Online Info and Consumer Spending

As the U.S. economy struggles with constrained consumer spending and unemployment that continues to hover near 10 percent, many merchants are shifting more resources to online sales, which can offer significant savings by wiping out costly overhead associated with brick-and-mortar locations.

Indeed, retailers are no doubt uplifted by the online sales numbers registered on Black Friday — the start of the Thanksgiving-to-New Year’s period in which retailers typically earn most of their money — which rose 9 percent over 2009 to $648 million, making it the heaviest online spending day of 2010, according to comScore, a digital business analytics firm based in Reston, VA.In contrast, brick-and-mortar store sales rose only 0.3 percent over 2009, according to ShopperTrak, a Chicago-based company that providesinformation and analysis of the movement of shoppers in retail environments.

Although retailers pinned their hopes on the all-important Christmas shopping season, many are missing out on maximizing their online profits because they don’t understand the link between privacy concerns and cybershopping, according to Ramnath K. Chellappa, an associate professor of information systems & operations management at Emory University’s Goizueta Business School.

“Today, many retailers and other providers use Web browser technologies to capture user Web surfing and other data to provide various personalized services,” notes Chellappa, who co-authored a paper with Shivendu Shivendu at the University of California, Irvine’s Paul Merage School of Business, titled “Mechanism Design for ‘Free’ but ‘No Free Disposal’ Services: The Economics of Personalization Under Privacy Concerns.”

“Generally, these personalization technologies and the services that accompany them are available free of charge because the vendor’s profit motive is based on exploiting consumers’ preference information acquired during the usage of these services,” he says. “On the flip side, consumers make a trade-off between the conveniences these ‘free’ personalization services offer and the breach of privacy that results in sharing the personal and preference information required to use these services.”

For the most part, he adds, online vendors have been focused on getting consumers to share information, but privacy concerns are fueling some hesitation on the part of the general public.

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