Data Brings Us Closer to the Customer, But at a Cost

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Data Brings Us Closer to the Customer, But at a Cost

By Jennifer Di Giovanni, Partner, BDO - 02/13/2017
We’re in an exciting time in retail. Technology and more sophisticated data analytics are opening the door to incredible new innovations that help strengthen retailers’ bonds with customers. Customers want more personalized shopping experiences and are entrusting retailers with more information about themselves to gain it, with high expectations that their data will be secure.  However, as cyber incidents become more commonplace, that trust is eroding, carrying sometimes severe financial and customer loyalty consequences.

Getting closer to the customer
Advanced technologies and data analytics are giving retailers’ new opportunities to deepen customer loyalty. Social media, in particular, allows brands to get inside the minds of customers like never before and, ideally, become part of their conversation. Deals and discounts are typically the primary focus of retailers’ social media usage, but strategies to better leverage “buy buttons” on these platforms are becoming more popular as well. New strategies for connecting social platforms more directly to buying platforms are constantly unfolding.
When Kohl’s launched Lauren Conrad’s collection at New York’s Fashion Week in September 2015, it harnessed the power of Conrad’s social presence, inviting consumers to watch the show live on Periscope. Kohl’s had the items instantly available for purchase online, and saw website traffic spike 600 percent during the show.

Powerful connections aren’t simply created through exciting new social media strategies. Equally important is the behind-the-scenes detail that goes into creating seamless connections between a customer’s online and offline experiences.

The trouble with data
Central to these changes has been a push for accessing and analyzing increasing amounts of customer data. Information overload is a real threat: 89 percent of CMOs admit that it’s challenging to manage all of this information in a meaningful way, according to the BDO’s Retail Compass Survey of CMOs.
Trust, relevance and authenticity are central to building strong connections with customers.

Strategically targeted information gathering around key buyer sub-segments helps develop more powerful (and more manageable) programs that give customers more personalized experiences. Customers may be more willing to give retailers access to their information if they understand how it will be used and can see a tangible value in doing so.

Perhaps most important is the issue of trust. As the sophistication and frequency of cyber breaches escalates, customers are increasingly worried about how the information they provide to companies is being protected.

The network effect
Who can blame customers for being worried? In early August, Oracle confirmed its MICROS POS system — one of the most commonly used in the world — was breached, potentially creating huge headaches for the thousands of retailers using its systems. Eddie Bauer also recently announced its payment systems had been hit by malware. Point-of-sale (POS) intrusions are among the most common types of data breach in retail, as are web app attacks, according to Verizon’s 2016 Data Breach Investigations Report.

While retailers have stepped up their game in recent years to create stronger data management programs, cyber vulnerabilities with third-party providers remain a major concern. Industry analysts estimate that only 40 percent of retailers are compliant with Europay, Mastercard and Visa (EMV) standards that bolster credit card authentication, despite the Oct. 1, 2015 deadline.

New forms of malware are emerging regularly, putting not only POS systems at risk, but also retailers’ IT infrastructure and business operations. The potential damage can significantly harm customer relationships, but also carries severe financial consequences. Moody’s recently announced measures it is taking to give greater weight to cyber risks when issuing credit ratings, noting it will examine key factors such as how cyber security is addressed at a board level.
 
Building data trust
With retailers housing massive amounts of information, a data breach is nearly inevitable. However, the financial and customer impact can be minimized by putting into place more aggressive, preventative programs to safeguard data. Retailers should develop a comprehensive security strategy that details methods to not only uncover risks and stave off data breaches (such as employee best practices and improving password protections) but also outlines ways to guide a swift response to breaches when they do occur. Have a clear breakdown of the internal and external coordination that needs to occur during a data breach to ensure clarity of communication and unity of effort. The response plan should also be well documented and integrated within all business units of an organization. Every division has a part to play. 

Finally, it is critical to continually re-evaluate new vulnerabilities, especially as retailers adapt new ways to connect with customers through various digital platforms. Become educated about each new platform that your organization uses, and understand how the data is stored. Taking these steps will instill confidence in your organization — from both employees and customers alike — and will position your brand for greater success.

Jennifer Di Giovanni is a partner at consulting firm BDO.