Targeted Advertising and Consumer Privacy Concerns. Experimental Studies in an Internet Context

The rush of marketing expenditures in the Internet has made effectiveness andefficiency increasingly relevant. In particular, online firms offering free contentneed to provide powerful marketing tools to advertisers to support their ownbusiness models. Behavioral targeting enables websites to selectively displayadvertisements to consumers according to their surfing profiles, makingadvertisements more relevant, and thereby increasing advertising revenues fromwebsites. Consequently, it is often seen as a savior by online firms struggling tofinance their free content. However, targeting can raise privacy concerns, leadingto negative consumer reactions. Furthermore, there is increasing regulatorypressure for websites to inform surfers about targeting practices and provide themwith opt-in or opt-out functions. Proactively addressing those challenges tosustain revenues from targeted advertising is highly importantżin particular foradvertising-supported websitesżand requires systematic research. Such research,though, has to account for the fact that the profiling of consumers to increaseadvertising revenues raises ethical questions, especially because targeting oftenoccurs without consumers' knowledge.This doctoral dissertation studies consumer privacy concerns with regard to onlinetargeting practices. Specifically, it investigates how privacy concerns affectconsumers' perceptions of targeted advertisements. Furthermore, building onsocial exchange theory, fairness norms, and previous research on consumerprivacy concerns in related areas, such as direct mail and e-commerce, I developtangible, managerial operational mechanisms to increase consumers' acceptanceof targeting and improve consumers' perceptions of targeted advertisements. Inorder to ensure that these mechanisms are in line with principles of businessethics, I derive normative requirements for these mechanisms from integrativesocial contracts theory.I test these mechanisms and explore the related cognitive processes in twoexperimental studies - a laboratory and a large-scale field experiment on twopopular German websites.1 First, I find that under certain conditions, surfers arehighly motivated by reciprocity. Specifically, when reminded that targeted onlineadvertisements support free content and when asked to voluntarily reciprocate thewebsite for providing its free content, consumers do not only more readily consentto targeting, but also perceive targeted advertisements as less intrusive. The effectof appealing to reciprocity on consumers' acceptance of targeting is driven byconsumers' desire for distributive justice. It is notżas one might believeżdrivenby selfish motives, such as the expectation of receiving free content in the future.Second, in contrast to the current industry practice, I find that informingconsumers that targeting makes advertisements they see on the Internet moreinteresting to them does not have any significant effect. This finding shows thatthere is currently great potential for the online advertising industry to change theway it promotes and justifies targeting to consumers. Finally, I find that providingconsumers with a high level of control over their information not only increasestheir perceptions of procedural justice, but also reduces privacy concerns,increases trust, and thus the acceptance of targeting. As such, my researchsuggests that it is advisable to allow consumers to access and edit the anonymousprofiles stored in their cookiesża practice currently followed by very fewwebsites and advertising networks.Overall, this doctoral dissertation contributes to a very new academic researchfield studying targeted online advertising and consumer privacy concerns. Incontrast to previous studies, which have all described the challenges related toprivacy concerns, this study focuses on reconciling consumers' legitimate desireto protect their privacy and the interests of the Internet industry which requirespowerful marketing tools. Thus, from a practical perspective, this dissertationidentifies mechanisms for websites in general and for żfree content' websites inparticular to sustain or even increase their advertising revenues. As such, myfindings may help advertising-supported online businesses to keep their servicesfree of charge and thereby to sustain the consumer surplus they generate. Throughthe combination of real behavioral and self-reported data, the findings areparticularly robust and might further stimulate the debate on consumer privacy,advertising effectiveness, and the financing of free content among academics,practitioners, and regulators.