Orion Brown began Black travel box to serve black travelers who find lotions and shampoos in hotels inadequate. Randel Bennett is co-founder of the insurance startup I stay secure for underserved Spanish-speaking drivers. Bill Shufelt and John Walker founded Sports Brewery i.e. athletes and non-drinkers in social situations could drink delicious non-alcoholic beer.
What do these three successful firms have in common? They all built their businesses on personalized digital promoting platforms like Facebook and Instagram. They didn't have the budget for TV promoting campaigns to compete with larger firms. And all of them served markets that had previously been ignored.
A privacy law currently being considered by Congress could inadvertently make it harder for similar projects to reach the long run. We are Professors of selling who’re experts in academic research on the impact of public policy on marketing. We are concerned that the bipartisan bill – the American data protection law – could harm small business owners like these who depend on targeted digital promoting.
While Americans increasingly favor Although the federal government is taking a more interventionist approach to data protection, a growing body of rigorous research shows that privacy regulations can have unintended consequences.
Data protection rights and wrongs
The American Privacy Rights Act – introduced by lawmakers within the House of Representatives and the Senate in April 2024 – would, as a Senate summary states, “national consumer data protection rights and setting standards for data security.”
The bill would create a national standard for data collection and use. A national standard would have the advantage of unifying a patchwork of state regulations. A supporting editorial states: The Washington Post described the bill as “just as strict, if not stricter, than what the states have put forward so far.” Stricter needs to be higher, right?
Not necessarily.
The relevant national draft laws are generally based on the European General Data Protection Regulation (GDPR)The European Union praises the GDPR as “the strictest data protection and security law in the world.”
But a growing body of scientific literature shows that data protection regulations comparable to GDPR can have unintended consequences. In May, the non-profit Marketing Science Institute published Our report Summary of this work. In short: data protection just isn’t free – it requires compromises.
The price of privacy
First of all, a balance have to be struck between privacy and the usefulness of knowledge exchange for firms and consumers. The book “The long tail“” describes how digital marketing modified our economy from a market focused on selling successful products to at least one that serves many smaller niches of consumers with different needs and preferences. Digital marketing enables small business owners and consumers with non-conventional needs to seek out one another.
There can also be a trade-off between privacy and fairness. Just as consumers' needs for products vary, in addition they differ in whether, when and why they’re willing to share data. Research shows that those most concerned about minimizing data sharing are richer, more educated, and older than those that are less concerned about it. The goal of privacy regulations, in our view, needs to be to offer consumers control over their data, reasonably than slowing down the flow of knowledge for everybody.
More coarse personalization can exclude marginalized consumer segments. Some low-income consumers and certain minority groups live in digital Data desertsThe problem just isn’t that firms know an excessive amount of about them. Rather, they’re so invisible that they inadvertently excluded from the digital economy.
Privacy could be, in some ways, an issue of the privileged. We aren’t aware of any rigorous study showing that stricter privacy policies in digital marketing provide tangible economic advantages to anyone, let alone low-income consumers.
Related Press
There can also be a trade-off between privacy and freedom from discrimination, especially towards marginalized groups. Algorithms are known to unintentionally discriminate. For example, one study showed that Women were less likely than men To receive advertisements for job offers in STEM professions. That seems unfair to me.
Regulators, including the drafters of the US privacy law, have mandated that firms limit the info they collect to what is affordable and obligatory, and keep details about race, gender, or other protected class characteristics to a minimum. But without this information, how are regulators and corporations purported to test data-based marketing algorithms for unintentional discrimination?
Finally, there may be a trade-off between privacy and innovation by sellers within the marketplace. Many small brands exist because digital marketing allows them to construct sustainable businesses on a small scale without huge media budgets. Digital promoting costs a fraction of what is required for traditional television campaigns, saving small US business owners 163 billion US dollars annuallySmall brands profit more by addressing the goal group more precisely than the massive brands with a broader appeal.
A growing variety of studies show that data protection regulations can decelerate innovation and reduce the competitiveness of the marketsThis is especially damaging to exactly those small businesses and entrepreneurs who profit most from having the ability to goal different consumers.
Recently, data protection advocates have begun to label those that argue for the advantages of personalized marketing as “corporatists.” Ironically, it’s small businesses who profit most from personalized marketing, as our report for the Marketing Science Institute shows.
Giants like Unilever and Nike are gaining a competitive advantage through data protection regulations and changes to platform privacy policies, which dramatically increase the fee for small businesses to amass recent customers, and giants like Amazon and Walmart are gaining attractiveness as promoting platforms. Views show that the GDPR has strengthened the market dominance of Google and Facebook in Europe and disproportionately increased the prices of knowledge protection compliance for smaller firms.
We imagine the bill currently being drafted in Congress to guard consumers' right to privacy is helpful. May surcharge For example, it included exemptions for small businesses, but didn’t have in mind how they depend on other people’s data to draw customers. In June, disagreements between Republicans and Democrats led to Canceling a markup session.
In our view, Congress can be smart to make use of the present impasse to rigorously consider how the proposed laws would affect smaller sellers and disadvantaged consumer groups.
image credit : theconversation.com