Brand Breached: How data breaches erode brand value
We rarely, if ever, simply use brands. We experience them. And that’s why the fight for consumer mind space really comes down to the challenge of delivering what is perceived as the ‘better experience’ by consumers like you and me. As brands seek to outdo each other in creating valuable and memorable experiences, they are increasingly coming to rely on digital technologies, along with big data and thick data, to gain insights into consumers' preferences and everyday emotional lives.
Consumers, in turn, must make the informed decision to part with prized personal information in exchange for the promised personalized experience. The underlying understanding, rarely discussed beyond the statutory note in small print, is that their data will not be misused - by the brand or miscreants who could potentially gain access to it should the brand be careless when securing or using it. This under layer of implicit trust, if breached, can wipe away any value that the great experience itself created and hit the brand in a way that truly hurts – pulling customers away.
The conversation then is about digital trust and robust cybersecurity. Most brand custodians and consumers continue to think of cybersecurity as little more than a hygiene factor. It’s almost ironical that the presence of a robust cybersecurity system in itself is never reason enough for a customer to trust a brand, but the absence of it certainly drives them away. In fact, a recent study Infosys conducted, in collaboration with Interbrand’s global team of brand valuation experts, clearly tells us that the true cost of a security breach runs so much deeper than the readily visible financial and reputation damage it causes in the near term. The real and long-term impact fundamentally changes the way customers think about their relationship with the brand.
A brand’s relative strength is impacted by a cybersecurity incident, most notably, in three ways.
Presence: The degree to which a brand feels omnipresent to relevant audiences, is talked about positively, and is easily recalled when a customer has a need in the brand’s category. At the most basic level, a security breach instantly creates negative news about the brand. In this age of social media this can quickly spiral out of control to create an overall negative impression about the brand, significantly denting its relative brand strength.
Affinity: The degree to which customers feel a positive connection with the brand, based on the functional and/or emotional benefits provided, and a sense of having shared values. As news of a security breach spreads, customers would become wary and may stop engaging with the brand completely or continue to do so at a significantly lower level. In a world where customers engage with a brand digitally, the impact is greatly intensified.
Trust: The extent to which a brand is seen to deliver against the (high) expectations that customers have of it, is perceived to act with integrity and with customers’ interests in mind. Security breaches erode trust factor the most and sometimes irreparably for a significant period – especially when a brand is digital-first.
The telling tale of a US retailer. In 2013, after a US retail big brand faced a breach, the costs to the organization were astronomical. Aside from the immediate costs of the breach - $18.5M in fines and $61M to rebuild the systems – 12% of the local customers said they would stop shopping at the store, 36% said they would shop less frequently and 26% of the returning customers said they would spend less at the store. The retailer’s travails didn’t end there. Three years after the breach, their stock was underperforming compared to peers.
In fact, the potential risk in brand value emerging from cybersecurity breaches to the world’s 100 most valuable brands could amount to as much as $223 billion is what the Infosys-Interbrand study estimates. It also quantifies the brand value risk various industries face, because of a data breach: Traditional banking brands is estimated to be between 16- 17%; Insurance brands – 11-12% of brand value; Technology brands - 9-12% and Business services – 9-11%.
As brand custodians, when we architect, design and decide the path forward for our brand assets, this is a dimension that no doubt merits our focus and mindful consideration.
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Author: Sumit Virmani