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Two marketing professors explain why a bipartisan data-privacy law may have negative consequences for small businesses

In today’s digital age, personalized advertising has become a crucial tool for small businesses looking to reach niche markets and underserved consumer groups. The success stories of entrepreneurs like Orion Brown, Randel Bennett, Bill Shufelt, and John Walker highlight the power of targeted digital advertising in connecting with specific audiences and building successful ventures. However, a new privacy bill on the horizon could potentially hinder the growth and innovation of similar businesses in the future.

The American Privacy Rights Act, introduced by lawmakers in April 2024, aims to establish national consumer data privacy rights and set standards for data security. While the bill seeks to create a unified national standard for data collection and use, it raises concerns among experts in marketing and public policy. The bill, modeled after the European General Data Protection Regulation (GDPR), could have unintended consequences that impact small entrepreneurs who rely on personalized digital advertising to reach their target audiences.

One of the key trade-offs associated with privacy regulations is the balance between privacy and the usefulness of information exchanges for firms and consumers. Digital marketing has revolutionized the economy by allowing businesses to cater to diverse consumer needs and preferences. Small entrepreneurs, like those behind Black Travel Box, Sigo Seguros, and Athletic Brewing Company, rely on targeted advertising to connect with niche markets that have been previously overlooked. Privacy regulations that restrict data sharing could limit the ability of these businesses to reach their intended audiences effectively.

Moreover, privacy regulations can also impact fairness and inclusivity in the digital marketplace. Research shows that consumers vary in their willingness to share data, with certain demographic groups being more cautious about data privacy. By limiting data collection, regulations could inadvertently exclude marginalized consumer segments from the digital economy. This could further exacerbate existing disparities and hinder the ability of small businesses to reach diverse audiences.

Another trade-off to consider is the balance between privacy and innovation in the marketplace. Small brands benefit significantly from personalized marketing, as it allows them to compete with larger companies without the need for extensive advertising budgets. Privacy regulations that increase compliance costs and restrict data sharing could stifle innovation and competitiveness, particularly for smaller businesses. This could ultimately limit consumer choice and reduce the diversity of products and services available in the market.

As Congress debates the American Privacy Rights Act, it is essential to consider the potential impact on small businesses and disadvantaged consumer groups. While protecting consumer privacy is important, policymakers must strike a balance that allows for innovation, inclusivity, and economic growth. By carefully evaluating the implications of privacy regulations on personalized digital advertising, lawmakers can ensure that small businesses continue to thrive and connect with their target audiences effectively.

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