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The Impact of Data Breaches and Customer Loyalty

Posted by Zach Walker on Dec 17, 2015 12:19:08 PM
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With over 700 data breaches in this year alone, data theft is a reality that organizations of all sizes and from all industries need to be conscious of. It’s no longer the norm for organizations to ask “if” they will be the next victim of a data breach, instead asking “when.”

Brand managers and marketing executives for organizations understand that a data breach can have an immediate impact on an organization’s ability to properly conduct business and best serve its customers. What most organizations are not prepared for, are the ripples that don’t appear until several months or years down the line. Gemalto, a North Holland-based digital security company, released its latest findings on data breaches and the lasting impact on customer loyalty. In the report, Gemalto surveyed over 5,700 consumers from seven countries and five continents to determine if there is a correlation between data breaches and customer loyalty. 

Consumers Are Not Confident In Organizations’ Data Security Standards

Since 2013, nearly 3.5 billion records have been compromised around the globe due to data security incidents. Understandably, consumers are concerned about the security of their personal information and have lost confidence in organizations’ data security standards. When surveyed, 25 percent of respondents believed that organizations take both the protection and security of their personal data very seriously. The majority of consumers do not believe that organizations that they interact and transact with are looking out for their best interests. And on top of that, more than twice as many respondents believe that the onus of protecting and securing customer data falls on the company versus the consumer. 

Consumers Are Wary Because They’ve Been Hit Before

With 31 percent of survey respondents indicating that they have been a victim of a data breach, consumers are wary of data breaches because they’ve been hit before. What makes matters worse is that some data breach victims (32 percent) know how likely they are to be involved in a data breach, with one in six consumers believing that they will be a victim of another data breach in the next twelve months. Gemalto’s survey provided additional insights into consumer awareness regarding data security.

Four in ten consumers identified visiting a fraudulent website as the most likely cause for being a victim of a data breach. Phishing attacks (40 percent) and clicking on a fraudulent web link (37 percent) rounded out the top three most likely causes for being involved in a breach. These are just three of the many ways cybercriminals can steal sensitive data from unsuspecting consumers. When a data breach does occur, there are immediate repercussions that will test an organization’s ability to conduct business while not disrupting their customers.

Customer Loyalty Comes Into Play After A Breach

According to the survey, the theft of customer data is likely to have a negative effect on a breached organization’s relationship with its customers. Nearly 95 percent of respondents indicated that they would take or consider taking legal action against any of the parties involved in the exposure of personal information. Due to a recent ruling in the 7th U.S. Circuit Court of Appeals, it is now easier for consumers to take legal actions over data breaches. What makes matters worse for breached organizations is that many consumers would be willing to break ties with a breached organization. When surveyed, nearly two-thirds (64 percent) indicated that they would likely end their relationship with an organization after their personal information had been exposed. At its core, this is a breakdown in consumer trust. As the calendar year winds down and the holiday season comes to an end, consumers are more aware and sensitive to the possibility of data theft.

Is The Danger Higher During The Holiday Season 

For many retailers, the holiday season presents a significant opportunity to make a financial impact before the calendar year comes to a close. Financial institutions and merchants are concerned about gift card fraud and are seeing more instances of identity theft and account takeover. Nearly six in ten consumers (59 percent) believe that threats to their personal information increases during the holiday season. With consumer trust waning, organizations need to show consumers that they are actively protecting their data to help alleviate their fears and concerns. This is just a high-level overview of Gemalto's Data Breaches and Customer Loyalty Report, focusing on the key takeaways for consumers and organizations in the United States. We highly recommend checking out the report for yourself and looking at the global insights. 

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