The economics of advertising and privacy

One of the new realities of advertising is that personal information can be used to ensure that advertising is only shown and designed for a select group of consumers who stand to gain most from this information. However, to gather the data used for targeting requires some degree of privacy intrusion by advertisers. This sets up a tradeoff between the informativeness of advertising and the degree of privacy intrusion. This paper summarizes recent empirical research that illuminates this tradeoff

Three findings regarding privacy online

The Internet now enables firms to collect detailed and potentially intrusive data about their customers both easily and cheaply. I discuss three empirical results related to customer privacy-protection that is enacted in response to this change

The Reach and Persuasiveness of Viral Video Ads

Many video ads are designed to go viral so that the total number of views they receive depends on customers sharing the ads with their friends. This paper explores the relationship between the number of views and how persuasive the ad is at convincing consumers to purchase or to adopt a favorable attitude towards the product. The analysis combines data on the total views of 400 video ads, and crowd-sourced measurement of advertising persuasiveness among 24,000 survey responses. Persuasiveness is measured by randomly exposing half of these consumers to a video ad and half to a similar placebo video ad, and then surveying their attitudes towards the focal product. Relative ad persuasiveness is on average 10% lower for every one million views that the video ad achieves. The exceptions to this pattern were ads that generated views and large numbers of comments, and video ads that attracted comments that mentioned the product by name. Evidence suggests that such ads remained effective because they attracted views due to humor rather than because they were outrageous.National Science Foundation (U.S.) (CAREER Award 6923256)NET Institut

How Does Popularity Information Affect Choices? A Field Experiment

Popularity information is usually thought to reinforce existing sales trends by encour- aging customers to ock to mainstream products with broad appeal. We suggest a countervailing market force: popularity information may bene t niche products with narrow appeal disproportionately, because the same level of popularity implies higher quality for narrow-appeal products than for broad-appeal products. We examine this hypothesis empirically using eld experiment data from a web site that lists wed- ding service vendors. Our ndings are consistent with this hypothesis: narrow-appeal vendors receive more visits than equally popular broad-appeal vendors after the intro- duction of popularity information

When Does Retargeting Work? Information Specificity in Online Advertising

Firms can now offer personalized recommendations to consumers who return to their website, using consumers' previous browsing history on that website. In addition, online advertising has greatly improved in its use of external browsing data to target Internet ads. Dynamic retargeting integrates these two advances by using information from the browsing history on the firm's website to improve advertising content on external websites. When surfing the Internet, consumers who previously viewed products on the firm's website are shown ads with images of those same products. To examine whether this is more effective than simply showing generic brand ads, the authors use data from a field experiment conducted by an online travel firm. Surprisingly, the data suggest that dynamic retargeted ads are, on average, less effective than their generic equivalents. However, when consumers exhibit browsing behavior that suggests their product preferences have evolved (e.g., visiting review websites), dynamic retargeted ads no longer underperform. One explanation for this finding is that when consumers begin a product search, their preferences are initially construed at a high level. As a result, they respond best to higher-level product information. Only when they have narrowly construed preferences do they respond positively to ads that display detailed product information. This finding suggests that in evaluating how best to reach consumers through ads, managers should be aware of the multistage nature of consumers' decision processes and vary advertising content along these stages.London Business School. Centre for MarketingNational Science Foundation (U.S.) (CAREER Award 1053398

Trademarks, Triggers, and Online Search

Internet search engines display advertisements along with search results, providing them with a major source of revenue. The display of ads is triggered by the use of keywords, which are found in the searches performed by search engine users. The fact that advertisers can buy a keyword that contains a trademark they do not own has caused controversy worldwide. To explore the actual effects of trademark and keyword advertising policies, we exploit a natural experiment in Europe. Following a decision by the Court of Justice of the European Union, Google relaxed its AdWords policy in continental Europe in September 2010. After the policy change, Google allowed advertisers to select a third party's trademark as a keyword to trigger the display of ads, with only a limited complaint procedure for trademark owners. We use click-stream data from European Internet users to explore the effect this policy change had on browsing behavior. Based on a data set of 5.38 million website visits before and after the policy change, we find little average change. However, we present evidence that this lack of average effect stems from an aggregation of two opposing effects. While navigational searches are less likely to lead to the trademark owner's website, non-navigational searches are more likely to lead to the trademark owner's website after the policy change. The effect of changing keyword advertising policies varies with the purpose of the consumers using the trademark, and it is more pronounced for lesser-known trademarks. The article points to tradeoffs trademark policy is facing beyond consumer confusion. More generally, the article proposes a novel way of analyzing the effect of different allocations of property rights in intellectual property law

How Does the Use of Trademarks by Third-Party Sellers Affect Online Search?

Firms that sell via a direct channel and via indirect channels have to decide whether to allow third-party sellers to use trademarked brand names of products in their advertising. This question has been particularly controversial for advertising on search engines. In June 2009, Google started allowing any third-party reseller of a product to use a trademark such as “DoubleTree” in the text of its ad, even if the reseller did not have the trademark holder's permission. We study the effects of this change empirically within the hotel industry. We find some evidence that allowing third-party sellers to use a trademark in their online search advertising weakly reduced the likelihood of a consumer clicking on a trademark holder's paid search ads. However, the decrease in paid clicks was outweighed by a large increase in consumers clicking on the unpaid links to the hotelier's website within the main search results. Our evidence shows that when a third-party seller focuses on a trademarked brand in its ads, the ads become less distinct, and customers are more likely to ignore the advertised offers and buy from the direct channel

Standardization and the Effectiveness of Online Advertising

The technological transformation and automation of digital content delivery has revolutionized the media industry. Increased reliance on automation has also led to requirements for standardization of content-delivery formats. This paper examines how the memorability of banner advertising changed with the introduction of new standards regularizing its format. Using data from randomized field tests, we find evidence that for most ads, ad effectiveness falls as the use of standard formats rises. The decline is smaller when a standardized ad appears to be more original (such as ads created by an ad agency). Therefore, a likely explanation is that increased use of a standard format makes it harder for basic ads to distinguish themselves from their competition because the ad format commands less attention

Frontiers of Health Policy: Digital Data and Personalized Medicine

This paper argues that due to two unstoppable mechanisms, some of the most pressing future questions in health policy will relate to the use of digital technologies to analyze data concerning patient health. The first mechanism is the shift away from a system where patient data was essentially temporary and not intended to be reused or easily accessed again, to a new digital world where patient data is easily transferred and accessed repeatedly. The second mechanism is a fundamental deepening of the nature of patient data that enables increased personalization of health care for each individual patient, based on not only their detailed medical history, but also their likely future medical history that can be projected for their genetic makeup. We summarize our research investigating the potential consequences of policies in this new world where patient data is virtually costless to store, share, and individualize. We emphasize that issues of data management and privacy are now at the forefront of health policy considerations. Digital data and digital technologies have the potential to transform medicine through two mechanisms. First, digital patient data is far easier to share and access than traditional paper records. This has many potential upsides, but also raises the question of how the potential benefits of sharing patient data are moderated by privacy concerns. Second, the advent of digital storage has now made it possible to store, virtually costlessly, vast swathes of data about any one individual patient. Such individualized data also enables a patient-centric approach to medicine, often referred to as “personalized” or “precision” medicine, based on that individual patient’s genetic makeup. This article discusses the potential benefits and possible policy consequences of this digital shift. It emphasizes that the benefits of digital technologies are found when data is actually transferred and repeatedly accessed. This emphasizes that policies that wish to encourage the potential upside of digital technologies should emphasize easy data transfer. Empirical evidence suggests that health-care providers may not individually have the right incentives to share data, and therefore if a policy aims to encourage data transfer it needs to not only subsidize the adoption of digital technologies, but also make sure that there are the right incentives to use these technologies to share data. Often, well-meaning policies toward data security and data privacy can hamper this process. This article also suggests that there are distinct concerns related to the deepening and individualizing of data that is associated with personalized medicine, and that while there is potentially a large upside in terms of medical outcomes, the risks associated with this data are unusual. If policymakers seek to encourage personalized medicine, they might be especially successful to employ an approach to data management that gives control of the use of the data to the patient.National Science Foundation (U.S.) (Career Award 6923256

Active Social Media Management: The Case of Health Care

Given the demand for authentic personal interactions over social media, it is unclear how much firms should actively manage their social media presence. We study this question empirically in a health care setting. We show that active social media management drives more user-generated content. However, we find that this is due to an incremental increase in user postings from an organization's employees rather than from its clients. This result holds when we explore exogenous variation in social media policies, employees, and clients that are explained by medical marketing laws, medical malpractice laws, and distortions in Medicare incentives. Further examination suggests that content being generated mainly by employees can be avoided if a firm's postings are entirely client focused. However, most firm postings seem not to be specifically targeted to clients' interests, instead highlighting more general observations or achievements of the firm itself. We show that untargeted postings like these provoke activity by employees rather than clients. This may not be a bad thing because employee-generated content may help with employee motivation, recruitment, or retention, but it does suggest that social media should not be funded or managed exclusively as a marketing function of the firm