Is Behavioral Advertising Effective?

May 24, 2019

Is Behavioral Advertising Effective?

Is Behavioral Advertising Effective?

Every moment that we use our smart devices, we hemorrhage personal information to data aggregators. The rationale behind the tradeoff is simple: share your personal data and enjoy a personalized online (mainly shopping) experience. Meanwhile, ad agencies justify higher advertising fees by telling advertisers that targeted behavioral advertising increases sales.

An in-depth, long-term study by the Wall Street Journal shows that matters are not quite so straightforward. It comes on the heels of another study which found that the conversion rate for behavioral advertising is only a dismal 4% higher than untargeted advertising.

The Value of Behavioral Advertising

Research suggests that advertisers who currently pay prices 2.68 times more for targeted ads should reconsider their marketing strategy. Should such a shift happen, it may force ad agencies to recalibrate their own share of the pie, which currently stands at an astounding 60%.

Until now, advertisers have found it difficult to challenge this huge markup because of the opacity of the advertising ecosystem. Intentionally or otherwise, it is nearly impossible to accurately determine the value of each component's contribution to a sale.

On the other hand, there may be some respite for big tech companies that have a stranglehold on online advertising revenue.

It has been suggested that the middling disparity between conversions for targeted and non-targeted ads could be attributed to imperfect tracking methodology. Consumers may not click and purchase via a targeted ad immediately but it may still influence their decision to buy the next day or week.

In that sense, behavioral advertising may work but in a manner far too complicated for it to be accurately tracked and valued.

A Shifting Legal Landscape

Either way, it seems that major changes are already underway, particularly in the international sphere. The introduction of Europe's GDPR (General Data Protection Regulation) has inspired countries around the world, including Brazil, Nigeria and Japan to follow suit. In the absence of comprehensive federal laws in the US, California rolled out its California Consumer Privacy Act (CCPA) in 2018.

The writing on the wall is clear. Privacy concerns are at odds with targeted advertising, and both individuals and elected officials are on the side of the former. Companies looking to invest in behavioral advertising should take some time to consider the implications that legal hurdles may pose to their marketing plans in the near future. At the same time, individual users ought to reevaluate whether the "Accept Cookies" or "Grant Permissions" buttons on their screens are worth the compromise of their privacy.

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