- Personalized advertising is pervasive and growing.
- Consumers are wary of how advertisers obtain their personal information and what they are doing with it.
- Companies achieving success with personal advertising are transparent about their methods and highly directed in their approach to consumers.
Many consumers are worried about the risks to their privacy that come with personalized ads, according to a 2017 study published in the International Journal of Advertising.
"The perception of risk is much stronger than the perception of benefit," said Chang-Dae Ham, the study's author and a professor at the University of Illinois, in a statement. "That drives them to perceive more privacy concern, and finally to avoid the advertising."
For the study, Ham surveyed 442 college students on how they coped with online behavioral advertising. The survey was designed to investigate the interaction of various psychological factors behind how people respond to online ads and why they might avoid them.
In addition, Ham examined not only interactions related to risk, benefit, and privacy, but also sense of control, reaction against perceived restrictions on freedom, and the perceived personalization of the ads.
"The response to [online behavior advertising] is very complicated," Ham said. "The ad avoidance is not explained just by one or two factors; I'm arguing here that five or six factors are influencing together."
Ham believes consumers' privacy concerns could be even stronger than what was uncovered in the study. He also suspects college-age individuals, like those surveyed for the research, may be less concerned about privacy than older consumers.
The study also examined how the level of knowledge among participants impacted their reactions to personalized online ads. Ham found that those with greater perceived knowledge were likely to see greater benefits but also greater risk, while those with little perceived understanding were more likely to avoid the ads because of privacy concerns.
Ham believes this shows that advertisers would benefit from providing consumers with more understanding of how online behavior advertising works.
"They feel a higher fear level than required, so they just block everything," Ham said.
"[Advertisers] need to educate consumers; they need to clearly disclose how they track consumers' behavior and how they deliver more relevant ad messages to them."
Ham believes giving consumers greater control over the online behavior advertising process is important, because it might leave them more open to receiving some personalized online advertising, as opposed to installing ad blocker tools that block all ads.
Successes and failures of companies that use targeted advertising
Other studies have confirmed that consumers are not uniformly opposed to all personalized advertising. They respond differently, based in part on their knowledge of how the information about them was obtained.
Since there is an increased awareness in the public that ads are targeted, it is smart for advertisers to disclose to consumers how that process works. According to the Harvard Business Review, consumers are less concerned with companies using information that consumers have voluntarily disclosed about themselves, as opposed to information that the company inferred from their browsing or scrolling activity. Target was the recipient of well-publicized outrage when it sent maternity-related coupons to shoppers whom it inferred were pregnant, only to find itself in the awkward position of tipping off a father that his teenage daughter was, in fact, expecting.
There is some evidence, however, to support the premise that consumers are more receptive to personalized ads from companies that get it right. Amazon has had remarkable success with targeting its customers, likely due to the prediction capability of its algorithm.
According to GlobalWebIndex, Amazon's targeted customer suggestions resulted in a 29% increase in sales quarter over quarter. Netflix is also renowned for the success of its algorithm, leading customers to new offerings based on past habits. Both companies have the advantage of marketing to existing customers who have provided information about their preferences through their behaviors, rather than trying to lure new ones with inferred information.
Forty-three percent of consumers are more likely to make purchases from companies that offer personalized recommendations, according to one marketing study from consulting firm Accenture, while 31% say they appreciate the value in services that keep track of their needs and remind them. Additionally, 48% will use in-home devices to place reorders (such as Amazon's Echo – "Alexa, order dog food"). At the same time, 92% of consumers are concerned about privacy, and 72% fear that some companies can't be trusted with their private information.
Douglas Karr, CEO of marketing and business consulting firm DK New Media, cautions against careless personalization. "There's nothing more insulting than getting an email with an intro like 'Dear %%FIRST_NAME%%.' It means [that] not only are you not listening to your customer as they grant you the privilege of access to their personal information, you didn't even take the time to validate the data before pushing them a message. It's basically letting them know that you don't care about them with yet another … blast disguised as a personal message."
Use personalization judiciously. Be sure you are not only safeguarding the private information your customers and potential customers have entrusted you with, but that you are assuring them of how they are being protected. Let them know how you got the information and what you are doing with it. Personalized, transparent, honest advertising can work.