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According to researchers at Stanford, highly targeted ads may not be all they're cracked up to be.
Based on a mathematical model they built based on game theory, the researchers instead suggest that advertisers "prefer to remain in a state of partial willful ignorance so as to preserve communication credibility."
Eilene Zimmerman explains...
In this case, the researchers were looking at cheap talk in retail, for example, an ad promising 'Lowest Prices in Town'.
That can be credible when it’s used to draw in appropriate customers; in this case, those who are price sensitive.
At the same time...
They found that the most personalized ads were less effective because consumers worried they were being exploited.
For example, says [Stanford Graduate School of Business professor Pedro Gardete], someone looking for a prom dress 'might get an ad from a retailer saying, "We have a wide selection of prom dresses! Click on this link!" The consumer clicks, and it turns out the retailer has dresses for all occasions but not specifically proms,' says Gardete.
Those kinds of ads frustrate consumers and eventually become meaningless to them.
Based on this, Gardete suggests that businesses might adopt a "less is more" approach in which less information is collected, information collection is more transparent, and targeting is used more sparingly.
Theory versus reality
While there's no doubt that a growing number of consumers are concerned about their privacy and how marketers are using information to track and target them, given the continued level of interest and investment in targeting tech and targeted ad offerings, does the researchers' model actually reflect reality?
Obviously, a hypothetical retailer falsely promoting that it has a wide selection of prom dresses when it doesn't isn't likely to see good results, but this isn't how most experienced digital marketers are operating.
As an example, AdRoll, a performance marketing platform provider, detailed in a case study (PDF) how one apparel retailer used retargeting to deliver a 10.5x average ROI, 13% conversion lift and 33% lower CPA than average for other apparel retailers.
Facebook Custom and Lookalike Audiences have delivered similarly impressive results.
Crowdfunding platform Tilt doubled its conversion rate using Custom Audiences, and lowered its mobile cost per install by 30% using Lookalike Audiences.
And Hospitality giant MGM realized a greater than 5x return on spend using Custom Audiences.
Needless to say, any specific marketer's mileage will vary, but on the whole, marketers are becoming more and more adept at targeting consumers online and doing so to good effect.
That doesn't mean that marketers should rely on targeted ads exclusively, and the Stanford research is a reminder that targeted ads need to deliver what they promise to consumers.
But targeted ads are here to stay because they work well enough of the time, even if many consumers say they don't like them.