Paying Up for Retail Privacy

By John Wagley

Will consumers pay more for online retailing when they feel their information will be kept private? A recent Carnegie Mellon study says that they will.

In the study, participants used a Carnegie Mellon shopping search engine called Privacy Finder, which automatically identifies sites with strong privacy policies and then displays the results on the search results page.

Participants were given $45 and asked to make two purchases. They were allowed to keep the items and any surplus money, so they had financial incentive to buy from the cheapest online retailers. The study found that they were willing to pay about 60 cents extra on a $15 purchase in order to buy from a site that had stronger privacy protection.

Lorrie Cranor, leader of the study and director of the Carnegie Mellon Usable Privacy and Security (CUPS) Lab, says that while consumers care about privacy, it is often difficult for them to get information on a site’s privacy policy. Some sites post no policy; others do not make them readily accessible. Even when policies are clearly posted, they can be hard to interpret.

That may be costing sites with good security. “People can’t act on information that they don’t have or can’t understand,” notes Cranor.

In this study, the Privacy Finder search engine evaluated Web site policies that employed the Platform for Privacy Preferences (P3P), a technical standard for creating machine-readable privacy policies. Created by the World Wide Web Consortium in 2002, P3P is currently used by about 10 percent of Web sites overall and more than 20 percent of e-commerce sites. It is used by about one-third of the top 100 most-visited Web sites, according to Cranor.

The study used P3P because it needed a concrete way to measure privacy policies, Cranor explains. “It was a way of doing it automatically without a lot of human intervention.”

Privacy Finder evaluated each site’s P3P policy and ranked the strength of its privacy protection on a five-point scale, which was displayed for customers. 

The results of the study seem to contradict those of a number of others that say people care little about their online privacy, says Allan Chapell, president of Chapell & Associates, a New York-based strategic consulting firm focusing on privacy issues. Some studies have shown people willing to give up their privacy for a small financial reward, he says.

While many studies have shown that consumers are more willing to conduct business with companies they trust, he says, there are a lot of variables to what constitutes trust. “The trick is to weed through them.” He says that while the Carnegie Mellon study’s sample size was relatively small, with 75 participants, the results are “directional. They hint that there’s something to this.”



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