Senior Partner & Managing Director
Imagine a company that zealously and thoughtfully safeguards and marshals the consumer data it holds, for the good of both company and consumer—so much so that consumers preferentially choose to buy products and services from this company and to share relevant data for new and unrelated purposes. Think too about the many companies that have made headlines—and have been punished by consumers and other stakeholders—for doing just the opposite: gathering and using data in ways that distress consumers, often without their permission or even awareness.
Where a company fits along this spectrum depends on its use of the big data that is increasingly available. But big data has the potential to be both friend and foe. The Boston Consulting Group conservatively estimates that trusted uses of big data and advanced analytics could unlock more than $1 trillion in value annually by 2020. (See “The Value of Our Digital Identity,” BCG article, November 2012.) However, recent BCG consumer research has uncovered a previously hidden obstacle to successfully unleashing this enormous opportunity: data misuse.
Data misuse as perceived by consumers is not a legal issue and does not refer to a use of data disclosed in an agreement that almost no one reads when signing up for a credit card, mobile phone, or social media service; it is not even about whether a use actually causes harm to consumers. As Exhibit 1 shows, data misuse occurs when consumers are unpleasantly surprised to learn that data about them has been collected or that it has been used in new ways—that is, outside of the original purpose for which it was gathered—and when they perceive such practices to be potentially harmful and feel that the company should not engage in them. (An example would be when a company originally collected data in order to complete a transaction or ensure that potential customers are good prospects went on to sell that data to third parties or use it for marketing purposes that upset consumers.) Our research suggests that consumers’ reaction to data misuse—defined in this way—can cause them to reduce their spending with a company by about one-third.
Companies cannot mitigate this reaction by writing even longer and more complex legal documents for consumers to ignore, or by working even harder to ensure that their company does not run afoul of regulations and legal agreements. Instead, company leaders at the highest levels must develop new ways to manage and use data, rather than confining the discussion to legal or IT, as it is at most companies. Even organizations that use data for completely legal and fully disclosed reasons are on a collision course with their customers. The steps companies take now to assess and address this risk and to engage with their stakeholder communities in this process will confer significant, long-term, and sustainable competitive advantage and head off the looming threat to their earnings performance.
In this report, we explain the perils of misusing data—a data misuse is punished more harshly than a data breach—and the ways in which many companies are setting themselves up to fail: not only are they making missteps by misusing data, they are missing opportunities to use data well and thereby win consumer trust. Trust right now is sorely lacking, but it’s entirely possible to win it back, by following best practices that we outline herein. (The chapters of this report were previously published as individual articles on bcg.com.)
So, back to that spectrum of companies and their use of consumer data. Companies at one end are at risk of jeopardizing their revenues while companies at the other end stand to reap rewards. Where does your company fit? Our recently launched Trust and Data Privacy Best-Practice Diagnostic Tool will help you answer that question.
The BCG Henderson Institute is The Boston Consulting Group’s internal think tank, dedicated to exploring and developing valuable new insights from business, technology, and science by embracing the powerful technology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand the boundaries of business theory and practice and to translate innovative ideas from within and beyond business. For more ideas and inspiration from the Institute, please visit Ideas & Inspiration.