All posts by mwilschut

Standardization and the Effectiveness of Online Advertising

If you want to advertise online, this can be done in a few moments. You deliver your advertisement in specific format to an advertising platform and it will be online in minutes. We all know these advertisements, we see them all day. For companies, this standardization means that it is easier to promote products and coordination costs are largely reduced.

However, it is not all cakes and ale. Limiting advertising in a specific format reduces the ability to differentiate yourself with your advertisement and hereby attract attention. Consumers get used to the standardized formats of advertising, and thus pay less attention.

Goldfarb and Tucker (2014) examines how standard advertising formats influences the effectivity of online display advertising. They talk about the challenges and explore remedies to overcome these challenges.

The influence of standard advertising formats is interesting because a lot of companies see the standardized advertising as an opportunity to decrease their costs while reaching the same audience as before. However, it is questionable if the same audience is reached, if no one notices the advertisement. Then the reduce in costs is useless. Also, advertisers personalize advertising to attract the attention of consumers (Bleier and Eisenbeiss, 2015). By personalizing advertising (i.e. retargeting), advertisers make the advertisement more relevant to users, which attract users and make it more effective (Goldfarb and Tucker, 2011). However, if standardizing influences the attractiveness negatively, then companies might want to reconsider their efforts in personalizing advertising or using standard formats for advertising.

To find out the relationship between standardized formats and the effectiveness Goldfarb and Tucker (2014) conducted an experiment where one group was shown the standardized advertising, and the other the non-standardized advertisement. After that, they measured the difference in purchase intention.

They find that standardization reduces advertising recognizing and purchase intention. This is due to the standardized advertisement. People are less attracted to standardized advertising and hereby the effectiveness decreases. However, standardizing does not affect more original advertisements. In other words, more creative advertising reduces the negative effect of standardizing online display advertising.

The results of the study show that there is a trade of between standardizing advertising, and saving costs here, and effectiveness, reducing benefits here. This effect is muted by how creative the content is. Advertising is more creative when advertising agencies created the advertisement.

The main strength of this paper is that this study shows that standardizing advertising is not as positive and beneficial as it seems to be on the first view. This paper explains the decrease in effectiveness in the field of online display advertising. The main managerial implication is the finding that standardization did not affect all advertisements negatively. Hereby, giving companies opportunities to make a trade-off when they consider to use online display advertising. When companies consider to advertise online, now they do not only have to consider whether they want to use a standardized format. But they are also able to evaluate if they want to create the advertisement themselves, and taking the risk of less creative advertising. Or let a specialized advertising agency create the advertising, resulting in more creative advertising, for higher costs.

Bleier, A., & Eisenbeiss, M. (2015). Personalized online advertising effectiveness: The interplay of what, when, and where. Marketing Science34(5), 669-688.

Goldfarb, A., & Tucker, C. E. (2011). Privacy regulation and online advertising. Management science57(1), 57-71.

Goldfarb, A., & Tucker, C. E. (2014). Standardization and the effectiveness of online advertising. Management Science61(11), 2707-2719.

Online Display Advertising: Targeting and Obtrusiveness

We all have been in situations where you are browsing the internet and the advertising is targeted on the content on the website and they are shown to you. Hereby, advertising is targeted. And what is maybe even more intrusive, that the advertising pops up. It definitely gets your attention. However, are you more willing to click on the advertising and buy the product? This is what Goldfarb & Tucker (2011) researched. They study the effect of targeted display advertising and obtrusiveness on sales, and what the effect is when these two are combined.

This question is interesting. Because even with all these new techniques, display advertising success drops. People avoid online display advertising because they infer them in their browsing goals (Drèze & Hussherr 2003). Do obtrusive advertising works exactly in the opposite way and affects the effectiveness of advertising negatively?

To find out, this study uses data from a large randomized field experiment on 2,892 web advertising campaigns. For every campaign on average 852 surveys were distributed. Where the half of them were to consumers who have seen the advertising and the other half were on the website without the advertisement on it.

The main results of this study are that targeting the advertising improves the effectiveness of online display advertising and obtrusiveness does also. However, when these two techniques are combined the effectiveness decreases. This is because privacy concerns temper the appreciation of formativeness in targeted advertising. So, for advertising in categories where privacy matters more, the effect is tempered more than in categories where privacy matters less.

The strength of this paper is the fact that it, in contrast to earlier research, propose that obtrusive advertising is not very effective in the contextually targeted situations. Earlier research study the effect of the obtrusiveness on advertising recall, which is of course positive. By adding the privacy concerns and the feelings of manipulation to the fact that advertising can be perceived as useful makes advertising perceived as intrusive, and therefore result the effectiveness negatively.

This paper shows a reason for the unexpected success of search advertising, where the advertising is highly targeted on the context (the advertising is based on search keywords) but is absolutely not obtrusive or attractive. For managers, this means that in choosing the right way to advertise they must not only consider whether to target their audience with contextually targeted advertising, but also consider the negative influence if these advertisements are obtrusive. Economically, 5.3 percent of advertising spending could be cut, without affecting the effectiveness of advertising. This, solely because the wrong combination of advertising content and format is used.

In short terms, either choose to reach your audience with targeted advertising, or with obtrusive advertising. But don’t combine the two.

Drèze, X. & Hussherr, F.X., 2003. Internet advertising: Is anybody watching? Journal of Interactive Marketing, 17(4), pp.8–23.

Goldfarb, A. & Tucker, C., 2011. Online Display Advertising: Targeting and Obtrusiveness. Marketing Science, 30(3), pp.389–404.

How do you like your shirt? Medium or tailor made?

You are probably familiar with the following situation. You ordered a pair of pants online, and when we the product is delivered, it is too big. Or you see an interesting shirt in a shop, but the sizes which are available are too small for you. Or more specific, you like the jacket you see, but the buttons attached have a weird colour. Mass production in the clothing industry resulted in a lot of different clothes in a few standard clothing sizes. We as customers are dependent on designers which work for specific brands, and we must hope that our size is available when we see something we like. And yes, there are places where you can get tailor made clothes. However, this is expensive.

To deal with these problems, a company called “Shirt By Hand” offers custom made shirts. For the same price as you buy shirts in a regular shop. To do so, they involve active consumer participation. Here is how it works.

The ordering process contains of a few steps. The first one is to make an appointment with one of their employees. They will come to your house or office to measure al your sizes. They will create an account for you, so your sizes are saved. During this meeting, they bring a selection of their shirt fabrics with them, to give you an idea. When they leave your house, you can order shirts online. In the web shop, you choose every aspect of a shirt yourself. Even the thread is your choice.

By doing this, you become part of the value creation process. You will choose how you want each attribute to be which you can understand. And you do not have to worry about the attributes you don’t know about. Hereby, this company can give you as a customer a parameter-based interface without frustrating you to customize attributes you don’t know (Randal et al., 2005).

The joint profitability of this business model is as follows. For customers, this business model means that the product they want, a shirt, is tailored to their needs and size. Also, by designing products yourself the feelings of accomplishment increase (Franke et al., 2010). You are the one who thought about every combination of the attributes, and not a designer who you don’t know. And beside this, it is fun to design your own clothes. The costs for consumers are longer waiting times. To be able to produce the shirts for an affordable price, they are made offshore. A three-weeks delivery time is the standard.

For the company, there are benefits as well. Because consumer design their clothes online, the company doesn’t need a physical store. Cutting their costs and hereby increasing their profits. Also, this company is not dependent on designers to design clothes, customers are creating this value by doing it themselves. Another upside to their business model is the fact that their employees have to go to the customers only a few times, when the customers need to be registered, and when their sizes changed dramatically. And not with every single purchase. Their costs are the investments in machines with very low switching costs, enabling them to produce different shirts, every single time.

Quite an interesting business model. You can create the shirt you want, design and choose all the attributes to your preferences, and get it in the right size. And it is not even expensive.

Franke, N., Schreier, M. and Kaiser, U. (2010). The “I designed it myself” effect in mass customization. Management Science, 56(1), pp.125-140.

Randall, T., Terwiesch, C., & Ulrich, K.T. (2005). Principles for user design of customized products. California Management Review, 47(4), 68.