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The Challenges of Building Trust in the Data Economy

Making valuable personal connections with new and existing customers has become increasingly difficult (and costly) over the last few years. Let's explore the reasons why and discuss pathways forward to build trust through transparency.


The Elephant in the Room

Let’s face it. There is a tenuous relationship between businesses and individuals relating to something that we create and use every single day: data. In the academic world, this is referred to as the Personalization-Privacy Paradox and it stems from two opposing needs - businesses need data to create personalized experiences for the individual and individual's need for privacy.


It's the proverbial rock and hard place. Individuals want personalization and businesses want to deliver that. However, personalization demands data from the individual. That data can be costly and not entirely accurate. The individual may have concerns over how that data is acquired or feel that they're not getting enough for it in return.


This is a rather nuanced issue, but at its core is a lack of trust and transparency in regard to how personal data is collected and used. Data acquisition and tracking, personal data, and privacy are all topics that have come under increasing scrutiny over the last decade. We have seen the creation of individual-protection regulations like the General Data Protection Regulation (GDPR) in the EU and the California Consumer Privacy Act (CCPA) that have given people greater control over their personal data.


Although good for the individual, these privacy regulations along with technology changes and the eventual death of third party cookies leave businesses searching for new ways to leverage data. So how do businesses navigate these changes to provide their customers with the best experience by respecting their privacy and not breaking the marketing budget?


Help Us Help You

Personalization matters to individuals now more than ever. In a 2021 report by McKinsey & Company, our digital behaviors increased dramatically during the pandemic as roughly 75% of individuals tried a new shopping behavior. Not only did how we shop change, our expectations of businesses did as well.


71% expect businesses to deliver personalized interactions while 76% get frustrated when this doesn’t happen. The data also revealed that businesses that captured more value from personalization experienced 40% more revenue from personalized marketing actions or tactics.


Personalization alone is not the cure-all for increased growth, monetization, and retention. As businesses continue to discover, the true power behind personalization is relevance. Relevance is the anticipation of the next thing a customer needs or wants and requires aggregated customer data and predictive analytics. In other words, it's the ability to better understand your customer and put that to action.


According to Forbes, Netflix is a wonderful example. While popular titles convince individuals to sign up for a trial subscription, it’s the platform’s content recommendation engine that keeps viewers engaged and paying for renewal. Here, Netflix's algorithms study the preferences of thousands of similar users to make a highly educated guess on what an individual would like to watch next.


Personalization and relevance are powerful tools that businesses can leverage to provide the right message to the right person at the right time. These tools are fueled by the creativity of marketers and informed by highly detailed data about the individual. However, the type of data and, more importantly, the manner in which that data is collected matters a great deal in the success of those tools. Let’s take a look at a specific example within the US Auto Insurance space.


The Personalization-Privacy Paradox for Insurers

According to JD Power Insurance Intelligence, ‘shopping and switching’ is on the rise for insureds as they are seeking more value and personalization in their insurance programs due to increasing prices of insurance contrasted with individualized decreasing use of their vehicles.


Where shopping and switching was historically an activity exhibited by price sensitive individuals and/or those with fair to poor credit, that activity is now on the rise with all credit tiers and this trend will increase with the historic rate increases occurring throughout the country. Over the last few years, individuals were able to re-evaluate their insurance needs based on changes in their own lives; the rise of work from home, inflation, price of gas, etc.


As a result, insurance providers have an opportunity to learn more about their customers and provide a more personalized policy in order to retain them. In order to do so, more data is needed from the individual. That verifiable data can be acquired in a variety of ways, such as self-service mileage reporting and telematic-based driver behavior scoring from tracking drivers via the gps on their phones, a device in their car, or both.


The Personalization-Privacy Paradox is revealed by looking at individual attitudes around usage-based insurance (UBI) and the technology that has been used to glean the data to bring those programs to life. Consumer research conducted by the American Association of Insurance Services (AAIS) in 2022 showed that 45% of individuals are open to UBI.


For that 45%, the concept of UBI is solid on paper. Get a more personalized policy that better represents your actual behavior. Seems fair. When individuals are faced with the reality of providing the data that is needed for those programs, the results look drastically different. In a 2022 survey conducted by Policygenius, 68% of Americans would not install an app that collects driving behavior or location data for any insurance discount amount. The same percent would not install a live dashboard camera while 65% wouldn’t install smart home devices.


Year over year, Policygenius concluded, more Americans opt for privacy over insurance discounts. Further, Americans' concern for privacy isn’t specific to the insurance industry.


Concerned, Confused, and Feeling a Lack of Control

According to Pew Research, roughly 60% of Americans believe it is not possible to go through their daily life without having their data collected. Reflect on your day for a moment. How many times have you interacted with your phone or another piece of technology?


Data collection doesn’t stop when you put down your phone or log off, though. Have you taken your car for an oil change lately? Sure, the oil in your car was changed. But did you know that your odometer was reported and other data points about your car were collected and were sold to data brokers? This is just the beginning, we haven’t even broached the topic of connected cars.


Data-driven products and services are often marketed with the potential to save users time and money or even lead to better health and well-being. As individuals, interacting with product suggestions on Amazon or show recommendations on Netflix is mundane, expected, and sometimes helpful.


It’s part of our lives now, for better or worse. We understand that exchanging our data or permission to our data is the cost of admission to the social platforms that we use to connect with friends and family or the streaming services that introduce us to our next favorite show.


To that extent, Pew found that about eight-in-ten Americans say they are asked to agree to a privacy policy at least monthly, including one-quarter who say this happens almost every day. It is important to note that recognition of widespread gathering and tracking does not equate to acceptance.


Pew discovered that 81% feel that they have little to no control over the data businesses collect, 81% feel the potential risks of businesses collecting data about them outweigh the benefits, and 79% are very to somewhat concerned about how businesses use the data collected.


Gartner, the technological consulting and research firm, found similar results in their research. 79% of individuals would like more control over the personal information they give businesses and the way in which it is used while 53% want businesses to take a more proactive role in teaching them about online data privacy.


Per the telematics example, privacy trumps any discount or deal an individual can get from a business. However, we must first think through how that data is collected that makes them feel that way and ask ourselves if there is an opportunity for them to have more agency over their data, how it’s collected/shared, and how it is used.


As we learned from Pew, individuals feel a bit helpless when it comes to controlling their data and what is done with it. This concern speaks to personal agency. It’s important to take a moment here and reflect on your own life. How much control do you have over your own data? Do you know where it’s stored or who has access to it? To round out our views on the current attitudes around data, let’s look at the different types of data and how much or how little agency is present for the individual.


Zero, First, Second, and Third-Party Data

All data is not the same when it comes to how it's acquired, its cost, or its inherent accuracy. Before detailing the nuances of zero, first, second, and third-party data, let’s take a quick look at an elegant visualization that gets to the heart of the matter:

This cartoon illustrates what we face every day as individuals. As businesses, this is a nightmare as the incredibly thoughtful message we created for our customer can possibly come across as creepy, unhelpful, or completely inaccurate.


Let’s look at the varying degrees of data as detailed by Twilio. Third-party data is data collected by a third party (data brokers) that don’t have a direct relationship with your customer and is typically purchased in aggregate to get a better picture of your customer. Second-party data refers to data purchased from a trusted partner, like publishers selling to advertisers. First-party data is data collected directly from your customers on your owned channels, like purchase history. Zero-party data is data that your customer explicitly shares with you.


Consider the level of agency given to the individual and accuracy reflected in each type of data. It’s no wonder that Twilio discovered in their Customer Engagement Report that 85% of individuals said that they prefer businesses to only use first-party data when creating personalized services.


For businesses, a shift to first and zero party data not only makes sense in relation to the privacy concerns of your customers, but also your bottom line. According to the Harvard Business Review, buying individual data through data brokers should come with a ‘buyer beware’ note. In a test to verify the accuracy of popular audience segments that a range of data brokers have to offer, the HBR discovered that, in relation to demographic data, the average accuracy of gender segments classifying as males was only 42.5%, lower than the 50% natural chance of identifying men.


Ultimately, poor-quality data comes at a higher price as marketers pay a lot of money for these digital profiles based on anonymized, aggregate data. Not only does using digital targeting more than double the advertising costs for a campaign, it significantly impacts ROI, and fundamentally undermines the goal of hyper-personalization through reliance on profiles for broad segments of the population.


Our First and Zero-Party Future

As noted at the beginning, individual-protection regulations (GDPR and CCPA), changes in the technology landscape, and the death of third party cookies are forcing businesses to search for new ways to leverage individual data to create more personalized and relevant messaging. Based on attitudes pertaining to data and privacy, individuals are becoming increasingly privacy-aware and want more agency over what is shared and how it will be used.


So what is a business to do? According to Forbes and IBM, sights should be set on first and zero-party data. As data privacy laws become more stringent, and as customers become more aware of the risks of third-party data, brands will need to increasingly rely on data that they can trust - and that is only possible with zero-party data.


First-party data is equally important and valuable to businesses for a myriad of reasons. The first is its accuracy in relation to third-party data as it is collected directly from the source. The second is that by identifying users at site entry via registration, businesses can recognize them as they move and log in across devices.


Lastly, first-party data can help cut costs. In addition to being highly accurate, first-party data is essentially free and targeting the right audience with highly relevant messaging lowers campaign costs by minimizing the number of impressions it takes for users to engage.


Per Forbes, individuals have more digital interactions with businesses than ever before and the future of the web is moving toward greater interactivity, greater personalization, and a more participatory experience in the post-pandemic world. First and zero-party data will help brands to create trusted, personalized relationships with individuals through what is referred to as privacy-first or opt-in marketing.


More importantly, first and zero-party data isn’t just for big brands. Any business can benefit by collecting data directly from their customers by using interactive funnels to gather data that’s reliable, accurate, and engaging at every step of the customer journey. The question is how do businesses find those new users when the cost of Adwords and digital marketing continues to rise?


A Solution to the Personalization-Privacy Paradox?

Researchers across the board have discovered that not only can data be costly to businesses, the lack of accuracy and user intent undermines their primary goal of creating catered, personalized experiences. Additionally, individuals have become increasingly concerned with the privacy of their personal data and also much more critical in their expectations of personalized and relevant experiences provided to them from the businesses with which they interact.


Perhaps a shift in perspective and, more importantly, giving agency to the data creators, our customers, is required. Given the growing concerns over privacy and the lack of agency individuals have with their personal data, a possible pathway forward for businesses to attract, retain, and engage directly with new and existing customers is to engage directly with their customers and utilize first and zero party data to provide them with privacy-first or opt-in marketing.


As the relationship between businesses and individuals continues to evolve and challenges to this relationship arise, it is important to remember that it is a relationship that needs to be built upon trust and transparency. Leaning into first and zero-party data may finally give businesses the opportunity to deliver the unique, one-to-one experiences that have been the holy grail in our digital, data-driven age. Providing our customers agency over their data and engaging directly with them may be the change in paradigm that this paradox demands of us.


Here at Ownli, we believe in the power of a very simple question. In order to better understand your customer, what if you could just ask? If you’d like to learn more about how Ownli can help you make meaningful connections with your customers built on trust and transparency, then we'd love to get in touch.


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