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Now it’s personal: how the impact of an ad changes when you know an ad is targeted

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One day while browsing his Facebook feed, Jiwoong Shin was stunned to see an ad relating to heart disease. “It freaked me out,” says the Yale SOM professor of marketing. “I know Facebook knows a lot about me, so I started to wonder – do I have to worry about this?”

Shin got a clean health certificate from his doctor. As it turned out, the ads were likely the result of searches he’d done for a course he was teaching at the time. But the incident made him wonder at his own reaction to the ad. He often encountered – and ignored – pharmaceutical advertisements on prime-time television. What was different about the advertisement on his social media feed? “When I see an ad, I react differently because I know that certain channels are being targeted,” says Shin. “It’s an implicit recommendation.”

In the pre-personalization world, advertising was primarily used to attract consumers’ attention to products. For example, if you watch a commercial for air fryers, you can introduce a category of kitchen appliances to a consumer that they could buy. But ads targeting people based on their personal information are changing the rules. Companies today have ever more detailed customer data; in fact, sometimes they know more about customer needs and wants than consumers do themselves. In fact, a targeted ad can drive consumers’ interest in a product category they didn’t even know existed.

In a new study that will appear in Marketing Science, Shin and Jungju Yu of the City University of Hong Kong propose a theoretical model to “rationalize this interesting phenomenon,” says Shin, not targeting the ad, and analyzing the Impact on how companies should advertise a product. They find that consumer awareness of targeting has an unexpectedly strong impact on advertising impact. When a customer knows an ad is targeted, they’ll see and react differently than usual – and that changed response is important for businesses to consider when choosing how to advertise a product, says Shin.

In the model, consumers knew that the advertisements they saw were personalized in some way, and two competing companies placed commercials while knowing consumer awareness. Shin and Yu played out different scenarios of how consumers derived information about a product or product category and their subsequent decisions and purchases.

They found that very fine-tuning personalization created a conflict: if businesses knew that personalization was more likely to lead to a sale, they invested more in targeted ads. But since the mere fact of being targeted increases consumer interest in a product category, the targeted consumers are more willing to look for a competitor’s product than to buy the product also featured in the ad.

For example, Shin’s attention was drawn to an advertisement for a phone app that can scan documents and convert them to PDF files. He didn’t know there was such an app and downloaded the one advertised to him. He found this particular app awkward, but when he found out that such tools existed, he ended up buying an app made by another company.

When ads are tailored to the interests of the user, consumers pay more attention to the company, but are also more likely to look for alternatives within the product category.

In this case, the product he ended up buying was not advertised to him. But the manufacturer made a sale anyway – thanks to a competitor who had invested in ads targeted at Shin. “People may initially have no idea that they need something, and advertising is a signal that this category of things is something they need,” he explains. “The ad informs customers who search in this product category and possibly buy from a competitor who is effectively freeride.”

In targeting Shin, the original advertiser ran the risk that another seller might benefit from their ad. But the possibility of this type of free rider was outweighed by the potential reward of finishing first, especially if the accuracy was quite high. “It’s better to meet the consumer early – if you can anticipate their demand before they look for something else, they’ll have less incentive to look,” explains Shin.

Consumers’ knowledge of targeting also plays an important role. According to the model, when ads are customized based on people’s interests in a given scenario, consumers tend to draw positive conclusions about the product category as a whole. They pay attention to both the company itself and the category – just like Shin when he tried the scanner app he was promoting. They are also more likely to look for alternatives within the product category and conduct time-consuming research and product comparisons. This increased engagement and research creates a spillover effect, so that targeted advertisements lead to awareness that goes far beyond the presence generated by conventional advertising.

“Just the fact that a person is being targeted makes a huge difference,” says Shin. “It has important implications for advertising strategy for both businesses and consumers.”

“Just because a company is targeting you doesn’t mean it’s the best product – or that the product is even necessary.”

The researchers also find that companies promoting niche products with a narrow market may find that highly targeted ads are well worth the cost. However, if a product is likely to appeal to a wide range of consumers, it can be more difficult to target ads to those who are most likely to make a purchase – and more likely to benefit a competitor in the same category. Since such products are more difficult to effectively target potential buyers, Shin says a mass market approach may prove more effective.

For consumers, the message is simple: a targeted ad is still an advertisement – not a recommendation – no matter how personalized it is, says Shin. “Just because a company is targeting you doesn’t mean it’s the best product – or that the product is even necessary.”

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