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    Personalization vs Privacy – The Evolving Realities of Digital Marketing

    Digital has transformed the way products are marketed.  As customers move their lives to the digital world, whether to consume media, interact with friends and family, or shop, they leave massive digital footprints that can be analyzed and used for precision marketing.

    Historically, customer data was largely structured in the form of demographic data, surveys or retail purchase data. Statistical and econometric models ruled the world of customer insights. However, there is a much greater volume, velocity, and variety of data available in the digital world, both structured and unstructured. For example, mobile phones provide structured geospatial data that help target promotions based on an individual’s location. At the other end of the spectrum, customer reviews, photographs, conversations with chatbots, and comments on social media are some examples of newer forms of unstructured data.

    The question faced by firms today is not how data can be captured but how it can be used to make their marketing more differentiated and personalized while balancing the need for privacy and security.

    In marketing, personalization is primarily used in the context of product promotions.  In reality, the entire marketing process is being personalized by combining data with digital technologies such as Artificial Intelligence, Internet of Things, Blockchain and Augmented/Virtual reality (AR/VR).

    Product Development: AI is being used to understand the macro and microenvironments in which a firm operates by analyzing vast economic and social media data.  As an illustration, Unilever combined data from market research and social listening to arrive at the increasing linkage between ice-creams and breakfast in the United States and used this newly discovered association to develop ice-cream flavoured cereal. Combining AI with 3-D printing technology is expected to take product personalization to levels not possible earlier.

    Pricing: eCommerce to ridesharing companies have all developed complex AI-based dynamic pricing algorithms. Pricing is adjusted based on real-time data, including supply, demand, customer location and even the weather.

    Channel Optimization: Technologies such as AI and AR/VR are helping companies provide seamless experiences across multiple channels – mobile, web and in-store. For example, the AI-powered My Starbucks Barista app allows customers to place their order to a virtual barista within the app and pick up the order at their nearest store. In addition, recommendations and offers are made to the customer based on time, location, and previous purchases.

    Promotions: In countries such as the United States, digital accounts for upwards of 60% of total media spends. In India, spends on digital promotions, at approximately 30%, represents the second-largest media spend after television. Digital media offers several advantages over traditional media that is driving this rapid growth – two-way and instant communication with customers, a high degree of personalization, better conversion ratios and an ability to measure return on investment.

    Customer Service: AI-based chatbots are being deployed across companies to provide 24×7 customer service. In industrial environments, Internet of Things (IoT) based technology is being deployed to predict and prevent machine failure.

    Clearly, digital technologies and digital media combined with data have allowed for a high degree of personalization across the marketing process. However, this level of personalization comes with its challenges.

    Topmost on this list of challenges is the way data is being collected. In most cases, customers are not aware that their data is being collected and used for marketing purposes. Even if they are being made aware, it is in the form of legal fine print that few customers read or understand. All of this is set to change. Regulations such as the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act have enacted strict standards for collecting and using consumer data.  Company led programs include measures taken by Apple to maintain its privacy leadership and Privacy Sandbox initiatives led by Google.  As part of the latter, phasing out third-party cookies in Chrome in the next few years is expected to significantly impact personalization. Self-regulation by technology majors will impact companies across the globe, including countries like India, where there are limited data privacy laws.

    The second challenge is data ownership. While almost everyone agrees that customers ultimately own their data, several players claim to be data custodians. For example, there have been battles across the world between brand owners/sellers and e-commerce portals on sharing of customer data. These portals have also used aggregate customer data across sellers to develop competing products.

    Data security is another challenge faced by customers. There have been innumerable customer data leaks in the recent past as measures taken by these data custodians have not been sufficient.

    So, where do customers stand on these issues? Studies have shown that over 80% of customers are more likely to make a purchase when customized offers are made to them. Customers are open to sharing data as they have got used to the benefits of personalization.  At the same time, they do not trust companies to handle their data judiciously.

    The onus is, therefore, on companies to build customer trust. While this is not easy, they can take several steps to increase customer confidence.

    Control: Provide customers control over what data they want to share.  Blockchain technology can be used innovatively to provide this control.

    Compliance: Ensure compliance with local and international laws proactively.

    Frugal Analytics: Limit the extent of data collected to what is required for a transaction and focus on the efficiency of the analytics rather than the volume of data.

    Back to basics: Let customers and brands be the heroes of marketing. Focus on communication that builds an emotional connection between the two and limit the use of data for inspiration.

    In addition to making the above changes, companies also need to publicly signal to their customers that they are focused on being responsible data custodians.

    The pendulum is swinging towards a greater focus on privacy and access to data is going to be more tightly controlled. Companies need to rework their marketing strategies around this new reality.

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