Many business leaders view data privacy solely as a regulatory obligation – a necessary cost of doing business in today’s digital world. But it’s not just regulators who care about data privacy: customers increasingly care, too. When businesses have strong data privacy management in place and effectively communicate it to their customers, studies show that customers are more likely to choose that business over less secure competitors. By instituting and maintaining a well-developed data privacy management program, businesses can realize a distinct competitive advantage in the marketplace.
The Business Case for Strong Data Privacy Stewardship
High-profile data breaches and cybersecurity incidents in recent years have made people more cognizant than ever of how their information is collected, stored, shared, and monetized. Today, both consumer and business purchasers increasingly make decisions not only based on factors like product quality and price but also on whether they can trust an organization to handle their information responsibly. The prevalence of AI intensifies the focus on responsible and legally compliant data management as part of a buying decision.
A recent article in Harvard Business Review highlighted the results of three studies that analyzed how privacy practices impact brand performance. The researchers found that customers consistently gravitated toward firms that took privacy seriously.
In one study, which examined 280 brands over four years, researchers found that strong privacy practices translated to higher consumer intent to purchase. The brands with strong privacy practices saw 12.31% higher purchase intent versus brands with weak practices; this advantage swelled to 255% for brands that customers already liked. In another study, 300 participants read overviews of a fictitious tax services company that either described a weak, average, or strong privacy policy. The participants then rated their likelihood of using the company on a scale of 1 to 7. When a strong privacy policy was described, the customer score averaged 5.26, compared to the 2.86 mean for a weak policy. In another study, researchers found that companies embracing strong privacy practices averaged $869 million more in shareholder value than those that did not.
According to the researchers, when a company displays strong privacy stewardship, customers feel less concerned about their data being exposed or misused, and they deduce that the company genuinely cares about their interests. These feelings lead to a greater comfort level in doing business with the company – and translate to sales and loyalty.
Communicating Privacy Practices
Companies with a strong privacy policy need to get the word out about it to capitalize on their competitive advantage. Businesses should explain their privacy practices in clear, easy-to-read language and make the policy visible to customers. The stated policy should clearly communicate that the company assumes full responsibility for customer data and legal compliance. To gain and keep customers’ trust, companies must have systems in place to support any assertions made and consistently demonstrate responsible handling of data, from implementing and enforcing strong safety protocols to collecting only necessary data to regularly reviewing and updating their privacy policies.
Embedding Privacy Practices throughout Operations
Comprehensive data privacy management is most effective when established early in a company’s lifecycle. To be successful, it must be embedded throughout the organization’s operations – from product development to the customer experience, from technology to marketing, from human resources to legal – and become intrinsic to how the company operates, rather than added as an afterthought.
When data privacy is not a fundamental part of the company’s culture from the get-go, it can be particularly challenging to bring the organization and employees along after scaling. As a company moves from its early stages to the middle market and beyond, any data privacy compliance gaps that were present will only widen and become more problematic.
Competitive Advantages Beyond Customer Relations
Beyond attracting and retaining customers, strong data privacy management creates various efficiencies that can support an organization’s growth. When properly designed and consistently enforced, it creates clear standards for data management across all departments. As companies grow, employees often collaborate across multiple teams, locations, and systems. Marketing, human resources, finance, customer service, and information technology teams frequently need to share information to achieve business objectives. Without clear privacy guidelines, these interactions can be rife with delays and duplicated work if there is uncertainty over who has access to data and which information can be shared.
Data privacy management practices and processes also support more efficient technology investments. Growing organizations often adopt new software platforms, cloud services, and digital tools to improve productivity. A well-defined data management program serves as an essential framework that helps organizations make smarter, more strategic decisions about technology adoption. It is exponentially more difficult to implement responsible data management when technology is iterated on over time without such a framework.
And as data privacy laws and regulations continue to evolve across jurisdictions, strong data privacy management helps protect a business from compliance risk as it expands, allowing the company to minimize the likelihood of financial penalties, legal consequences, and reputational damage.
Looking Ahead
For businesses, data privacy management is more than a compliance document. It is a strategic tool that enables organizations to build trust with customers, operate more efficiently, and manage risk effectively as they grow. By incorporating data privacy management into every aspect of their organization, companies can realize a distinct competitive advantage and create a strong foundation for sustainable success.
Mendi Sossamon, a Partner at Potomac Law (PLG), crafts legal solutions to help businesses grow. She leverages more than 25 years of experience, which includes Big Law experience and a former role as Deputy General Counsel for a billion-dollar company. Based in Austin, Texas, Mendi focuses her practice on complex corporate and commercial transactions, outside general counsel services, and commercial optimization.
