The changing landscape of consumer trust

Digital technology has been a boon for marketers seeking to better understand and measure customer behavior. Sub-industries for behavioral tracking and analytics have sprung up to wrangle the proliferation of data, squeezing out meaningful observations that might guide spending, increase sales, and grow companies.

But what ought to be unfettered good news for marketers is undercut by the experience of the consumer. They perceive an imbalance between the ability of companies to watch and measure their choices, and an individual’s power to guard their privacy against such tracking. For example, marketers have the ability to deliver remarkably well-targeted banner ads on web pages, giving some consumers the impression that advertisers were peering over their shoulders while they browsed – and to a certain extent, they actually were. Yet, when ordinary people go looking for ways to change software settings or communication preferences, they have found that few online variables are under their control.

The cost of this growing disconnect between companies and their customers has been a growing distrust for the motives and methods of marketers. Even when marketers have great stories to tell – stories that might be very relevant to a particular set of consumers – many in the audience do not trust the brands that are trying to reach them. Opportunities for new products are lost, trust between individuals and businesses is tainted, and costs arise that have no corresponding benefit to anyone. The issue of how companies can best manage consumer behavior in a way that individual customers can agree with is a massive problem awaiting a solution.

Declining consumer trust has been well documented. In their 2013 US Consumer Confidence Index, TRUSTe found that 89 percent of US adults worry about their privacy online, 43 percent do not trust businesses with their personal information, and 89 percent avoid doing business with companies that do not take steps to protect their privacy. Even the most tech-savvy customers are skeptical. According to a study by Cisco, three-fourths of generation Y consumers don’t trust marketers to use their data in a way that doesn’t compromise privacy.

The asymmetrical use of technological tools by marketers, compared to consumers, is a major driver of this distrust. When consumers are given the option of having some control over how a company is going to communicate with them, they are often presented with an on-or-off framework that has been relatively unchanged over the past decade. But behind the scenes, practitioners of analytics have evolved an impressive range of tools for slicing and dicing the way they understand and anticipate how the consumer is going to behave. There is a touch of irony in the fact that these same analytical tools which allow companies to target their messages better, resulting in more relevant messaging for the consumer, are actually drivers of distrust. Regardless of that trend, negative perceptions are powerful.

In that light, it’s easier to see that the problem is not too much technology, it’s that the tools being developed are not being used in such a way that makes the average consumer feel like they have an equal voice in the commercial conversation. Unable to address this on their own, consumers have turned to a range of government regulations and legal remedies. The FTC reported that in 2012 it received roughly 50,000 complaints about unsolicited text messages— seven times higher than the number of complaints it had received just a year earlier in 2011. Not long after this revelation the agency filed eight complaints in courts across the country, charging 29 defendants responsible for more than 180 million text messages.

Laws in the US and abroad have been coming into existence for more than 20 years, though recently the legislative activity in the US appears to be increasing to compensate for the current imbalance between consumer control and tracking technology. Here’s a look at some of the laws and bills that are shaping the landscape today

Telecommunications Consumer Protection Act of 1991. The first and arguably still the most effective law yet passed for limiting unwanted solicitation, most people are familiar with the Act for its introduction of the Do Not Call list. It established a broad range of limitations on automated dialing equipment, though its focus has shifted as more recent amendments have expanded some of the Act’s provisions to cover text messages. Another variable has been the priority placed by the FCC on enforcing the Act’s provisions, which has been on the rise in recent years. The full impact of this increase will be discussed in the next section, on the subject of huge penalties imposed for violations as a result of class action settlements. Starting October 16, 2013 marketers will need to obtain express written consent before sending out any marketing text messages. The only exception at this point is confirmation messages when consumers choose to opt out of marketing communication programs.

CAN-SPAM Act of 2003. An acronym for Controlling the Assault of Non-Solicited Pornography and Marketing Act, CAN-SPAM was the first law to establish national standards for sending commercial email. The law does not require marketers to obtain permission before sending commercial emails, and seeks to establish national standards in part by over-riding the efforts of states to set legal limitations of their own. Although the FTC is charged with enforcing the CAN-SPAM provisions, it has been generally regarded as unenforced. In 2009 PC World reported that less than one percent of commercial marketed messages complied with the law.

Consumer Privacy Bill of Rights. In February 2013 the White House unveiled a blueprint of non-legislative approaches to strengthening the privacy of consumers. Working through the FTC and the Commerce Department, the executive branch is taking several policy-based approaches, including convening key stakeholders, companies and privacy advocates to develop and implement enforceable policy initiatives. Some of the biggest players in online advertising – Google, Yahoo, Microsoft and AOL – have agreed in principle to adhere to FTC enforcement of Do Not Track technology that makes it easier for consumers to control online tracking from their browsers.

Other FTC regulations. An FTC staff report issued in February of 2013 calls on makers of mobile platforms, application developers, advertising networks and analytics companies to release more information to consumers about what data they collect and how it is being used. They recommended just-in-time disclosures to consumers requesting express consent before accessing data on geolocation, contacts, photos, calendar entries, and other personal data stored on mobile devices. A December 2012 ruling established that marketers may send unsolicited confirmation text messages when consumers choose to opt out of receiving communications, but these texts must be sent within five minutes of the customer’s opt-out request.

Several 2011 bills. A number of proposals emerged in 2011 seeking to strengthen consumer protection and privacy, including the Do Not Track Me Online Act, Consumer Privacy Protection Act, Commercial Privacy Bill of Rights, Do Not Track Online Act, and the Do Not Track Kids Act. Each seeks some combination of regulations and protections that would force companies to disclose to consumers when information on their behavior is being gathered, allow consumers to opt out of being tracked, provide for information on consumer preferences to be deleted after a period of time, and establish financial penalties for failing to comply. However, despite the surge of legislation written in 2011, none of the proposals has yet to pas into law.

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California Senate Bill 761. This is the first serious state effort to propose a Do Not Track framework for consumers. Although a state proposal, the preponderance of digital companies with a foothold in California suggests that it could have a dramatic impact nationally. The bill seeks to strengthen consumer protection by forcing companies to make data collection efforts transparent and public, establishing opt-out provisions for consumers, and levying fines for non-compliance. Despite some success in committee, the bill has not yet passed into law.

European Union. Data Protection Directive, a.k.a. EU Directive 95/46/ EC (European Union). When it comes to consumer privacy, things are much different in Europe. Privacy is legislated in the broader context of human rights, not just as a matter of consumer preference. At this point the guiding policy is the Data Protection Directive (EU Directive 95/46/ EC), which includes a broad prohibition on the collection of personal information by third parties except when three standards are met: transparency, legitimate purpose, and proportionality. A much broader and stricter policy directive is in the works, however. The General Data Protection Regulation is slated to be phased in between 2014 and 2016, and includes a broader scope to, a requirement that consumer privacy be designed into business processes and organizations, explicit consent from consumers, and fines as high as two percent of the global annual sales of offenders.

Fighting Internet and Wireless Spam Act (Canada). This broad law applies itself to communications sent by or to Canadian companies, or merely routed through Canadian servers, and covers a broad range of communication types comprising phone, email, text messages, and media for spam that have not even been invented yet. It requires that marketers may only send solicitations to consumers who have opted in, and permission expires after two years, meaning that marketers will have to obtain it again.

Spam Act of 2003 (Australia). The Australian Communications and Media Authority oversees enforcement of a law that made it illegal to send unsolicited commercial electronic messages, which comprises email, instant messages, SMS and MMS. Financial penalties for breaking this law were recently increased from $100 to $170 per violation.

The consequences to companies of failing to level the playing field for consumers with regard to the collection and use of their online behavior are two-fold. The most immediate is described above: government will do it for you. No matter what a person’s political opinions might be, it’s hard to make a case that government regulation adds value to the efforts of marketers to pair the right customers with the right products. This is the very essence of marketing itself, but it’s a conversation that’s disrupted as that transaction is increasingly defined by inflexible rules and regulations. Many marketers will find themselves handcuffed by risk-averse company managers.

The second consequence is financial, and it’s a whopper. A number of US companies have found themselves on the wrong end of class action suits in recent years as a result of unsolicited messages sent to customers. Each unsolicited message is a unique violation in the eyes of the law, and when violations do occur this creates some eye-popping math. Considering that these violations often occurs in batches of hundred or thousands of recipients, it doesn’t take much for financial penalties to grow to astounding amounts.

Interestingly, the class actions listed below were adjudicated under the provisions of the Telecommunications Consumer Protection Act of 1991, relatively old law in a field of regulations that’s looking to expand as new bills have been introduced to the U.S. Congress. Amendments to the TCPA in 2012 strengthened and expanded it’s provisions, but more impactful may be court decisions that interpreted the law’s provisions broadly, as well as recent administrative decisions by the FCC to step up enforcement of the existing law. Just between 2011 and 2012 claims filed under the law increased by more than 50 percent. Each successful suit encourages more legal professionals to pursue class actions, and as public outcry becomes louder more lawmakers will see an incentive to craft legislative remedies.

Here’s a look at three of the more costly cases. The first two have already settled with plaintiffs, while the third is still in the courts, as of April 2013.

Sallie Mae. The lawsuit alleged that the lender contacted borrowers without their consent, including autodialed calls and text messages. Even though many of the contacts were for the purposes of tracking down late payments, the actions were still ruled to be in violation of the law. A settlement was arrived at in 2012 in the amount of $24.15 million.

Jiffy Lube. A franchisee of Jiffy Lube called Heartland Services sent 2.3 million messages to consumers in April of 2011, advertising a one-time discount on an oil change. Not obtaining the consent of customers before sending the offer made the company vulnerable to a number of suits filed soon after. A settlement was reached in the amount of $47 million.

Papa John’s. In 2010 half a million unsolicited text messages were sent on behalf of Papa John’s by a social media marketer called OnTime4U. Papa John’s is arguing that the contracted firm is actually liable, but it’s the more well-known brand that’s actually named in the suit being considered. The settlement sought by plaintiffs would dwarf earlier class actions: $250 million.

Aware of huge settlements like these, many companies face a range of undesirable trade offs. They can back off using data on their customer preferences and behaviors, and as a result lose valuable understanding of how to make those customers happier. Even for companies that recognize a need to change the way they are doing things, ascertaining and executing real changes is difficult. Communication mediums relevant to consumers and marketers continue to proliferate, including email, text messaging, display ads, social media and search.

Individual consumer tolerances seem to vary according to medium – much in the way that Facebook has grown largely as a consumer medium while LinkedIn retains the character of a workplace. A solicitation welcome in one realm may be offensive in another, and there are few obvious clues for how to balance them all. Some companies have adopted a very conservative posture when it comes to preference management, such as unsubscribing customers from every possible communication stream when they opt out of one.

Even more puzzling for many companies is the sheer number of consumer touchpoints that have to be managed. Departments within a company have a variety of interests and programs that may not be in alignment, such as campaign management, content management, CRM, and point-of-sale relationships.

Take a typical bank, which customers may interact with via a variety of methods: online banking, tellers, traditional checking and saving accounts, credit, investment management, even ATMs. There are other industries in which one global enterprise might own dozens of individual consumer brands, each with it’s own digital presence, but with overlapping customer populations.

Most companies simply do not have the tools to tackle this problem on their own. Marketers need a solution which gives customers a voice, enabling them to choose how, when, and where marketers communicate with them, while ensuring marketers remain compliant with an ever broadening regulatory framework. Trust and transparency need to be re-introduced into the relationship, and forward-thinking companies must use this trust as the foundation for an ongoing relationship in which gathering and using preference data is no longer a cause for suspicion and disengagement.