The Effect of a Data Breach Announcement on Customer Behavior: Evidence from a Multichannel Retailer. (March 2018)

• Record Type: Journal Article
• Authors: Janakiraman, Ramkumar; Lim, Joon Ho; Rishika, Rishika
• Is Part Of: Journal of marketing. Volume 82:Number 2(2018)
• Page Start: 85
• Page End: 105
• Publication Date: 2018-03
• Subjects: customer data breach -- data vulnerability -- multichannel retailing -- natural experiment -- difference-in-differences; Marketing -- Periodicals; Marketing -- Management -- Periodicals; 658.8005
• DOI: 10.1509/jm.16.0124
• Languages: English
• ISSNs: 0022-2429

Abstract

In this study, the authors assess the effects of a data breach announcement (DBA) by a multichannel retailer on customer behavior. They exploit a natural experiment and use individual customer transaction data from the retailer to conduct a detailed and systematic empirical examination of the effects of a DBA on customer spending and channel migration behavior. To identify the effects, the authors compare the change in customer behavior before and after the DBA between a treatment group (customers whose information is breached) and a control group (customers whose information is not breached) using the difference-in-differences modeling framework. They find that although the data breach results in a significant decrease in customer spending, customers of the firm migrate from the breached to the unbreached channels of the retailer. The findings further reflect that customers with a higher retailer patronage are more forgiving because the negative effects of the DBA are lower for customers with a higher level of patronage. The authors propose and empirically test for the role of customer data vulnerability as the behavioral mechanism that drives customer behavior subsequent to a DBA. The authors offer prescriptions for managers on how to engage with customers following DBAs.