Book Description

The rush of marketing expenditures in the Internet has made effectiveness and efficiency increasingly relevant. In particular, online firms offering free content need to provide powerful marketing tools to advertisers to support their own business models. Behavioral targeting enables websites to selectively display advertisements to consumers according to their surfing profiles, making advertisements more relevant, and thereby increasing advertising revenues from websites. Consequently, it is often seen as a savior by online firms struggling to finance their free content. However, targeting can raise privacy concerns, leading to negative consumer reactions. Furthermore, there is increasing regulatory pressure for websites to inform surfers about targeting practices and provide them with opt-in or opt-out functions. Proactively addressing those challenges to sustain revenues from targeted advertising is highly important—in particular for advertising-supported websites—and requires systematic research. Such research, though, has to account for the fact that the profiling of consumers to increase advertising revenues raises ethical questions, especially because targeting often occurs without consumers’ knowledge. This doctoral dissertation studies consumer privacy concerns with regard to online targeting practices. Specifically, it investigates how privacy concerns affect consumers’ perceptions of targeted advertisements. Furthermore, building on social exchange theory, fairness norms, and previous research on consumer privacy concerns in related areas, such as direct mail and e-commerce, I develop tangible, managerial operational mechanisms to increase consumers’ acceptance of targeting and improve consumers’ perceptions of targeted advertisements. In order to ensure that these mechanisms are in line with principles of business ethics, I derive normative requirements for these mechanisms from integrative social contracts theory. I test these mechanisms and explore the related cognitive processes in two experimental studies – a laboratory and a large-scale field experiment on two popular German websites.1 First, I find that under certain conditions, surfers are highly motivated by reciprocity. Specifically, when reminded that targeted online advertisements support free content and when asked to voluntarily reciprocate the website for providing its free content, consumers do not only more readily consent to targeting, but also perceive targeted advertisements as less intrusive. The effect of appealing to reciprocity on consumers’ acceptance of targeting is driven by consumers’ desire for distributive justice. It is not—as one might believe—driven by selfish motives, such as the expectation of receiving free content in the future. Second, in contrast to the current industry practice, I find that informing consumers that targeting makes advertisements they see on the Internet more interesting to them does not have any significant effect. This finding shows that there is currently great potential for the online advertising industry to change the way it promotes and justifies targeting to consumers. Finally, I find that providing consumers with a high level of control over their information not only increases their perceptions of procedural justice, but also reduces privacy concerns, increases trust, and thus the acceptance of targeting. As such, my research suggests that it is advisable to allow consumers to access and edit the anonymous profiles stored in their cookies—a practice currently followed by very few websites and advertising networks. Overall, this doctoral dissertation contributes to a very new academic research field studying targeted online advertising and consumer privacy concerns. In contrast to previous studies, which have all described the challenges related to privacy concerns, this study focuses on reconciling consumers’ legitimate desire to protect their privacy and the interests of the Internet industry which requires powerful marketing tools. Thus, from a practical perspective, this dissertation identifies mechanisms for websites in general and for ‘free content’ websites in particular to sustain or even increase their advertising revenues. As such, my findings may help advertising-supported online businesses to keep their services free of charge and thereby to sustain the consumer surplus they generate. Through the combination of real behavioral and self-reported data, the findings are particularly robust and might further stimulate the debate on consumer privacy, advertising effectiveness, and the financing of free content among academics, practitioners, and regulators.