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As businesses learn ever more about their customers, the search is on for the proper balance between convenience and privacy, and between great service and data security

In this article...

  • Customer data breaches are advancing the security landscape with improved privacy policies and stronger enforcement
  • When customers part with sensitive data, it becomes a matter of trust, which tech companies are attempting to address on a wider scale
  • Personalized and relevant sales opportunities provide a level of added value from which customers may benefit
  • Companies must find a balance between complete transparency and veiled secrecy to communicate how they use customer data

In his best-selling book, "The Power of Habit," Charles Duhigg tells the story of how Target’s data-mining operation somehow deduced that a particular customer was pregnant and began sending her baby-related advertising by direct mail. It seemed like a triumph of data-driven marketing—until an irate father turned up at a Minneapolis-area Target store demanding answers. The girl, it turned out, was still in high school.

As this story suggests, businesses’ collection of customer data may lead to better products, better customer service, and healthier bottom lines, but there can also be certain unhappier outcomes. Target addressed this particular problem by starting to feature arbitrarily selected products along with its customer-matched promotions.

“New technology has created ways to follow customer responses in physical as well as online spaces.”

But even when businesses do everything they can to win their customers’ trust, data theft remains a threat. Target itself was hit by a data security breach over the 2014 holiday season and responded immediately, voluntarily disclosing the news that some 40 million credit and debit card numbers had been stolen from its servers, which gave their customers the chance to take preventive measures.

Fortunately, as businesses learn from such exemplary and cautionary cases, a new security landscape is emerging—more rigorous privacy policies, better enforcement, and more robust technology—that promises to allow consumers to get continually better service and more precisely tailored products while keeping their data secure.

Following the customer home

The ultimate dream of marketers has always been to view how customers use products and services in the privacy of their homes, and Google saw the chance to do just that when it bought connected thermostat and smoke alarm maker Nest in early 2014.

At the same time, purchasers of Nest products were getting something they never realized they needed before: the beginnings of a home-based sensor network that can alert homeowners to anything amiss, no matter where they happen to be.

These devices don’t just collect usage data, as an electric meter does: They are sensors that actually collect data on real-time conditions in the home environment and provide it to off-site analysts. While serving the immediate purpose of home monitoring, that data also turns up later in product refinements.

“Data is critical to improving a product,” Nest co-founder Matt Rogers told a Startup Grind conference earlier this year. By way of example, he cited Nest’s ability to infer from the amount of steam contributing to room humidity the difference between smoke and steam. “That’s not something anyone has ever done in our industry before because they never had the data on a mass scale.” Having that information allowed the company to reduce false alarms, sparing homeowners’ nerves and firefighters’ precious time.

To earn the trust required to get such data, the Nest team created a manifesto, written in plain English rather than legalese, that likens Nest products to a trusted neighbor. “You don’t hand out spare keys to everyone,” it says. “They go to a neighbor you can rely on. … When you buy a Nest device, it’s a lot like trusting us with a set of keys. And we know we have to keep your trust every day after that.”

Part of earning that trust is not only revealing what data is collected, and how, but also showing customers how to opt out of sharing it. “You can access, amend, or delete your personal information from Nest’s servers through the controls in your account,” says the Nest Privacy Statement, which is also transparent about the fact that customer control has limits: “Because of the way we maintain certain services, after your information is deleted, backup copies may linger for some time … and we may retain certain data for a longer period of time if we are required to do so for legal reasons.”

Driving new product development

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Like Nest’s use of data to distinguish steam from smoke, Netflix’s evolution from a distribution channel to a film-production company is a classic case study in how customer data can be used to develop and improve products. 

During the company’s eighteen years in business, its 57 million customers have generated some 5 billion ratings of TV shows and movies—so much data that the company held a contest to discover the best way to use that information. More than 5,000 teams of computer scientists around the world responded to the challenge, and for an investment of $1 million in prize money, Netflix ended up with algorithms that led to a major upgrade in its prediction engine, improving the hit rate on viewing suggestions and thereby improving the acuity of those ratings.

Exactly how that virtuous circle of customer feedback supported Netflix’s transition from distributor to producer is information that the company will not share, but its success is no secret: House of Cards, a one-hour series crafted for maximum appeal using that data, won nine Emmy Award nominations in its first season.

New technology has created ways to follow customer responses in physical as well as online spaces. Retailers now have the tools to rethink the sales floor along with the virtual store, and with behavior analytics and 3D modeling software, they can mix and match product displays and layouts based on customer reactions to them.

In the sci-fi thriller The Minority Report, starring Tom Cruise, advertising follows citizens wherever they go through smart billboards that track eyeballs. While data-driven marketing technology isn’t quite at that level today, it’s getting there. In-store displays powered by near-field communication (NFC) technology invite users to tap the displays with their smartphones, which triggers the phones to display more information on a product, request coupons, or join a mailing list. In return, retailers and manufacturers can log those who register, track their purchases, analyze their responses to future emails and promotions, and improve products based on feedback.

The challenge

There’s no doubt that more and better data on the habits of consumers can lead to more and better products and services. But all that comes with a price in privacy and data security. According to Gemalto, an Amsterdam-based firm specializing in digital security, 2014 saw a 78 percent increase over 2013 in the number of global data security breaches, at least in those that were made public. The total number of records compromised in those breaches exceeded 1 billion.

Among the possible fixes are distributed computer infrastructure schemes that allow users to set up ad hoc networks of anonymous fellow users for passing data back and forth, bypassing data centers and cloud servers. Keeping such anonymous networks safe from use by criminals is one of the challenges to that approach. To keep data safe wherever it resides, researchers are also trying to figure out how to keep it encrypted not just while it is being transmitted but also while it is in use.

How companies manage the tradeoffs between the benefits and risks of the mega-network—using some combination of transparency to foster trust and new technological solutions to maintain privacy and security—will determine just how comfortable consumers will be in the 21st century’s data-driven marketplace. And that will be the ultimate feedback loop.


HPE solutions enable organizations to build, test, and maintain the security of their Internet of Things platform quickly, accurately, and affordably.

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