A Matter of Trust

Respecting customer privacy can be a competitive advantage

By Justin Kestelyn

Most e-commerce efforts lose money for a lot of reasons. But anyone who fails to count mistrust among e-customers as one of them is either in denial or just not paying attention.

I know what you're thinking: Lay off, I have real work to do. But before you turn the page, you should know that a lack of sensitivity to privacy matters can calculably damage your organization's ability to build "trusted" relationships with customers. For example:

• Financial services giant U.S. Bancorp recently agreed to pay a collective $4 million in fines for failing to adhere to its own privacy policy. The company was sued by the state of Minnesota for selling personally identifying customer information to third-party marketers, despite having promised customers not to do so without permission.
• The State of Missouri recently filed suit against an online retailer called More.com for sharing personal customer information with fulfillment partners, a practice that appears to contravene its official privacy policy. Allegedly, that policy is so muddled that customers can't reasonably be expected to understand the company's intentions.
• New research from Privacy Council Inc., which does consulting work involving privacy compliance matters, suggests that privacy concerns may be dampening widespread enthusiasm for e-commerce. Sixty-one percent of 800 surveyed people, none of whom shop online, say they don't do so specifically because of concerns about privacy and security. Even if you include the source of this research in the believability equation (Privacy Council has a commercial interest in fueling e-customer paranoia), the substance of the research rings true.
• In an Odyssey Research Associates Inc. survey from earlier this year, 92 percent of surveyed e-shoppers shared their belief that online merchants fail to keep personally identifiable information private, even if those merchants have privacy policies. There's no information as to whether this belief has an impact on purchasing patterns, but the results are nonetheless disturbing.

The facts are clear: Most people who don't spend money online are worried that personally identifiable information will be sold or shared without their permission, and thanks to a few well-publicized examples, there is plenty of evidence justifying their fears.

Look Within

Some companies now consider this problem of sufficient concern to make direct, significant investments in earning consumer trust. Expedia.com (which is owned by Microsoft) and E-Loan have both reportedly given PricewaterhouseCoopers (PwC) large contracts to formally audit compliance with their respective privacy policies. E-Loan has even posted an "independent accountants' report" on its privacy management practices that cost the company $250,000 in consulting fees.

According to PwC, the BetterWeb program (www.pwcbetterweb.com) is designed to "establish standards for customer-focused Web site disclosures addressing sales terms, privacy, security, and customer complaint policies." Expedia.com executives don't believe that BetterWeb will increase sales directly, but they do think that building trust with customers will ultimately have a positive effect on their bottom line. E-Loan CEO Chris Larsen has said that he considers such audits a "prerequisite" of doing business.

PwC's global privacy practice leader, Larry Ponemon, recently told a New York Times reporter that most clients fail the initial phases of their BetterWeb audit because of business-process or technology problems (or both). And this program has teeth: If a client fails to live up to its privacy policy, PwC is required by contract to publicly disclose a critical audit.

Earning It

It will be interesting to observe if BetterWeb and other emergent, industrial-strength privacy seal programs become active factors in building customer trust. The question is no longer one of self- vs. government regulation - count on the latter when Congress reconvenes in 2001 - but whether more so-called customer-focused organizations will decide to use respect for consumer privacy to their advantage.