July 14, 2011, 1:44 PM

Strong privacy policies can help water the money tree for online retailers

A study finds that online shoppers will buy more if they feel privacy is protected.

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Online retailers can gain sales if they tighten up their e-commerce privacy policies, suggests a new study from Carnegie Mellon University.

Researchers there conducted an experiment in which consumers bought batteries and sex toys; participants were willing to purchase more often, and for larger amounts, from retailers with stronger privacy protections.

Consumers in the study shopped for products via the Privacy Finder search engine. It works much like other search engines except that its searches also incorporate the privacy policies of the sites listed in search results and displays indicators or warnings about sites’ privacy policies on the search results page. Privacy policies that use the web coding Privacy Finder can read are optional, so not all web sites have them. If a web site does not have a readable policy, it is still included in search results but does not display a privacy rating.

The experiment also included a control group that shopped via Privacy Finder but, thanks to steps taken by researchers, saw no privacy indicators in search results. 

The experiment asked participants to buy two items: an eight-pack of Duracell AA batteries and a Pocket Rocket Jr., a sex toy. The products were available from a variety of e-retailers with diverse privacy policies. Because participants used their own credit cards and personal information to buy the products, they had a vested interest in how their information would be handled, according to the study, “The Effect of Online Privacy Information on Purchasing Behavior: An Experimental Study.”

In shopping for batteries, consumers made 47.4% more purchases from sites that Privacy Finder rated “high privacy” than participants who saw no privacy indicators. Another phase of the study showed that participants were willing to spend, on average, an extra 59 cents for batteries from e-retailers that had better privacy protections. For the Pocket Rocket Jr., consumers who saw the privacy ratings made 33.3% more purchases from sites that had high privacy ratings than those who saw no privacy indicator. 

The study’s authors say the results suggest that e-retailers may be able to leverage privacy protection as a selling point.

 “People will pay more for privacy under certain conditions,” says Alessandro Acquisti, an associate professor of information technology and public policy at Carnegie Mellon and one of the study’s authors. “When the difference between policies is made apparent and easy to infer, the consumer chooses to go to the more protective merchant when the same product is offered at a slightly higher cost.”

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