Risk
1/10/2011
03:27 PM
George V. Hulme
George V. Hulme
Commentary
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Security Doesn't Matter To Brands: A Counter Point

A recent video blog entry made the assertion that security doesn't matter to a company's brand. The post was strong on opinion, light on facts. I say lax security and breaches do have an impact on brand. And I back up this assertion with a few data points.

A recent video blog entry made the assertion that security doesn't matter to a company's brand. The post was strong on opinion, light on facts. I say lax security and breaches do have an impact on brand. And I back up this assertion with a few data points.First, it's important to point out that studies that examine the impact of data breaches on company brand and sales are few. However, there's enough data to support the assertion that there is indeed a relationship between security and the brand of a company.

This post was inspired by the video blog below published by Terry Sweeney at the CMOsite. Where he says "Security doesn't matter a damn to brands."

Essentially, the post says that data breaches have no lasting impact on brand, reputation, or stock price.

Have a look:

First, I'll concede the point on stock price. The few studies I've seen on stock price performance after a breach have been so poorly done that they're not even worth mentioning.

For the examples to build his point, he picked a number of breaches that have extremely low impact on consumers. Such as McDonalds suffering a third-party partner having been hacked and customer e-mails being stolen. Embarrassing and annoying, yes: but I hope consumers wouldn't boycott McDonalds for life over it. Same with Gawker. Having a username and password used in a commenting system that is hacked is also embarrassing and annoying: but not lethal to brand.

These were very poor examples to build a case that security breaches have no impact on brand.

Now, what is the impact on data breaches and brand. The "weasel word" in the post is "lasting." Does that mean weeks, months, or years?

I've no idea. Nothing was quantified. Certainly, unless the breach results in a business going out of business the negative impact won't last forever. But let's be clear: security does have an impact on brand. And there is data to show it.

According to a recent Ponemon U.S. Cost of a Data Breach Study, which is based on an analysis of 45 data breach cases with a range of about 5,000 to 101,000 records. This study found considerable customer defections as a result of the breach:

Average abnormal churn rates across all incidents in the study were slightly higher than last year (from 3.6 percent in 2008 to 3.7 percent in 2009), which was measured by the loss of customers who were directly affected by the data breach event (i.e., typically those receiving notification). The industries with the highest churn rate were pharmaceuticals, communications and healthcare (all at 6 percent), followed by financial services and services (both at 5 percent.)

Where is the marketing officer who thinks a hit of 5 to 6 percent of breached customers isn't a damage to the brand? Sure, new customers can be found: but it always costs more to attain new customers than keep existing customers happy. This data points to security having some level of impact on brand.

So does a 2006 study conducted by the CMO Council and Opinion Research. Some of the details in that study were covered in this story, Security Concerns Threaten Brand Loyalty, which found nearly a quarter of consumers were concerned about the security of the companies they do business with:

In the U.S., 30 percent of survey respondents said they have always been concerned about security. In Europe, 38 percent have always been concerned. A combined 60 percent of U.S. consumers are now a little, more, or very concerned about security, compared to 54 percent in Europe. Ten percent of U.S. and 8 percent of European respondents are unconcerned.

In its report, Why Some Consumers Don't Buy Online [.PDF], Forrester Research found that about a third of online North American consumers had yet to make a purchase. Of those, 62 percent cited not wanting to share personal financial information online.

Javelin Strategy & Research conducted a study (h/t @pogowasright) in 2008, Consumer Survey on Data Breach Notification [.pdf]. This survey has a number of key highlights:

- For 40% of consumers, security breaches changed their relationships with the affected institution or business. Confidence and buyer behavior are severely impacted by security breaches, with 55% of victims trusting the affected organization less, and 30% choosing to never purchase goods or services again from that organization. As a result, breached institutions must go beyond basic notification and take assertive action to mitigate the risk placed on victims.

- Breach victims are beginning to expect fraud protection assistance from the institution, with 36% already having been offered some kind of identity fraud protection service.

- 55% of breach victims offered a fraud protection solution were satisfied with the institution's handling of the incident, almost double the 31% of those who were satisfied without being offered any kind of restitution.

- The majority of breach victims (56%) prefer a solution that prevents fraudulent use of their information, rather than detecting or resolving fraud after it has occurred.

Sounds like consumers like to shop where there is a certain level of trust. Can't say I blame them. It would seem security plays a role in the building of that trust. A recent RSA Security survey [.pdf] found that 92 percent of consumers surveyed would be more confident buying when stronger security was in place. A surprising 53 percent says they would be significantly more confident.

I admit the data isn't as strong as it could be. And scientific data on the impact of brand and customer trust following a breach is sparse. However, the survey numbers are consistent - and the Ponemon data is quite compelling.

I do wish there was more data on the subject. But the data we do have shows security does matter "a damn" to brands.

What are your data-supported thoughts?

For my security and technology observations throughout the day, find me on Twitter.

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