Consumers are increasingly privacy-conscious, and prioritising data security and transparency throughout the entire brand experience is no longer optional – it’s essential for success. AI and its use in marketing and providing personalised experiences for customers are raising the stakes in terms of data privacy and security.
Data is the lifeblood of modern marketing and customer experience. Businesses leverage customer data to personalise experiences, target advertising effectively, and gain valuable insights into consumer behaviour. However, the collection and use of this data must be done responsibly and ethically. Consumers are increasingly wary of how companies handle their data.
Over the last couple of years, there have been a number of highly publicised data privacy breaches involving well-known Australian brands including Optus, Medibank and Latitude Financial Services. These incidents and the fallout from them, have placed data security and privacy as a top concern for consumers.
Liz Adeniji, Area Vice President, APJ at Twilio Segment, observes, “Both consumers and enterprises are increasingly concerned about data privacy, with artificial intelligence (AI) and machine learning (ML) technologies set to overhaul the norms around customer data collection and processing. In areas like personalised marketing, product recommendations, and customer service, these technologies have the potential to completely revolutionise the customer experience”.
As marketers and CX professionals leverage AI and machine learning models trained on real-time data, a crucial challenge emerges: ensuring robust data protection. Adeniji says, “Businesses are eager to harness AI’s predictive and analytical power – our research has shown almost all (95%) of Australian businesses are already leveraging AI to create more targeted, personalised marketing efforts. How marketers capitalise on AI to create better customer experiences, without infringing on the privacy of their customers’ data, will be a defining success factor for the brands of today and tomorrow”.
Integrating data privacy into your CX strategy is fundamental for placing the customer at the heart of business operations and decisions, according to Anita Siassios, Director of ManagingCX, CXPA Board of Directors, Co-Chair International Association of Privacy Professionals Melbourne Chapter and VP of Women in Cybersecurity, “The ultimate goal of CX is to forge mutually beneficial and enduring relationships between the brand and its customers. By prioritising data privacy, safeguarding customer data, and respecting their privacy rights, companies can cultivate trust, elevate satisfaction levels, and nurture long-term loyalty. This, in turn, drives business growth and ensures sustainability”.
The risks of ignoring data privacy
Failing to prioritise data privacy can have serious consequences for brands. The biggest and most obvious risks are those associated with being non-compliant with regulatory requirements. Adeniji says, “Established regulations in Australia like the Privacy Act, the Consumer Data Right (CDR) , and the proposal of the recently announced Australian Privacy Reform, have helped solidify consumers’ rights to data transparency. There are not only hefty financial implications for non-compliance, but reputational damage following data compromise can be equally as brutal”.
Siassios warns, “Non-compliance with data privacy regulations such as the Australian Privacy Act can result in hefty fines and legal penalties of either AUD 50 million, 3 times the determined benefit, or 30% of their adjusted turnover during the breach period. 2022 – 2023 saw Australia’s three biggest data breaches (Optus, Medibank, Latitude) which resulted in four class actions that are currently in train and could have far-reaching implications for the companies involved, affecting finances, reputation, customer relationships, regulatory standing, and overall business operations”.
The costs to Optus for the data breach in 2022 have been calculated to be approximately $140 million.
News of a data breach or privacy concerns can quickly go viral, leading to negative publicity and a tarnished brand image. The effort brands have placed in engaging customers and consumers to earn their trust, will be undone in an instant. “Mishandling of customer data or experiencing data breaches can severely damage a company’s reputation, leading to loss of trust among customers, partners, and stakeholders. Customers expect their personal data to be handled with care and respect. If a company fails to prioritise data privacy, it can lead to a loss of customer trust and loyalty, resulting in decreased customer retention and potential revenue loss”, says Siassios.
Data privacy breaches can impact the operational performance of a company and its ability to invest in innovation, as Siassios points out, “Dealing with the aftermath of a data breach or regulatory investigation can disrupt normal business operations, diverting resources and attention away from core activities. Focusing on compliance with data privacy regulations may divert resources away from innovation and business growth initiatives, limiting the company’s ability to adapt to changing market demands”.
Privacy breaches and a lack of transparency can lead to customer churn, damaging brand loyalty and future revenue streams. Siassios cites the example of Medibank, where costs of $43 million, impacted the delivery of 2023 productivity initiatives.
Embedding privacy for a future-proof CX strategy
By proactively complying with evolving data privacy regulations, businesses can avoid costly fines and legal challenges. According to Adeniji, Embedding privacy throughout the customer journey can future-proof a business in two ways:
- Firstly, for brands to build long-term relationships with their customers they must instill a level of trust. Treating data privacy seriously, from the very first interaction, is crucial for brands to keep customers longer and increase lifetime spend.
- Secondly, once brand trust is established, consumers are more willing to share their information. This gives companies an important advantage as we shift away from third-party cookies and become more reliant on zero and first-party data.
Siassios concurs, “Embedding privacy throughout the customer journey can future-proof a business by ensuring compliance with evolving regulations and building trust with privacy-conscious consumers. This proactive approach, often referred to as Privacy by Design, involves collaboration between CX leaders, cyber security and privacy teams to integrate privacy considerations into the design of products and services”.
Balancing personalised experiences with privacy
Clearly communicate how data usage benefits the customer experience and offer incentives for data sharing when it offers a clear value proposition. Adeniji advises, “Some best practices that brands can introduce now to significantly mitigate the data privacy risks associated with using AI in customer service include; anonymising data by removing or modifying personal identifiers in datasets; incorporating human judgement into AI decision-making processes; introducing data retention policies that dictate how long to store data and when to delete it; and be transparent with customers about how you use their data”.
Allow customers to easily access, update, and delete their data upon request. Collect only the data necessary for specific purposes and avoid unnecessary data harvesting. “By integrating privacy throughout each stage of the customer journey”, advises Siassios, “businesses can not only mitigate risks associated with data misuse or mishandling but also cultivate deeper customer relationships based on transparency and respect for data privacy. This approach fosters trust, ensures regulatory compliance, and drives sustainable growth by attracting and retaining privacy-conscious customers”.
Be transparent about how you collect, use, and store customer data. Provide clear and accessible privacy policies and obtain informed consent from customers. Adeniji recommends avoid using third-party data, “Brands need to start prioritising the collection of zero and first-party data, as this will allow them to have ultimate control over how data is collected. Then they need to ensure they have full visibility over all the data they do capture, and the ability to manage and safeguard it effectively”.
Customers increasingly expect tailored experiences, but they’re also wary of companies collecting their data. “Looking ahead”, says Siassios, “there are significant changes we will see resulting from stricter regulations and enforcement mechanisms, increased consumer awareness and demand for privacy rights, advancements in privacy-enhancing technologies such as differential privacy and homomorphic encryption, and greater emphasis on ethical data practices and corporate responsibility”.
“These trends will significantly impact CX by shaping how brands collect, use, and protect customer data, and by influencing customer expectations regarding privacy and trust”.
Embedding data privacy into the core of your CX strategy is no longer a luxury – it’s a necessity. By prioritising data security, transparency, and customer empowerment, businesses can build trust, future-proof their operations, and achieve sustainable growth in the ever-evolving landscape of data-driven experiences.