There’s a virtuous circle, involving the collection and management of customer data which all brands should aspire to.
When you’re transparent and honest in your use of personal data, and you deliver a meaningful, personalised customer experience based on this data, your customers will learn to trust you and will be willing to share even more information.
It’s a mutually beneficial value exchange that, over time, enables you to build increasingly richer customer profiles and create better, more relevant experiences.
There’s also an opposite phenomenon – a vicious cycle. If you misuse data, are not transparent, do not provide a worthwhile value exchange, or breach data regulations, people will mistrust your brand and withhold their personal details.
The consequences of undermining customers’ trust in your use of personal data can be disastrous, as the messaging platform WhatsApp discovered in 2021.
In January that year, WhatsApp announced an update to its privacy policy, allowing it to share data with its parent company, Facebook. It also told customers to accept the new policy by 8 February or stop using the app. This resulted in many WhatsApp users defecting to rival platforms such as Telegram and Signal. In fact, Telegram founder Pavel Durov described it as the “largest digital migration in history”.
Data management in an era of increasing regulation
Jurisdictions around the world today are implementing stronger data protection regulations and legislation.
For example, the General Data Protection Regulation (GDPR) became enforceable in May 2018 and is an important part of privacy law and human rights legislation in the European Union. In June 2021, the European Commission also released new Standard Contractual Clauses (SCCs) for cross-border transfers of data under the GDPR.
Similar legislation in China, the Personal Information Protection Law (PIPL), took effect on 1 November 2021. It is China’s first comprehensive national data protection law. When collecting and managing data, organisations within its jurisdiction must consider the PIPL provisions, along with those of China’s Cybersecurity Law and Data Security Law.
The United States also saw an increase in privacy legislation at the state level in 2021.
Legal and financial penalties for breaching data privacy laws can be severe. For instance, according to law firm DLA Piper, authorities in Europe handed out $1.25 billion in fines over GDPR breaches between January 2021 and January 2022. In July 2021, Amazon alone was fined €746 million for processing personal data in violation of the GDPR.
Organisations should also consider how such breaches can damage their reputations and undermine customers’ trust, in addition to the potential financial costs.
Data is essential to contemporary business transactions
Consumers are more aware than ever that their personal data has value, and are demanding greater control over brands’ access to, and ongoing use of, this information.
However, while many consumers are wary of businesses misusing their personal data, they also acknowledge that refusing to provide data (particularly to digital brands) can undermine organisations’ ability to serve them fully. As a compromise, they are choosing to engage with brands they believe will manage their data responsibly and provide worthwhile, personalised experiences in exchange for their data.
For example, consumers have responded positively to Sephora’s Beauty Insider loyalty programme in recent years. The company uses data from the programme, and from customers’ online shopping activity, to offer personalised recommendations both online and in store. A 2020 update of the programme also introduced multiplier events and experiential rewards that enable Sephora to collect even more useful data.
When brands maintain trust, they are more likely to convince consumers to provide even more data over time – assuming the consumers believe they’re getting a fair value exchange in return.
Best practice data collection
This is why earning trust incrementally, through progressive profiling, is vital.
An example of poor practice in data collection is asking a new customer to complete a 20-field form that includes many detailed personal questions.
Good practice would involve requesting limited information initially (such as name, email address and/or phone number only), then building a profile over time as the consumer learns to trust the organisation and is willing to share more data.
Transparency is key
Brands should also be honest and transparent about what they intend to do with personal data, where it’s going and why they need it.
The ideal is for brands to explain that they’re collecting data to create superior experiences, and then to demonstrate this by showing customers that their data is being used effectively and to their advantage.
Fitbit believes in data transparency, and its privacy policy includes a list of links covering broad topics such as the type of data the company collects, how it shares that data and how it treats children’s data differently to that of adults.
From vicious cycle to virtuous circle
An enhanced focus on building customer trust – by responsibly, incrementally collecting and managing personal data – ultimately serves all parties well. Your customers feel they are better understood and receive a more personalised experience, as your business attracts their loyalty and deepens relationships through open, transparent, value-adding interactions.
You can speak with Collinson today for help with evaluating your customer data management strategy.
Alternatively, learn more about how:
- How attracting long-term customer loyalty is a process of streamlining your customer data to achieve a single customer view.
- How you can leverage segmentation tactics to easily identify your most valuable customers.
- How to build a seamless loyalty ecosystem that incorporates all the methodologies required to deliver personalised experiences to customers.
