What is the value of data privacy to online shoppers? About 65 cents, according to a new study of by researchers in Britain and Germany.
The report: “Study on Monetising Privacy: An Economic Model for Pricing Personal Information” was released in February and presents the results of work by researchers from DIW Berlin, the German Institute for Economic Research, and the University of Cambridge in the UK. The study was sponsored and released by ENISA, the European Network and Information Sharing Agency. In it, researchers found that consumers consistently prefer companies that protect the privacy of their data over companies that don’t. Unfortunately, that preference for privacy wasn’t very strong. Online consumers in the ENISA-sponsored test were reluctant to spend more than a €.50 (.$65) premium to protect information like their e-mail address and cell phone number from marketers, researchers found, suggesting that the intrinsic value of privacy protections is low for most consumers.
To measure the strength of consumer preferences for data privacy, researchers invited 443 participants into their laboratory in Berlin to shop for cinema tickets. Participants were given the choice of buying tickets from a privacy-friendly firm and a privacy-unfriendly firm. Both companies required a minimum of personal information: full name, date of birth and email address. Depending on treatment, but the privacy-invasive seller also requested the mobile phone number or permission to use the email address for marketing, according to a post describing the experiment on the blog lightbluetouchpaper.
The laboratory experiment showed that the majority of consumers buy from a more privacy-invasive provider if the service provider charges a lower price. How much lower? Not much, researchers discovered. A discount of just E0.50 was enough to sway consumers away from a vendor who would protect the privacy of their personal data.
That isn’t to say that consumers don’t value privacy at all. When prices were the same, privacy-friendly firms handily beat their privacy-invading competitors, establishing a market share of between 62 and 83 percent, researchers found. Furthermore, a healthy minority of buyers – 29 percent – were willing to pay extra for not having to reveal their mobile phone number.
The laboratory experiment was complemented by a field experiment involving more than 2,300 participants and 139 transactions and observations. The field experiment confirmed the trends observed in the laboratory, according to the report.
The results of the study confirm the findings of earlier experiments that found most consumers diffident about the intrinsic value of data privacy. In a 2010 paper from the Leibniz Information Centre for Economics, researchers conducted a similar experiment involving DVD purchases and found that consumers responded far more to price differences than privacy protections: consistently opting to buy from a store offering lower prices, even if those stores also harvested personal information from shoppers.
In the ENISA study, researchers concluded that the results of their survey send a clear message to companies and marketing firms: a sizeable proportion of consumers are willing to pay a higher price for privacy. Companies that do business online can capitalise on that by becoming privacy-friendly, they say.
The topic of consumer privacy has taken on new resonance in recent months. Media reports have called attention to poor data privacy practices employed by mobile application developers. The FTC reached a deal with social networking giant Facebook over its decision to force changes on users that many saw as reducing privacy protections. Google, also, has come under fire for changes to its user privacy policies that many saw as loosening privacy protectionsfor users of some of its products. Finally, in February, the Obama administration unveiled a new consumer-privacy plan designed to help better protect users’ rights online, including a privacy “bill of rights” that spells out exactly what consumers should expect from the companies they work with online. In conjunction with this new initiative, Google has said that it finally will add the do-not-track button to its Chrome browser.
