Consumer Relationships Aren’t Built on Financial Incentives

One of the most-discussed topics of 2024 will be the deprecation of third-party cookies, making other sources of data even more important to businesses.

The most valuable of these other data sources is zero-party data, which is proactively provided by customers—typically because that customer actually wants to hear from the brand, and often because there is an incentive for the exchange of that data.

Zero-party data differs in that it’s willingly shared, with clear communication and transparency on how the data will be used, while first-party data is merely collected from customer interactions on-site, in-app, in-store and through other indirect collection methods.

It’s easy to see how zero-party data lends itself to superior quality. Its voluntary nature makes it the most valuable type of data, allowing businesses to personalize customer experiences and deepen loyalty. It respects consumers’ privacy rights and makes it easier for companies to tailor communications while acknowledging right to be forgotten laws.

In our recent data privacy study, which surveyed more than 45,000 people in the U.S. aged 25 and over, we found that only 30% of respondents were willing to exchange data for compensation. Even more interesting is the value that individuals place on their data—for example, 50% of respondents valued their DNA data at more than $500, while 32% of respondents valued their TV viewing data at nothing.

The wide range in data values and data types speaks to the larger issue of whether people understand what data they’re sharing and the value they receive for it. This is where zero-party data can provide businesses with a path forward. If the past two decades have taught us anything, it’s that people are concerned about their data and are demanding more accountability from businesses in how it’s being collected and used. 

As we think about the future of data, and zero-party data in particular, there are three primary considerations businesses need to keep in mind. 

The money-for-data model isn’t a recipe for success

There’s an increasing number of tech startups using a model of zero-party data that primarily serves to convince consumers to trade their data for financial incentives. Datacy, for example, compensates individuals for their online browsing behavior in order to resell audience insights to marketers (i.e., by making data available to the highest bidder). Caden, another new company, offers monetary incentives for detailed information about what a person streams, where they travel, what they buy and more.

Despite the belief that data is the new oil, on an individual basis, data holds little monetary value, making it difficult to pay an individual a substantial amount that would make the effort worth their time. Let’s not forget that one of the largest data collection companies in the world, Nielsen, would routinely send $1 bills with their data collection requests to households to incentivize consumers to complete a lengthy questionnaire on what each member of a household watched and when. 

Trying to pay individuals more money is a tricky model to follow and is likely to require a major industry shift. This means that instead of trying to pay users for their data, most companies would be better off providing intrinsic value, such as loyalty points or first-look previews of new product drops.

Rather than collecting zero-party data to monetarily compensate individuals, Yelp does so in a transparent way that ultimately improves the customer experience. Customers can disclose category preferences in exchange for a more personalized recommendation engine. At the same time, Yelp clearly communicates how it uses their data and how to control what is shared.

Zero-party data is useless if you don’t know how you’ll use it

Companies often set out to collect all the data they can possibly find and figuring out how they’re going to use it after the fact. But collection of data is vastly different from usage of data. Having a defined data roadmap is key to zero-party data success—organizations that are intentional with data reap the benefits of working more effectively. They’re strategically aligned at the outset (i.e., when defining what data to collect and for what purpose) and work with highly relevant and qualified datasets.

When developing a data roadmap, start by identifying business outcomes and consider the data required to evaluate success for each—what analyses will be conducted, what data is needed, where will the data come from, how will it be collected, and what are the measures of success? A simplified data roadmap meant to highlight the zero-party data collected through user-submitted preferences in-app could be as simple as:

• Business objective: Increase engagement through improved user value.
• Data usage goal: Enhance user experience through personalized recommendations.
• Methods for data analysis: Segmentation analysis, machine learning algorithms
• Data sources: Mobile app analytics, customer profiles
• Data collection: In-app preference center, in-app events (SDK)
• Data needed: Zero-party (customer preferences, e.g., dietary restrictions), first-party (behaviors, e.g., search queries)
• KPIs: Daily active users, session duration, session frequency, retention rate

From the consumer perspective, transparency around the intended use of collected data is paramount to building loyalty. Trust will erode quickly if consented data is used for other purposes without their knowledge and permission.

Trusting your consumer and knowing when to let go

We often use the analogy that poor data collection practices and data misuse are akin to breaking up with someone who refuses to leave your doorstep. No matter how many times you say you aren’t interested, the person refuses to accept that it is over. Companies need to think about their data practices as relationships with their consumers. And no one wants a bad relationship! 

Zero-party data is the most accurate data you’ll collect, as long as consumers are motivated to trust and respect you as well. Create a fair and balanced value exchange, communicate what you’re collecting and how you’ll use the data, and make it abundantly clear (and easy) for customers to make changes or opt out at any time.

Zero-party data has a bright future; it’s a lucrative path for the businesses that want to put in the time and effort needed to get it right. Failure to proceed with diligence comes with a warning, however—58% of consumers surveyed said they are willing to stop doing business with a company that has a bad reputation around data.

The future is promising for companies that understand the importance of data privacy and ethical data use through transparency and choice.