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Behavioral Targeting: The Holy Grail of Online Marketing

Behavioral targeting, under which users are presented with advertisements based on their past browsing and search behavior and other available information (e.g., hobbies registered on a website), has been hailed as the new Holy Grail in online advertising.We will refer to the economic implications when an online publisher engages in behavioral targeting. Revenue for the online publisher in some circumstances can double when using behavioral targeting. On the other hand, increased revenue for the publisher is not guaranteed: in some cases the prices of advertising and hence the publisher's revenue can be lower, depending on the degree of competition and the advertisers' valuations. Although social welfare is increased and small advertisers are better off under behavioral targeting, the dominant advertiser might be worse off and reluctant to switch from traditional advertising.

A simple question

Who benefits (and what are the conditions required) from behavioral targeting as compared to traditional advertising? Would the online publisher benefit from the targeting of advertisements? Because of the increased effectiveness of behaviorally targeted advertisements, conventional wisdom would suggest that the answers to these questions are easily predicted, as summed up in an article in the Economist about behavioral targeting:  [...], Advertisers will be prepared to pay more to place ads, since they are more likely to be clicked on. That in turn means that websites will be able to charge more for their advertising slots.  (Economist, 2008)

However, this expected relationship between charges and clicks does not necessarily emerge when the advertisement slot is auctioned off . Instead, using targeted advertisements turns out to be similar to product differentiation: it causes relaxed competition between the advertisers, and hence it is possible that advertisers need not pay as much as they do under traditional advertising. That is, by focusing on a specific user segment, an advertiser's advertisement may be selected with a relatively low price on this segment, whereas under traditional advertising his advertisement would never have been selected or would have been selected only at a higher price. This competitive effect can depress the online publisher's income by realizing a lower revenue per click-through.

Competitive and Propensity effect

On the other hand, the negative effect of relaxed competition for online publishers might be off set by a positive propensity effect. Through targeting advertisements,the probability of a click-through is increased resulting in a higher volume of click-throughs, which positively contributes to the publisher's revenue. Whether the publisher can benefit from behavioral targeting depends on the trade-off between the competitive effect and the propensity effect. Behavioral targeting outperforms traditional advertising only if the competitive effect is dominated by the propensity effect. In particular,when the advertisers competing for the advertising space are comparable and the number of advertisers is large, behavioral targeting generates more revenue for the publisher. This gain under behavioral targeting is increasing in user heterogeneity and the number of advertisers, and the expected revenue for the publisher can double compared to traditional advertising.

 Online consumer heterogeneity: An advertiser for each face.

Asymmetry

The whole research,conducted by Jianqing Chen and Jan Stallaert,University of Texas and Connecticut respectively, proved that that the effect of behavioral targeting on different advertisers' payoffs is asymmetric. While small advertisers are generally better off under behavioral targeting by winning their favorable users, the dominant advertiser may or may not be better off .The dominant advertiser is worse off under behavioral targeting when it has a significant competitive advantage over its competitors because under traditional advertising, he would otherwise grab a larger group of users and still realize a decent payoff . The real benefit brought by the increased effectiveness of behavioral targeting is realized in social welfare. In the end,the social welfare of both publisher and advertisers can be maximized under behavioral targeting.

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Behavioral marketing

Emotional cues that work magic for customers

 Marketers have long understood that emotions play an important role in consumer decision making. But, as the latest scientific evidence suggests, their influence is much more nuanced and complex than many are aware. Subtle, rather than intense, emotional reactions are often more persuasive. Short-lived emotions can have lasting effects. The experience and expression of negative emotions can sometimes be beneficial. Emotional experiences are often poorly predicted and remembered. In all these areas, a better understanding of emotions will help managers tailor their own act to give better prompts and get the desired response from consumers, in order to maximize customer satisfaction and loyalty at every stage of the encounter.

Customers tend to be quite aware of how intense emotions can affect their decisions: The overcrowding and long lines at the Ikea checkout may leave customers fuming. But as they march out of the store vowing never to shop there again, they may well indulge in an impulse buy on the way out, just to relieve the stress they’re feeling.

What just happened? We often focus on the influence of intense emotions, yet ignore how subtler feelings might also be affecting consumer actions and choices, perhaps on an unconscious level. Mild emotions, whether positive or negative, can trigger or inhibit consumer actions just as powerfully as intensely realized ones.This means that, in order to ensure that your customers feel happy and relaxed when dealing with your business, it is important to pay attention to small cues that can improve their mood or dispel potentially inhibiting negative emotional states.

It is possible to enhance the appeal of your business by exploring areas in which you can evoke positive emotions, which lead to favorable evaluations and increase purchasing intentions. A pleasant scent and music may lure a customer into a store. A smile from a flight attendant may encourage a passenger to buy from the duty-free cart.Simple improvements like this – to alleviate any mild discomfort, and to enhance a positive atmosphere – are easy to implement and can turn a passerby into a lifelong client.

 Creating a pleasant atmosphere with music, scent, lighting or other atmospherics has long been known to provoke positive emotional reactions. But certainly, customer service is always crucial: saying the right words at the right time, remaining calm when faced with an agitated customer or client, going the extra mile.If there are areas of your business that may contribute to a negative emotional state, evaluate how you can alter the emotion for a positive evaluation of the atmosphere. For example, convert frustration to pleasant anticipation during a long wait at a popular restaurant by offering a taste of what’s to come, such as free hors d’oeuvres or beverages.

The Lasting Impact of Short-Lived Emotions

 Many businesses have understood how they can use the mild and mundane emotional experiences of their consumers to influence decisions at that moment. But affecting emotions in the short term can have long-term consequences, as people may form an evaluation or commit to a course of action while experiencing the initial emotion, which will impact their future behavior.Using the classic social science ultimatum game, in one recent paper we explored and confirmed that, in fact, the impact of emotions on behavior can outlive the emotional experience itself.

 In this game, a “proposer” makes an offer to split a given amount of money with a “receiver.” If the person playing the “receiver” feels that the deal is unfair, then that person can reject the offer, and both participants end up with nothing.In our experiment, we began manipulating receivers’ mood by showing them movie clips that sparked either anger or happiness. Subsequently, they were asked to play two ultimatum games.

 In the first game, the proposer would offer the receiver an unfair division of the available amount of money: the proposer would get 75 percent and the receiver 25 percent. Angry receivers rejected these unfair offers at a much higher rate than happy receivers. Even if rejecting the offer meant being left with nothing, the angry participants held to their rationale that unfairness was the basis of their decision.The twist came in the latter round, once the initial emotional reaction had already dissipated. In the next ultimatum game, the once-angry receivers were asked to play the role of the proposer, the majority of whom chose to make fairer offers.

Because people tend to behave consistently with past actions, earlier choices triggered by an incidental emotion became the basis for future decisions.When angry participants made their decision to reject an unfair offer in the first instance, they acquired a self-image of being and acting as fair individuals. Exercising fairness – which resulted from the anger they felt earlier – carried over to a future scenario. Even though the initial anger that triggered the desire for fairness had disappeared, the once-angry proposer is instead guided by behavioral consistency.

Once an emotion has prompted us to choose a course of action, we run into internal and external pressures that continually push us into making similar choices in the future. The image that we have of ourselves – as fair individuals, generous or frugal, socially conscious, conservative or fun-loving – as well as the image that we hope others will have of us, compels us to act consistently in the future.

Another way in which the impact of emotions can outlive the emotional experience itself and influence consumers is through the recall of a previously biased evaluation of a product or service.

Perhaps a biased evaluation

To take a marketing example: A humorous ad can positively bias the evaluation of the product. Based on the positive emotion triggered by that ad, in the future the positive evaluation is recalled, not the current emotional state, and that once-happy moment experienced in the past guides a new decision. Thus, the key is to find ways of making the consumer spontaneously form an evaluation of the product or service while in a good mood, which will then affect subsequent recall and purchase intentions.

Applying the lesson

The phenomena described above lead to two clear suggestions: take advantage of behavioral consistency; and stimulate consumers to form evaluations while in a good mood.Businesses can harness the consistency of self-image in order to appeal to customers. One example of this is in stakeholder marketing. In many countries, retailers have replaced disposable plastic bags with reusable cloth bags. A consumer may initially be put off when they dis-cover they have to pay for a cloth bag. But they inevitably feel good about their contribution to the environment. Behavioral consistency will take over from there as they acquire the self-image of being conscientious about their role in reducing waste and pollution. In this case, the 1 euro they spend commits them to similar decisions in the future, a case in which the emotion triggered maximizes the benefit for all stakeholders (Andrade & Capizzani, Berkeley).

Coca-Cola has been famous for putting viewers of their ads in a good mood. Whether in the ’70s with “I’d like to teach the world to sing” jingle, or during the 2010 FIFA World Cup in South Africa, the adverts trigger a spontaneous, positive emotion. Yet the decision and action to buy Coke may come days or weeks after seeing the ad.

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