As technology advances, online data capture is becoming more sophisticated, and greater volumes of data are being processed. Data is becoming an increasingly important commodity in the world of business.
The tools and services that tech companies offer the public are not necessarily the main business of these companies, anymore. The real business is data, and the tools they provide users(think Google Search, YouTube or Facebook) are just a means to capture user data.
What’s being done with this data is a nuanced and murky story, which we’re not going to get into here, other than to say it has a lot to do with these three things:
1. advertising
2. selling personal info to third parties (for advertising and other purposes)
3. using AI to make predictions about things like future business opportunities and consumer behavior
So what does all this have to do with small businesses, like local retailers and service contractors? If you don’t have enough data to sell, and you don’t want to abuse people’s privacy, anyways, isn’t this all irrelevant?
Small business and “Small Data”
The value of data for small businesses is not necessarily in building detailed profiles on people, or selling that info to third parties. It’s in getting feedback on the effectiveness of your marketing, and using that feedback to inform your marketing efforts going forward.
It’s all in the interest of 1) getting a better ROI on your marketing, and 2) providing better value to your customers.
This can all be done ethically.
The value of data
For the purposes of this post, let’s put the value of data into two separate tiers:
1. Usage/marketing statistics: answering questions like which of my web pages is most popular? and where are my leads coming from?
2. Personal information: user interests, demographics, geographic location and affiliations
There’s often overlap between the two, but there doesn’t necessarily need to be. The first tier is where raw, anonymous data gives you feedback about things like how your site is being used, or how atypical customer moves through your sales engine.
Here’s a real-world example of that: a grocery store can look at pseudonymized customer loyalty accounts and learn that customers who buy SKU101543 also buy a lot of SKU 334046. This kind of insight can be valuable even if the store doesn’t have personal info about these customers.
In the second tier, data can become more valuable, because personal information is attached to it. This is often about demographics, which help them get a deeper understanding of customer behavior.
Here’s an example of that: A grocery store can look at the personal info attached to customer loyalty accounts and see that the customers who tend to buy a certain product are 90% male, white, married, and in their 50’s. That means that this is who they need to be targeting with awareness campaigns when they have a sale on this product.
But the value of attaching personal info to data goes beyond that, because personal data has market value. You can sell it to a third party for things like:
• advertising purposes
• market research
• for studies
• product development
• machine learning purposes.
As a user, your personal info – your identity – is being passed around like a commodity, and leveraged to make money, and you don’t necessarily have any say in how it’s being handled or what it’s used for.
The ethics of data
There’s not necessarily anything wrong with attaching personal info to data. It’s ultimately up to the customer/user to decide what they’re comfortable with. The problem is that the people harvesting your data don’t always make good-faith efforts to make sure users know what’s going on.
Ethical data practices can be summarized in two words: “informed consent”. There’s two necessities for data capture to meet this standard:
1. Consent. You need to have the option to opt in or out. Ideally, the user/customer would be able to opt in and out of various forms of data as they see fit. For instance, you could share your zip code with the local grocer, but not your address. Or you could share your age, but not your gender or marital status.
2. Transparency. This is the “informed” aspect of informed consent. You need to know what kind of data is being tracked, what it’s being used for, and who might have access to it. If you don’t know these things, you can’t make an informed decision about the risks and rewards.
The balance between ethics and value
The ultimate standard for ethical data practices is to capture no data at all, but that’s not realistic in today’s setting. To remain competitive, businesses need to find ways to respect privacy while harvesting useful data.
For some small businesses, this isn’t that difficult. Beyond keeping customer accounts, the only data they need to track is impersonal/pseudonymized.
Other small businesses will find immense value in closely tracking customer behavior – i.e, attaching personal info to the data they capture. If this is the case, they need to inform their customers about these practices, and give them the option to opt out whenever data capture is non-essential to maintaining the relationship and delivering value as promised.
When it comes to sharing the data with third parties, the most honest thing that a business can do is acknowledge to their “customers” (who have now become a product in their own right) that they are no longer just a contractor/retailer/service provider. They are now in the business of selling data. Anything other than that is a lie by omission.
Sure, it’s the customer’s responsibility to understand their own privacy and data risks. But it’s not ethical to take advantage of the fact that many (most?) people don’t even understand the business of data, or the risks that come with it.
Incentives are key to capturing valuable data
But wait, you say: if I give them the option, won’t they just always opt out of everything? Not necessarily.
Once transparency has been established, the only thing that remains is to give them incentive to share their data. And transparency itself can actually serve as an incentive. For example, one form of data capture would be to let blog readers vote on what kind of topics interest them the most. This kind of data sharing is obviously in their best interest, as it leads to more valuable content.
But wait...why would they attach their personal info, then, if it’s not needed? Again, incentives matter. As long as you can explain how sharing personal info benefits them, you’ll get participation.
If the poll results are going to shape blog content going forward, isn’t it important to know who’s opinions you’re basing that off of? What if some of the votes are coming from internet bots, or competitors, or tire-kickers? Shouldn’t your loyal customers be given more say?
You can build in other incentives, too. I’m old enough to remember my parents complaining when the local grocery stores first started “forcing” them to sign up for rewards programs to get the “sale” price.
But what’s the real reason these stores force those programs on people? Because the “sale” price is incentive to share personal info, which lets the store attach personal info like demographics to customer behavior. This provides an important data stream that informs them on things like the effectiveness of advertising, or which demographics are buying which products.
So this is actually both a good and bad example of incentive – on one hand, it worked, but on the other, customers didn’t really understand why they were being “forced in”.
In summary, data capture is valuable to all businesses that use online marketing strategies, even if they’re not “in tech”. Date can inform your marketing choices and give you the edge you need to reach your most valuable prospects. As marketing evolves, the upfront cost lowers, and the ROI increases. This makes marketing competitive, and some simple, ethical data capture can help businesses maintain their foothold – and their audience’s attention.
Recommended reading
For more on data ethics, you can read up on the Privacy by Design framework, which has been developed to set a clear standard for privacy practices:
https://www.smashingmagazine.com/2017/07/privacy-by-design-framework/
