Uppsala University Department of Business Studies Master Program in Business and Management Strategic Marketing Management Master Thesis Spring Semester 2012 Supervisor: Olivia Kang Personalized Marketing - An invasion of privacy or an approved phenomenon? An empirical study of how organizations can respond to consumers’ concern over the threats of online privacy. Authors: Hiral Amin & Johanna Birgisdottir Abstract The authors of this study analysed the increasing use of personalized marketing and consumer concerns regarding the access to personal information. The purpose was to find out how companies could react to these concerns. Several theoretical concepts were explored, such as Personal Data, Personalized Marketing, Privacy Concerns, Privacy Policies, Consumer Trust and Consumer Behaviour. Facebook Inc. was analysed as an example to address the problem. An online survey was conducted on university students and two interviews were performed with representatives from the Data Inspection Board in Sweden. The main findings were that individuals seem to approve of personalized marketing but are concerned about their privacy. Companies should therefore inform their consumers on how personal data is used for personalized marketing and respect their rights and take governmental regulations into consideration. Key Words: Facebook, Trust, Privacy Policies, Personal Data, Privacy Concern, Personalized Marketing. Uppsala University 1 Table of Contents 1. Introduction ............................................................................................................................ 4 1.1 Background ...................................................................................................................... 4 1.2 Problem Background ........................................................................................................ 5 1.3 Problem Statement ........................................................................................................... 6 1.4 Outline .............................................................................................................................. 6 2. Literature Review ................................................................................................................... 7 2.1 Personal Data .................................................................................................................... 7 2.1.1 Personal Data on Social Networking Sites ................................................................ 7 2.1.2 Government Control on Data Usage ......................................................................... 8 2.2 Personalized Marketing .................................................................................................... 9 2.3 Privacy Concerns ............................................................................................................ 11 2.4 Privacy Policies .............................................................................................................. 12 2.4.1 Facebook Inc. Privacy Policy .................................................................................. 13 2.5 Consumer Trust .............................................................................................................. 14 2.6 Consumer Behaviour ...................................................................................................... 16 2.7 Theory Model ................................................................................................................. 17 3. Research Method .................................................................................................................. 18 3.1 Research Approach ........................................................................................................ 18 3.2 Gathering of Data ........................................................................................................... 19 3.2.1 Primary and Secondary Data ................................................................................... 19 3.2.2 Choice of Survey Sample ........................................................................................ 19 3.2.3 The Procedural of the Survey .................................................................................. 20 3.2.4 Choice of Interviewees ............................................................................................ 20 3.3 Social Networking Sites ................................................................................................. 21 3.4 Facebook Inc. ................................................................................................................. 22 3.5 Operationalization .......................................................................................................... 23 Uppsala University 2 4. Analysis ................................................................................................................................ 24 5. Conclusions .......................................................................................................................... 32 5.1 Limitations and Future Research .................................................................................... 34 References ................................................................................................................................ 35 Appendix 1: The Questionnaire ............................................................................................... 39 Appendix 2: Results from the Questionnaire ........................................................................... 42 Appendix 3: Interview Questions with Catharina Fernquist .................................................... 49 Appendix 4: Interview Questions with Jonas Agnvall ............................................................. 49 Uppsala University 3 1. Introduction In this first chapter the background to the study is presented where the purpose of the paper is explained, followed by a problem discussion and the problem statement. At the end of the chapter the Research Questions and the Outline of the study are presented. 1.1 Background “Companies definitely can and do use our data for manipulation, for creating desires, creating needs that we don’t have. You can say it is only money but you can also see it as a problem of freedom(Szymielewicz, 2012).” An Internet user’s every movement is potentially a piece of marketing information. Online marketing is constantly increasing and today many firms stress the use of technology to get closer to their customers and build relationships with them. Access to customer information is a critical success factor and the better the information is gathered, the better the company is able to meet its customers’ needs (Brown &Muchira, 2004).The fast development of information technology and the ability to store and examine great amounts of personal information has paralleled the increased usage of the Internet. Customer data is a major marketing asset through which businesses can improve customer service and build competitive advantage (Dinev& Hart, 2006a). Technologies that require large amounts of data from which consumer patterns can be extracted, have improved the capability of companies to target specific individuals (Dinev& Hart, 2006). While the technological advances have made it possible for firms to identify consumer preferences, develop better products, and improve customer relationships, the same advances have also increased concerns among consumers about access to their personal information and how it is being used. A lot of the information that websites require from the users is often not needed, but simply desirable for the companies’ marketing purposes (Dinev& Hart, 2006a). Internet users are concerned that without their consent,their personal information is available to a large network of information seekers (Dinev& Hart, 2006). In 1996, Smith et al. published a survey where they revealed several central dimensions of individuals' concerns regarding privacy practices: 1) collection of personal data; 2) internal unauthorized secondary use of personal data; 3) external unauthorized secondary use of personal data; 4) errors in personal data; and 5) improper access to personal data (Smith et al., 1996). Uppsala University 4 Privacy can be defined in many ways, and has a different meaning in different contexts. It covers three basic expectations: anonymity, confidentiality, and fairness and control over personal information (Brown &Muchira, 2004). The understanding and protection of privacy in information systems is becoming increasingly critical with widespread use of networked systems and the Internet (Antónet al., 2010). The purpose of this paper is to find out, from an organizational perspective, how companies should react to their consumers concern, about their personal data being used for personalized marketing at the cost of their privacy. The authors will address this issue by analysing one of the largest social networking sites, Facebook Inc. which harbours vast amounts of personal data. 1.2 Problem Background “Facebook was looking at which links I clicked on, and it was noticing that I was clicking more on my liberal friends’ links than on my conservative friends’ links. And without consulting me about it, it had edited them out. They disappeared(Pariser, 2011).” People believe they have lost control over how their personal information is being collected and used by companies (Dinev& Hart, 2006a).