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Throwing Money at Data Breach May Make It Worse

Being hit by hackers is worse than getting hit with a fire, earthquake or another natural disaster, business owners say.

A model developed by University of Arkansas researchers found overcompensating customers affected by large-scale data breaches may only raise their suspicions.

Credit: Brian A. Jackson, Getty Images/iStockphoto

University of Arkansas professors Viswanath Venkatesh and Hartmut Hoehle developed a model based on customer reactions to large-scale data breaches and found that overcompensation of affected customers may only raise suspicions rather than satisfy customers' sense of justice.

The researchers validated the model in a study of Target's data breach in December 2013. Although organizations may feel pressure to invest in breach remediation due to dissatisfied customers, widespread media attention, and competitors previously choosing to react that way, the researchers found responses from participants in the model indicate the strategy may not solve the problem.

One strategy Target customers responded favorably to was a 10-percent discount on purchases. The model showed this compensation effectively restored justice, which positively affects customer sentiment, when the researchers focused on the critical outcomes of continued shopping intentions, positive word-of-mouth, and online complaints. However, the response to free credit monitoring was mixed because it raised suspicions about the scale of the breach.

The researchers believe the model could serve as a helpful tool for organizations facing large-scale data breaches. "Our findings demonstrate that firms should carefully consider response strategies and associated investments to a large-scale data breach," Venkatesh says.

From Arkansas Newswire
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Abstracts Copyright © 2015 Information Inc., Bethesda, Maryland, USA


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