Should brands compensate consumers for their data?

Alphabet and Meta continue to hoover up billions from user data through targeted advertising, with Alphabet earning over $307 billion (U.S.) and Meta over $134 billion (U.S.) in 2023 alone. Given these eye-watering profits, it's little surprise that more people are starting to ask why, if their data is this valuable, they are not part of the equation.

The practice of brands offering tangible benefits or even paying customers for their data is not new, but it's gaining ground as distrust in companies due to misuse of personal data rises.

High-profile data breaches and scandals involving major corporations and government institutions—among them the infamous Cambridge Analytica scandal in 2019 that involved the unauthorised collection of personal data of millions of Facebook users—have left consumers sceptical of companies that track their activities excessively or fail to clearly provide value from data usage. Secondly, introducing data protection regulations such as the GDPR in Europe, PIPL in China, and the PDPA in Singapore has strengthened consumers' awareness of personal information protection. While these regulations have imposed stricter penalties on companies that misuse or mishandle consumer data, consumers remain wary of what companies do with their data.

"There has been a significant increase in consumers' desire to take control of their data in recent years," says Veron Dai, regional data director, data & consultancy at Assembly. "People are setting stricter privacy permissions on their social media apps and refusing to provide accurate, personal, and identifiable information such as their real names and phone numbers. Additionally, there is a growing trend of consumers purchasing VPNs to safeguard their privacy. All of this is exacerbated by the advancements in AI, which have raised concerns about how algorithms handle personal data, particularly regarding price discrimination and content manipulation."

Data reclamation: A growing chorus

A recent report by Dentsu that surveyed 3,316 Australians aged between 16 and 64 found 87% of Australians would like to be able to take control of the data they generate and choose who they share it with. Meanwhile, 55% of Australians would be interested in receiving financial benefits in exchange for organisations using their data, up from 41% in 2022.

"We are really immersed in a ‘data reclamation’ phase where consumers are really starting to demand more control over their data and how brands access it," says Christine McKinnon, Dentsu's head of intelligence. "The reclamation battle is far from over and brands must start to recognise the need for a positive data value exchange and make moves to re-evaluate how they approach using consumer’s data."

As the deprecation of third-party cookies approaches and data privacy laws continue to rise, advertisers may face limitations in their ability to retarget consumers and build audiences through digital channels. This could significantly increase the need to capture first-party data. And brands that design thoughtful consumer incentives for collecting first-party data will be well-positioned to sustain their leadership in personalised marketing.

In fact, some brands are already leading the charge when it comes to offering financial or other benefits in exchange for customer data. Costco and Starbucks both offer loyalty programmes that provide members with benefits such as discounts, exclusive deals, and rewards points redeemable for free products or additional perks. In exchange, these companies gain valuable insights into customer preferences and behaviours, enabling them to develop more personalised marketing strategies. Visa enhances this approach by using AI to deliver highly personalised rewards; when customers share their shopping and transaction data, Visa creates tailored offers like cashback, discounts, and expedited rewards. This strategy aims to make the benefits feel immediate and relevant, ensuring that sharing data is perceived as worthwhile for consumers.

Meanwhile, there is a growing number of apps that enable consumers to tap into their anonymous data and get paid for it. Tapestri is a US-based app that pays users up to US$25 a month for sharing their data, allowing everyday citizens to receive a portion of the revenue generated from selling their information. Similarly, Tiki operates on a payment-for-data model, enabling users to control what data is shared and receive compensation for it, which is indicative of a growing trend in data brokers. 

"The most successful brands creatively craft enticing incentives to collect first-party data effectively," says Dai. "We have witnessed a variety of financial benefits, from internet companies like Taobao offering discount codes to loyalty programmes and exclusive experiences provided by Cathay Pacific with member-only airport lounges. Some brands also grant early access to items and discounts, as seen with Farfetch and Nike. A recent campaign by Chanel to promote its No. 5 perfume in Hong Kong exemplified this creativity with an offline pop-up store featuring a Hollywood-style photo booth experience."

Data for dollars: A Faustian bargain?

Paying consumers for their data can be a smart move, but it really depends on the situation.

"When people willingly share their data in exchange for direct compensation, you’re getting high-quality, accurate information that’s privacy-compliant," says Hiren Kumar, media strategy director at Jellyfish. "It’s a great way to build trust and strengthen relationships—something traditional methods like third-party cookies struggle to achieve in today’s privacy-focused world."

But it's not cheap. The upfront costs and added complexity can make it less attractive for brands that are more focused on cutting costs than personalising their approach. And while offering benefits for data sharing can have a positive impact on customer loyalty and trust, brands need to strike a balance. 

"Over-incentivising without a clear strategy could lead to 'transactional loyalty' rather than genuine emotional loyalty," says Shai Luft, co-founder and COO, Bench Media. "Not offering any incentives and expecting users to hand over personal preference data is equally problematic."

More frequently, brands are adopting tactics to acquire customers and collect first-party data. When this data is used effectively to gain insights into market needs and user behaviour, it can lead to improved services and products, ultimately enhancing customer loyalty and trust. However, if customers feel their data is misused or not handled appropriately, their concerns about data security may erode trust in the brand. Additionally, relying on financial incentives to maintain customer engagement may create an expectation for such rewards in future interactions, potentially leading to dissatisfaction if these benefits are withdrawn.

"Brands should aim to foster a genuine connection with customers rather than merely driving engagement for rewards," says Dai. "Achieving this requires a thoughtful strategy that incorporates incentives while prioritising long-term relationship-building."

We are rapidly entering an era where individuals will have greater control over their data, leading to a potential decline in trust toward brands as the notions of truth and reality become increasingly unclear. In this context, the question arises: will compensating consumers for their data prove beneficial for brands when weighing the costs against the advantages?

"We promote an approach to data called the data value exchange equation," says McKinnon. "Our own testing has shown that the combination of being clear about purpose, providing a worthy benefit, offering the customer elements of control and being a trusted brand is necessary to offset the perceived risk associated with the type of data a brand might be requesting."

Ultimately, McKinnon adds, a great customer experience and a sense of trust is always going to contribute to increased loyalty: "Does being paid or receiving enjoyable, relevant benefits for my data contribute to a better customer experience? I definitely think so. It certainly makes me feel understood and valued. That emotional dimension is one that brands often overlook. In the future—in a world of brutal competition—that could be the element that makes the difference."