Martin, K.D., A. Borah and R.W. Palmatier (2017), Data Privacy: Effects on Customer and Firm
Performance
Collecting and using customer data is an effective way to improve marketing returns. However, it also
increase customers’ data vulnerability, or perceptions of susceptibility to harm due to unwanted uses
of their personal data.
Data vulnerability consists out of: (1) data access vulnerability (the firm has access to the customer's
personal data), (2) data breach vulnerability (the firm/close rival suffers a data breach) & (3) data
manifest vulnerability (a data breach enables customer data to be misused).
Privacy is relatively amorphous and cannot capture the essence of customers’ psychological attitudes.
Instead, the term ‘customer data vulnerability’ is used: a customer's perception of his or her
susceptibility to being harmed as a result of various uses of his or her personal data.
Negative customer effects from data use come from the fear of potential damage or feelings
of violation, instead of actual data misuse or harm.
Customer data vulnerability is seen in a continuum of potential harm.
- Data access vulnerability: Firms have “detailed digital dossiers about people” and can engage
in “widespread transfer of information between a variety of entities”
- Spillover vulnerability: When customers perceive greater susceptibility to harm because a
firm similar to one that has their data suffers a data breach.
o But the customers of the rival probably will switch permanent because of the data
leak.
- Data breach vulnerability: A firm that already has their private data—or one of its close rivals
—has suffered an actual security lapse.
- Data manifest vulnerability: When customer data actually are misused, causing harm to the
customer.
o Disclosures and fraudulent activities represent the most severe form of vulnerability
The greatest effects tend to stem not from actual data misuse but from accompanying feelings of
violation and the indeterminate nature of the threat
, Important findings from other researches:
- Navigation and presentation, advice, and brand strength are more influential predictors of
online trust than are privacy and security
- Website investment/design is the strongest factor leading to purchase intentions and trust.
- Respondents disclose sensitive information more freely when placed at the beginning of a
questionnaire.
- Customers are willing to disclose increasingly sensitive information when they believe others
have done so.
- Firm market value is negatively affected by a breach in both the short and long runs, but it is
more detrimental in the long run.
Customer data vulnerability has effect on the emotional mechanism of violation & the cognitive
mechanism of trust.
Emotional violation captures a customer's negative affect, resulting from a perception of a
firm's failure to respect her or his peace, privacy, or other rights.
Cognitive trust is the customer's willingness to rely on a firm in which (s)he has confidence
Gossip theory: This describes how people respond to the unsanctioned collection, use, or disclosure
of their personal information. Disclosures of personal information by “gossipers”—or firm.
A key premise of gossip theory is that people have a well-developed sense of how they are perceived
and evaluated by others.
2 key factors that suppress the damaging effects of data vulnerability: transparency and control:
Transparency: target's awareness of and details about which information is being shared.
Customers Know the nature and scope of data and how those data are used.
Control: the extent to which the target believes (s)he can manage the flow of information.
After a leak, targets try to regain control of their information.
Transparency & control, separately and interactively, mitigate the damaging effects of all types of
customer data vulnerability on firm- and customer-level performance effects.
The combined/interactive effect of transparency & control is the best.
When gossip becomes salient, it produces a range of negative emotional and cognitive responses
from the target toward the source
Data breach does not lead to significant differences in the returns of focal versus rival firms.
Transparency does not have a significant effect on returns. However, control has a significant and
positive effect on returns. Providing customers control through opt-out features thus helps suppress
the negative effect of data breaches on focal and rival firms’ abnormal returns.
Fairness and value reinforce a customer's trust in a firm following a data breach.
Privacy concern is not an important predictor of negative customer behavior outcomes.
Vulnerability generates negative outcomes for firms, including negative abnormal stock returns and
damaging customer behaviors (i.e., falsifying information, spreading negative WOM, switching
behaviors). Data transparency and customer control practices can suppress these detrimental effects.
High transparency and control reduces the spread of negative WOM, deters switching, and
suppresses negative stock price effects.
When provided with high transparency but low control, customers perceive more violation and lower
trust across all studies. Thus, it is a dangerous practice for firms to tell customers exactly how they
will be collecting data without also providing them with some say over those practices.
Performance
Collecting and using customer data is an effective way to improve marketing returns. However, it also
increase customers’ data vulnerability, or perceptions of susceptibility to harm due to unwanted uses
of their personal data.
Data vulnerability consists out of: (1) data access vulnerability (the firm has access to the customer's
personal data), (2) data breach vulnerability (the firm/close rival suffers a data breach) & (3) data
manifest vulnerability (a data breach enables customer data to be misused).
Privacy is relatively amorphous and cannot capture the essence of customers’ psychological attitudes.
Instead, the term ‘customer data vulnerability’ is used: a customer's perception of his or her
susceptibility to being harmed as a result of various uses of his or her personal data.
Negative customer effects from data use come from the fear of potential damage or feelings
of violation, instead of actual data misuse or harm.
Customer data vulnerability is seen in a continuum of potential harm.
- Data access vulnerability: Firms have “detailed digital dossiers about people” and can engage
in “widespread transfer of information between a variety of entities”
- Spillover vulnerability: When customers perceive greater susceptibility to harm because a
firm similar to one that has their data suffers a data breach.
o But the customers of the rival probably will switch permanent because of the data
leak.
- Data breach vulnerability: A firm that already has their private data—or one of its close rivals
—has suffered an actual security lapse.
- Data manifest vulnerability: When customer data actually are misused, causing harm to the
customer.
o Disclosures and fraudulent activities represent the most severe form of vulnerability
The greatest effects tend to stem not from actual data misuse but from accompanying feelings of
violation and the indeterminate nature of the threat
, Important findings from other researches:
- Navigation and presentation, advice, and brand strength are more influential predictors of
online trust than are privacy and security
- Website investment/design is the strongest factor leading to purchase intentions and trust.
- Respondents disclose sensitive information more freely when placed at the beginning of a
questionnaire.
- Customers are willing to disclose increasingly sensitive information when they believe others
have done so.
- Firm market value is negatively affected by a breach in both the short and long runs, but it is
more detrimental in the long run.
Customer data vulnerability has effect on the emotional mechanism of violation & the cognitive
mechanism of trust.
Emotional violation captures a customer's negative affect, resulting from a perception of a
firm's failure to respect her or his peace, privacy, or other rights.
Cognitive trust is the customer's willingness to rely on a firm in which (s)he has confidence
Gossip theory: This describes how people respond to the unsanctioned collection, use, or disclosure
of their personal information. Disclosures of personal information by “gossipers”—or firm.
A key premise of gossip theory is that people have a well-developed sense of how they are perceived
and evaluated by others.
2 key factors that suppress the damaging effects of data vulnerability: transparency and control:
Transparency: target's awareness of and details about which information is being shared.
Customers Know the nature and scope of data and how those data are used.
Control: the extent to which the target believes (s)he can manage the flow of information.
After a leak, targets try to regain control of their information.
Transparency & control, separately and interactively, mitigate the damaging effects of all types of
customer data vulnerability on firm- and customer-level performance effects.
The combined/interactive effect of transparency & control is the best.
When gossip becomes salient, it produces a range of negative emotional and cognitive responses
from the target toward the source
Data breach does not lead to significant differences in the returns of focal versus rival firms.
Transparency does not have a significant effect on returns. However, control has a significant and
positive effect on returns. Providing customers control through opt-out features thus helps suppress
the negative effect of data breaches on focal and rival firms’ abnormal returns.
Fairness and value reinforce a customer's trust in a firm following a data breach.
Privacy concern is not an important predictor of negative customer behavior outcomes.
Vulnerability generates negative outcomes for firms, including negative abnormal stock returns and
damaging customer behaviors (i.e., falsifying information, spreading negative WOM, switching
behaviors). Data transparency and customer control practices can suppress these detrimental effects.
High transparency and control reduces the spread of negative WOM, deters switching, and
suppresses negative stock price effects.
When provided with high transparency but low control, customers perceive more violation and lower
trust across all studies. Thus, it is a dangerous practice for firms to tell customers exactly how they
will be collecting data without also providing them with some say over those practices.
