The Implications of Advertising Personalization for Firms, Consumers, and Ad Platforms

The personalization of advertising offers firms tremendous potential. If done right, firms can address consumers with more relevant ads, leading to more positive consumer responses. Nevertheless, firms are struggling with how to design personalization strategies and face the challenge to correctly assess advertising effectiveness. With this research, we advance the understanding of advertising personalization and its implications for firms, consumers, and ad platforms.

With the help of a large-scale field experiment, we present evidence for how firms should design their personalization strategies. We find that high levels of personalization specificity pay off for firms. At the same time, socially targeting personalized ads, where names of consumers' friends are included in the ad text, leads to less positive consumer responses.

To advance the understanding of privacy concerns in advertising personalization, we conduct a lab experiment using eye tracking technology. Our findings reveal that firms cannot use intrusive ads that cause privacy concerns to attract consumers' attention. Such a strategy is harmful as it decreases consumers' overall attention towards ads, eventually leading to less positive consumer responses.

An examination of contracts between firms and ad platforms exposes that these contracts might not be in the economic interest of firms. We conduct a large field experiment and our analysis reveals that currently implemented contracts between ad platforms and firms lead to an incentive misalignment that is harmful for firms. While ads generally increase consumers' likelihood to purchase, firms pay more for ads that are not providing higher value to them.