The first day of March saw China enact a law that intends to curtail the practice of “algorithmic discrimination” by companies in the e-commerce, ride hailing, online streaming and social media sectors.
It’s a law that could have wide-ranging impacts, and one that, according to online platform Wired, could well have influence in other countries, in a similar way to how the EU’s General Data Protection Regulation has influenced the data laws of countries around the world, including Latin America.
As a country that has one of the largest consumer markets on the planet, and the busiest mobile app market in the world, consumers and regulators in other parts of the world are watching with interest.
Algorithmic discrimination is defined as the practice of offering different consumers different prices for the same product due to the individual’s purchasing behaviour. These price offerings are driven by artificial intelligence (AI), which uses the metrics it has been trained by to generate pricing options.
Numerous studies have already shown serious problems with leaving everything up to computer-generated algorithms. We know that AI can amplify racist and sexist biases that already exist in the human world.
“Data could be the next currency for loyalty programs” — Melissa Minkow
Given the recent development in China in mind, and the fact that consumers are becoming ever-more annoyed by retailer’s reach into their online experience (90% of respondents to a 2019 Ogury report on mobile advertising found that “targeted digital advertising is ‘annoying’”), how will the Nearshore’s potentially huge e-commerce market develop in relation to consumer privacy?
Melissa Minkow, director of retail strategy at information technology and software engineering company CI&T, and author of the Connected Retail Report 2022, believes that retailers will adapt their behaviors in collecting consumer data.
While the report found that the pandemic had accelerated the need for industry-leading retailers to develop their own boutique apps to build closer relationships with customers, some companies’ appeared to overreach in their efforts. For example, Levi’s requires that consumers join its loyalty program in order to use its app. The app, of course, is the form through which companies often offer discounts, exclusive product drops or last-minute bargains.
“Data could be the next currency for loyalty programs. Instead of receiving rewards based on how much a consumer spends with a retailer, retailers can award consumers by how much data they’re willing to share,” she told Nearshore Americas recently.
The Nearshore Position
When it comes to e-commerce, the Nearshore region is still playing catch up. While internet penetration is high, aided by cellular data, the region’s unbanked population remains large. Though financial inclusion initiatives in many countries have helped reduce this number, as well as a sizzling fintech market that has helped millions become banked for the first time, around half of the region’s population remains unbanked.
Despite these obstacles, Latin America’s retailers are placing increasing importance on consumer data, said Stefanie Bohrt, an expert on Latin America’s e-commerce market and founder of Latin America-focused affiliate network, Kommi.
“The way data is handled has become of great value to make the right sales and to offer the right products to the right people,” she explained.
In the Americas there is not currently the same focus on differentiated pricing, and so less chance to see algorithmic discrimination become a problem. Companies in Latin America currently lack a certain market savviness with data use, and the exploitation of the data they have gathered is nowhere near as efficient as their Asian or US competitors, Bohr argues. But as data harvesting grows, markets are becoming more competitive.
“Differentiated pricing isn’t a big trend yet, but we’re starting to see a fight for different companies to get control over data. The main reason for this is to find data on who a buyer is. For example, once a company has the email of a consumer, it’s much easier to turn them into a repeat buyer,” she added.
“The way data is handled has become of great value to make the right sales and to offer the right products to the right people” — Stephanie Bohrt
Bohrt also points out that different groups exhibit contrasting levels of concern about data collection and in this sense the shift to rewarding consumers for sharing data adds up, she said.
Minkow agrees: “For cultures where consumers have a level of distrust when their data is collected, voluntary data sharing allows them more of a sense of control. As always, there needs to be transparency from retailers in terms of how the data will be used, but this type of a model would create an actual relationship between the retailer and the shopper.”
A New Latin American Model?
Camilo Quintero, a digital transformation expert and lead investor at digital marketplace Branddu, believes that the future of Latin American e-commerce has unique challenges that will shape its outcome. The onboarding of the region’s consumers has risen in parallel to threats to data, he points out. The large number of unbanked people also means that data, though valuable, does not yet provide sufficient insight for companies. These factors will deliver an e-commerce market that is unique.
“The percentage of people in our region using cash only is still very high,” he pointed out, “but threats to data security are growing rapidly in line with the growth of e-commerce,” he said.
These factors mean that mature companies are able to leverage their names to assure consumers about data security, while acquiring niche disruptors who will provide the digital edge they need.
“Latin America’s e-commerce market will have its own business model that will be influenced by China’s super app market and the US market, where retail app options are endless,” said Quintero. “Omni-channel communications will evolve as large companies take on niche retailers, who’ve developed a strong relationship with their consumers already, and the winners will be the large retailers that learn from niche digital companies.”