April 24, 2018
In light of recent data breaches, marketing professor and Business Partnership Foundation Research fellow Ramkumar Janakiraman’s findings on customer behavior following data breach announcements have become particularly relevant.
In an article called “The Effect of Data Breach Announcement on Customer Behavior: Evidence from a Multichannel Retailer,” featured in a recent issue of the Journal of Marketing, Janakiraman and his co-authors, Moore School clinical assistant professor of marketing Rishika Rishika and Illinois State assistant marketing professor Joon Ho Lim, discuss their findings on multichannel retailers, customer willingness to migrate to other channels and customer loyalty as they relate to data breach announcements.
They started with this question: “If a retailer were to announce a customer data breach, what would happen to customer behavior in the days and weeks following the announcement?” They use unique customer level data and novel econometric methods to examine this question empirically.
As you might expect, sales decline overall; that was their first finding. But in re-examining the data, they also found that multichannel retailers — businesses that sell their products in-store, online, through catalogs, etc. — could potentially see channel migration.
“It’s possible that not all of a retailer’s channels are breached,” Janakiraman said. “If there’s a breach on one channel, we found that customers were willing to migrate from that breached channel to an ‘unbreached’ channel.”
In other words, the company was able to retain those customers and sell their products through a different avenue.
“This was surprising, but comforting,” Janakiraman said. “It shows a sense of awareness in customers, which is good.”
Their final finding was that loyal customers are more forgiving. They could see a significantly smaller change in spending among loyal customers. Janakiraman recommends businesses use this finding to their advantage by engaging more with loyal customers to continue building that trust.
These findings not only show the importance of initial messaging surrounding a data breach announcement, but also how important it is for businesses to continue engaging with customers after such announcements are made.
By Madeleine Vath