Willing to pay for quality personalization? Trade-off between quality and privacy

Online personalization presents recommendations of products and services based on customers' past online purchases or browsing behavior. Personalization applications reduce information overload and provide value-added services. However, their adoption is hindered by customers' concerns about information privacy. This paper reports on research undertaken to determine whether a high-quality recommendation service will encourage customers to use online personalization. We collected data through a series of online experiments to examine the impacts of privacy and quality on personalization usage and on users' willingness to pay and to disclose information when using news and financial services. Our findings suggest that under certain circumstances, perceived personalization quality can outweigh the impact of privacy concerns. This implies that service providers can improve the perceived quality of personalization services being offered in order to offset customer privacy concerns. Nevertheless, the impact of perceived quality on personalization usage is weaker for customers who have experienced privacy invasion in the past. The results show that customers who are likely to use online personalization are also likely to pay for the service. This finding suggests that, despite privacy concerns, there is an opportunity for businesses to monetize high-quality personalization. European Journal of Information Systems (2012) 21, 621-642. doi:10.1057/ejis.2012.13: published online 27 March 2012