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Press Release from the Journal of Marketing: Advertisers Beware: How Privacy-Preserving Policies Adopted by Companies Like Google Could Reduce Ad Effectiveness

Press Release from the Journal of Marketing: Advertisers Beware: How Privacy-Preserving Policies Adopted by Companies Like Google Could Reduce Ad Effectiveness

Marilyn Stone

Researchers from University of Notre Dame, University of Southern California, and San Diego State University published a Journal of Marketing study that examines unintended consequences of privacy-preserving policies that shorten the retention of consumer data.

The study, forthcoming in the Journal of Marketing, is titled “Within-Category Satiation and Cross-Category Spillover in Multi-Product Advertising” and is authored by Shijie Lu, Sha Yang, and Yao (Alex) Yao.

Online display advertising has become the dominant digital ad format and the industry is worth about $118 billion in the United States. Many advertising platforms, including online marketplaces like Yahoo Shopping and JD.com, online retailers such as Macy’s, and social media giants like Facebook and Instagram, utilize multiproduct advertising designs. These multiproduct ads (MPAs) allow platforms to display multiple products within a single ad unit, which is particularly advantageous for platforms with diverse offerings.

By exposing consumers to a variety of products simultaneously, MPAs potentially capture more attention. This presentation style can lead to two key consumer behaviors:

  1. Repeated exposure to similar ads from the same category in an MPA can lead to diminishing utility in click-throughs within that category. For example, consumers who clicked the first ad for a particular product may be less likely to click the third ad that is for the same product.
  2. The simultaneous display of ads from two different categories within an MPA can influence a consumer’s interest in both categories. For instance, seeing an ad for skincare next to an ad for cosmetics may pique a consumer’s interest in both categories, leading to a complementary effect.

MPAs and Privacy Policies

This new study examines MPAs to investigate the unintended consequences of privacy-preserving policies adopted by tech giants like Google. Lu explains that “our focus is particularly on policies that reduce the retention period of consumer behavioral data. We examine how these policies, designed to enhance consumer privacy, affect advertising effectiveness, consumer behavior, advertiser profits, and platform revenues.”

The research shows that while these privacy measures protect consumer data, they can inadvertently decrease consumer engagement and satisfaction with ads, ultimately resulting in fewer clicks and reduced ad performance. This decline is largely driven by the reduction in ad variety displayed in MPAs due to the shorter periods of consumer data used for targeting.

“This decrease in ad variety intensifies within-category satiation, which is when consumers lose interest in ads for similar products within the same category after repeated exposure,” says Yang. “It also diminishes cross-category complementarity, a term used when exposure to ads from different product categories enhance consumer interest in both.” These insights are critical for platforms as they strive to balance consumer privacy concerns with the need to sustain effective advertising strategies.

Lessons for Chief Marketing Officers

This research underscores the importance of understanding the trade-offs between privacy policies and ad effectiveness and provides marketers and consumers with the following insights:

  • Platforms should consider the implications of their privacy-preserving measures on ad variety and consumer engagement. While protecting consumer data is essential, it is equally important that these measures do not undermine the effectiveness of advertising strategies.
  • The relationship between the amount of consumer data used for targeting and advertisers’ profits highlights the possibility of finding an optimal privacy-preserving level in MPA when the platform considers not only its own revenue, but also the advertisers’ interests.

  • The results confirm the existence of within-category satiation and cross-category complementarity in ad-clicking behavior and reveal two consumer segments that differ in both the baseline preference and satiation in ad-clicking.
  • The study demonstrates the potential economic benefits of refining the ad-serving policy to incorporate advertisers’ bidding strategies and consumer preferences when allocating ad slots.
  • Incorporating consumers’ clicks, accounting for within-category satiation and cross-category spillover, proves more beneficial for platforms than solely relying on advertisers’ bids in the ad-allocation policy.
  • Advertisers should be aware of how changes in data usage and ad variety can affect their bidding strategies and overall campaign performance.
  • Platforms can adjust the reservation price (minimum bid) in auctions that indirectly influences consumers’ within-category satiation and cross-category spillover through ad variety. An increase in the reservation price benefits the platform, but hurts both advertisers and consumers. The platform must be careful when setting the reservation price and account for its potential impact on ad variety and category compositions in MPA.

Yao says that “our study highlights the complex interplay between privacy policies and advertising effectiveness. As privacy concerns continue to shape the digital advertising landscape, platforms and advertisers must navigate these challenges to optimize ad performance and protect consumer interests.”

Full article and author contact information available at: https://doi.org/10.1177/00222429241274727

About the Journal of Marketing 

The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Shrihari (Hari) Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) serves as the current Editor in Chief. https://www.ama.org/jm

About the American Marketing Association (AMA)

As the leading global professional marketing association, the AMA is the essential community for marketers. From students and practitioners to executives and academics, we aim to elevate the profession, deepen knowledge, and make a lasting impact. The AMA is home to five premier scholarly journals including: Journal of MarketingJournal of Marketing ResearchJournal of Public Policy and MarketingJournal of International Marketing, and Journal of Interactive Marketing. Our industry-leading training events and conferences define future forward practices, while our professional development and PCM® professional certification advance knowledge. With 70 chapters and a presence on 350 college campuses across North America, the AMA fosters a vibrant community of marketers. The association’s philanthropic arm, the AMA’s Foundation, is inspiring a more diverse industry and ensuring marketing research impacts public good. 

AMA views marketing as the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. You can learn more about AMA’s learning programs and certifications, conferences and events, and scholarly journals at AMA.org.

Marilyn Stone is Director, Academic Communities and Journals, American Marketing Association.

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