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STUDY: WEB-PRIVACY CONCERNS COST US$3.4 BILLION

Posted on November 15, 2001

      Consumers' concerns over privacy are taking a massive toll on Internet commerce, with Internet research firm Cyber Dialogue in a recent study putting that total at US$3.4 billion yearly.

      The New York-based research firm interviewed a sample of 500 Internet users and found that 27 percent of the group had abandoned an online order due to privacy concerns, stemming from worries about the misuse or mismanagement of personal or financial information.

      According to the study, such concerns caused twenty-one percent of would-be e-commerce shoppers to buy instead from the merchant's brick-and-mortar location, or from another offline merchant altogether. Because the transaction is completed offline, such behavior potentially could throw off e-tailers' ability to calculate a return on investment from online marketing efforts -- for instance, making Web ads appear less effective in driving sales, despite the fact that the user had been encouraged to buy online in the first place.

      Additionally, seven percent of respondents said they had switched to a rival online store because of privacy issues. That's a troubling statistic in itself, but it's also two percent greater than offline customers -- highlighting the fact that ensuring customers' loyalty online is an uphill struggle, because of the ease of clicking over to a rival store.

      Marketers have other worries, as well. The vast majority of consumers polled -- 83 percent -- say they view the selling of names and home addresses with business partners a direct violation of their privacy, despite the fact that the practice is a standard among marketers.

      Still, the study should be taken with a grain of salt -- Cyber Dialogue owns UCO Software, a firm that provides privacy assessments and middleware technology to marketers. The company's software serves as a privacy filter that ensures businesses' transactions are in accordance with laws and stated policies.

      But the study isn't the first to attempt to quantify the losses due to privacy issues. Forrester Research, for instance, has said that consumers' privacy worries are similarly costly for the Web industry -- to the tune of a whopping $15 billion annually.

      "Consumer privacy concerns are having a direct impact on corporate profits, and retailers need to address the issue if they want to keep customer defection rates down," said Kevin Mabley, vice president of operations at UCO. "Consumers aren't just concerned, they're taking action: abandoning orders, switching brands, filing complaints. This problem, however, if handled correctly, can be a real brand positioning strength for a company."

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