The Dark Side of Big Data’s Effect on Firm Performance

Kelly D. Martin, Abhishek Borah, and Robert W. Palmatier, 2016, 16-104

As marketers’ use of big data is increasing, their data management efforts may increase customer data vulnerability or at least perceptions of susceptibility to harm. Yet most firms have little insight into the potential negative ramifications of their big data efforts or how to prevent them.

Here Kelly Martin, Abhishek Borah, and Robert Palmatier aim to enhance understanding of the effect of customer data vulnerabilities on customer behaviors and firm performance, as well as key mediating mechanisms and mitigation strategies.

They evaluate data vulnerabilities along a continuum of potential harm, which affects performance through customer’s feelings of violation and reduced trust. Data access vulnerability (where the firm has access to the customer’s personal data) and data breach vulnerability (where a firm or its closest rival suffers a data breach) are the focal domains of interest.

In an event study of data security breaches affecting 167 public companies, the authors identify the effects on firm performance and close rival firm performance, as well as managerial tools to suppress this harm. A second study, involving a series of experiments designed to understand the effects of data vulnerability from the customer perspective, shows that firms’ mere access to customers’ personal data inflates feelings of violation and reduces trust, creating negative word-of-mouth and switching behaviors.

Collectively, this work makes four managerial contributions. First, it provides a rare customer-centric perspective of firms’ customer data use. Second, the findings show the severity of a data breach (number of customer records affected) aggravates its negative effect on the focal firm’s stock price. However, this effect of data breach severity is opposite for the rival firm: As the severity of the breach at the focal firm increases, it creates a positive effect on the rival firm’s performance.

Third, this research identifies and tests two mitigation strategies that are effective across a range of data vulnerabilities: making data management policies more transparent and providing customers with control over their data. Transparency and control interact to suppress the negative performance effects of data breaches at focal firms, spillover to rivals, and even the negative effects of firm access to customer data.

Kelly D. Martin is Associate Professor of Marketing, Monfort Professor and FirstBank Faculty Fellow, Colorado State University. Abhishek Borah is Assistant Professor, Michael G. Foster School of Business, University of Washington. Robert W. Palmatier is Professor of Marketing and John C. Narver Chair in Business Administration, University of Washington.

The authors thank the Marketing Science Institute (MSI) for funding and feedback on this project. They also thank the Monfort Family Foundation (Colorado State University) for support of this research.

Related links

Marketing at a Privacy Crossroads
Jonathan Avila, Wal-Mart Stores, Inc. (2018) [Webinar]

Market Making with Personal Data
John Deighton (2014) [Video}

When Does Dynamic Retargeting Increase Sales? (2011) [Article}


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