure the security of sensitive consumer data.

The world is more connected today than it ever has been in history. The more connected the world is the greater the threat to personal privacy and security of consumer data. There is a tradeoff between privacy and convenience. It is convenient to receive free services and discounts from companies, but consumers trade away some of their privacy for these services and discounts. Consumers have the responsibility of realizing that they cannot have it all. If consumers want privacy, they must be proactive in making sure that it is protected. Lastly, companies need to take responsibility and make sure their actions around analytics and data collection are ethical. Companies should also ensure that consumer privacy is protected through proper privacy measures and the data is secure through security safeguards.

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