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Personalization can be a tricky needle to thread. It's increasingly essential for meeting (and exceeding) customer expectations, but evolving consumer attitudes about privacy make collecting the necessary data a complicated and costly process.

The impacts of personalized service on sales, loyalty, and CLV are well documented. Amazon saw a 29% increase in sales quarter over quarter following the implementation of targeted suggestions, and a whopping 80% of consumers are more likely to buy something when they are offered a personalized experience.

Personalization can drive significant revenue, but it doesn't come without risk. While consumer behavior may be signaling that a more targeted offering is better, nearly 2/3rds of survey respondents say they'll stop supporting companies whose marketing feels too "creepy."

So how are brands balancing the obvious benefits of personalization with the privacy concerns of their customers? The most successful strategies rely on zero-party information to drive marketing and sales, offer users options for customizing how their data will be used, and build transparency and privacy into processes in every department.

The personalization advantage

Personalization can be a bane or a boon; the difference is often in the timing. On one hand, consumers want perks like weekly usage reports about their smartwatch, or tailored suggestions about what to watch next. On the other hand, when purchase recommendations become too personal—when their predictive power becomes too great—people instinctively recoil.

Examples of personalization gone awry abound. In one unfortunate example, Target's advertising algorithm revealed to a man that his teenage daughter was pregnant. While the algorithm wasn't incorrect, the result was an outraged and subsequently embarrassed customer. Instead of deepening the customer relationship, the ambitious attempt at personalization created extra work to repair it.

Blunders like these often involve a reliance on first-party data. Unlike zero-party data that has been voluntarily provided by the customer, first-party data is inferred from customer behavior without the customer's direct input.

It's easy for companies to amass reams of inferences about an individual that the individual might not want others to know. The risk behind using these inferences is that marketing teams can unwittingly touch on sensitive subjects, and drive consumers away in droves. In fact, some estimates show that U.S. businesses lose upwards of $750 billion annually as a result of badly executed personalization.

Relying exclusively on zero-party data not only prevents PR debacles, but also helps build consumer trust in a brand. Companies that forefront the ethical and transparent collection of data gather more and better information through their direct relationships than they glean from behavioral analytics alone. And this makes sense; when customers see that their data is being used responsibly and respectfully, they're willing to give more of it. That benefits both parties.

Customization: To each their own

Another way to achieve the right balance between personalization and privacy is through enabling customization. Unlike personalization, which largely takes place behind the scenes, customization is the direct result of user choice. It's why Netflix starts showing one user 90s action comedies and another mid-century foreign dramas; they each marked a preference while opening their account.  

Companies that enable customization have an opportunity to use the transparency of the process to build consumer trust. Detailing for consumers how their information might be gathered and shared (and providing the chance to opt out of either), and allowing them to determine their own advertising preferences, are ways for companies to demonstrate a commitment to privacy as a core value.

Giving consumers more control over their information seems like a generous concession, but research reveals that it actually results in dramatically more effective targeted advertising. This makes customization an area where the customer's interests and the brand's interests naturally converge.

There are other advantages of offering more choice rather than less. Customization drives sales: 36% of consumers prefer customized options, and 1 in 5 are willing to pay markups upwards of 20% for it. Brands are better able to anticipate and meet customer needs when they've given those customers the tools to design their own experience.

Creating responsible roles

Sales and marketing aren't the only departments that need to be thoughtful about customer privacy. Building a company culture around this value is an ongoing, cross-departmental process.

Besides providing role-based training on security and privacy, some companies have created positions that exclusively focus on business-information security and privacy (BISPOs). By championing the company's privacy policies and empowering employees to act on them, BISPOs ensure that security is seriously considered when making technological or business enablement decisions.

Taking responsibility for good security practices drives revenue in part by avoiding the potentially catastrophic costs that result from bad security practices. In 2020, the average cost of a data breach was nearly $4 million.  

Another new role that's oriented more toward the consumer's experience is the "creep board." This is an internal team tasked with regularly reviewing company policies and practices regarding the use of personal data. Their goal? To make sure nothing the company does is too "creepy." These teams exist for good reason: nearly 40% of consumers will immediately stop doing business with a company if its personalization feels too invasive.

Knowing the line

As companies push the personalization envelope in search of better marketing returns, consumers are collectively finding the line between the personalization they want and the personalization they don't. Crossing that line can do significant damage to the brand-consumer relationship, but successful brands are recognizing the predictable reactions of their customers and finding ways to work within them.

Marketing driven by first-party data is inherently risky. When information is collected without the consumer's involvement, the resulting targeted advertising can create reactions of shock or betrayal even if the data under discussion isn't particularly personal. The surprising upside for companies is that consumers will reveal quite a bit of private information when they're asked; the key is that they've chosen to do so. Customization built on zero-party data offers a way through, providing scope for serving effective, tailored content while also allowing the brand to be perceived as trustworthy and respectful.

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