Internet Seals of Approval: Effects on Online Privacy Policies and Consumer Perceptions

Article excerpt

The use of Internet seal of approval programs has been touted as an alternative to potential legislation concerning consumer-related online privacy practices. Questions have been raised, however, regarding the effectiveness of such programs with respect to maintaining privacy standards and aiding online consumers. The authors examine these issues in a series of three studies, the first of which is an exploratory application of Federal Trade Commission privacy standards to various online privacy policies in an effort to determine the ability of seal of approval program participation to act as a valid cue to a firm's stated privacy practices. The second and third studies are experiments designed to ascertain how online firm participation in Internet seal of approval programs affects consumers. Implications for consumer policy are discussed.

Concern regarding the privacy of personal information has been declared a major obstacle of consumer participation in various online activities (Culnan 1999, 2000; FTC 1998a, 1998b, 2000a; Hoffman, Novak, and Peralta 1999; Miyazaki and Fernandez 2001; Rohm and Milne 1998). Indeed, the U.S. Federal Trade Commission has discussed the potential need for legislation to raise levels of privacy to acceptable standards (FTC 2000), with recent legislative efforts focusing on information disclosure in the form of web site privacy policies (Miyazaki and Fernandez 2000). Unfortunately, such a focus may be misdirected since privacy policies are not contracts and are subject to change at the discretion of the firm and without notice to the consumer. For example, Amazon.com recently underwent a widely publicized modification of their privacy policy, declaring that the company could trade personal data with other companies without the need for customer notification (CNN 2000).

Firms with an Internet presence agree that privacy is a key factor for online success. This was illustrated in a recent survey of Internet marketers, wherein fewer than half (46%) of those surveyed felt that web site self-regulation adequately protects consumers, while 92% believed that consumers would make more online purchases if they felt more confident regarding online privacy (Jarvis 2000). The same survey suggested that a single privacy standard is key to consumer confidence, but that government involvement would harm e-commerce. Congruent with this perspective, a number of companies with an online presence are trying to counter attempts to legislate privacy policies by promoting the value of third-party seals of approval or verification systems designed to temper consumer privacy concerns (Benassi 1999; Industry Standard 1999; Palmer, Bailey, and Faraj 2000). The efficacy of these Internet seals of approval, however, has been questioned by the FTC because of both a lack of adoption by online firms and the failure of seal of approval programs to impact privacy practices. For example, a recent FTC study found that only 8% of heavily-trafficked web sites it surveyed displayed a seal, and almost one-half of sites displaying seals from popular self-regulated seal programs did not meet the standards set for fair information practices (FTC 2000). This is not surprising considering limitations in the enforcing ability of these programs (Caudill and Murphy 2000).

This situation raises questions as to whether Internet seals of approval are effective in (1) raising online firms' privacy-related practices to acceptable levels and (2) influencing consumers' perceptions of such privacy practices. To address these questions, we present the findings of three studies. The first study is a preliminary investigation of whether firm participation in an Internet seal program is a valid indicator of privacy standards. The next two studies evaluate whether the display of Internet seal of approval logos influences consumer judgments of online firms' privacy efforts. …