Online advertising efforts now account for more than a third of total ad spending in the US (Media Buying, 2016). As such competition to gain banner space and consumers attention has intensified. Therefor in order to gain higher effectiveness retailers have begun using an instrument called retargeting in order to create more relevant ads. Retargeting is a type of algorithm that can design ad banners featuring images of products that match consumers’ recent browsing behavior. This extreme form of personalized advertising has received a mixed response from consumers. On the one hand these ads more relevant and therefore more useful for consumers. However, on the other hand individuals at times find these advertisements inappropriately close to their personal preferences, raising concerns regarding privacy. As such retargeting is fueling the debate in between privacy and personalization.

This paper examines the impact of retargeting on click through rates and adds to the aforementioned debate by examining how retailers trust may moderate this relationship. The researchers partnered up with two ad agencies in order to gain enough ad impressions for their banners. They state that ad personalization with retargeting can be described along two dimensions, a banners depth and breadth. A banners depth of personalization refers to how closely the banner reflects that person’s interest. For example, a featured ad of a product that was recently in a persons virtual shopping cart reflects a person’s interest closer than an ad that features a product that a consumer merely inspected. A banners breadth refers to how complete the banner reflects that person’s interest (all the products in the shopping cart vs. only a few).

Their findings indicate that for banners of more trusted retailers, click-through rates are particularly high when a banner has high depth and narrow breadth as these adds appear more relevant and useful. However, for less trusted retailers a higher depth of personalization decreases consumers’ click-through rates as there is an increased reactance to privacy concerns. In general, though regardless of trust, retargeting is still more effective than normal advertising (Figure 1).

Figure 1:

These findings appear to be intuitive but it has important implications for retailers. Retailers should carefully asses their corporate standing and adjust their retargeting strategies dependent on the trust consumers bestow on them.

This article however does not comment on one critical aspect, which is consent. A consumer report found that 52% of people feel violated when personal information is used for advertising without their consent (SAS, 2015). In some cases, personalized advertising has even lead to lawsuits, a case based example is Target an American retailer that sent coupons of baby items to a young teenager. These ads were seen by her farther who found out her daughter was pregnant before she even knew. (Hill, 2016)

This raises an important question should retargeting be allowed from an ethical perspective? and to what extent should companies be held liable for algorithmic accountability?

Academic Article: Bleier, Alexander, and Maik Eisenbeiss. “The importance of trust for personalized online advertising.” Journal of Retailing 91.3 (2015): 390-409.