Consumer Privacy Choices and (Un)Targeted Advertising Along the Purchase Journey

Abstract

Advertising to a consumer provides potentially useful information to the consumer and moves them along the purchase journey, and tracking the consumer's online activities enables an advertiser to infer the consumer's purchase journey state and target repeat ads accordingly. However, many consumers dislike being tracked, and, furthermore, repeat advertising may lead to ad wearout. The authors develop a model with consumers, an advertiser, and an ad network to investigate, under the preceding considerations, the impact of regulations that endow consumers with the choice to opt in to or out of online tracking. The authors find that, if ad effectiveness is intermediate, opting in to tracking decreases ad repetition; otherwise, opting in increases ad repetition. To make an opt-in decision, a consumer weighs the cost of ad wearout from repeat ads against the benefit of obtaining potentially relevant product information from them, and the consumer opts in to tracking if either ad effectiveness is intermediate or sensitivity to ad wearout is low. This opt-in pattern creates counterintuitive implications; for instance, higher ad effectiveness, even though it implies higher ad valuation for the advertiser, may reduce repeat ads and the ad network's profit. Under regulation that requires consumer consent for tracking, the results shed light on when and why consumers give such consent, and provide useful insights for practitioners and policy makers.