Researchers from the University of Notre Dame, the University of Southern California, and San Diego State University have conducted a study to explore the unforeseen impacts of privacy-centric policies that limit the duration of consumer data retention. This research is set to be published in the Journal of Marketing under the title “Within-Category Satiation and Cross-Category Spillover in Multi-Product Advertising,” authored by Shijie Lu, Sha Yang, and Yao (Alex) Yao.

Online display advertising, now the predominant form of digital advertising, has cultivated an industry valued at approximately $118 billion in the United States alone. Numerous advertising platforms, including online marketplaces like Yahoo Shopping and JD.com, major online retailers like Macy’s, and social media behemoths like Facebook and Instagram, employ multi-product advertising (MPA) strategies. These MPAs enable showcasing several products within a single advertisement, proving particularly beneficial for platforms with a wide range of offerings.

The strategic layout of MPAs allows for the simultaneous exposure of consumers to various products, thereby capturing more attention. This method of presentation may lead to two primary consumer responses: Firstly, the repeated exposure to similar ads from the same category within an MPA might cause a decrease in interest and click-through rates for those ads over time, as consumers may find less novelty or relevance in subsequent ads for the same product. Secondly, the concurrent display of advertisements from different categories can enhance consumer interest in both categories, creating a complementary effect between them.

This new study aims to assess the unintended consequences of privacy-oriented policies implemented by technology giants like Google, which aim to shorten the period during which consumer behavioural data is retained. The research finds that while these policies safeguard consumer privacy, they inadvertently lead to reduced consumer engagement and satisfaction with advertisements, ultimately diminishing ad performance due to decreased clicks. This reduction in ad performance is primarily attributed to a decrease in the variety of ads shown in MPAs, stemming from the shortened data retention period used for targeting.

Shijie Lu highlights that these privacy measures intensify “within-category satiation”—where consumers lose interest in similar products after frequent exposure—and diminish “cross-category complementarity,” where exposure to ads from different product categories mutually enhances interest. These dynamics are crucial for platforms to consider as they aim to balance consumer privacy with effective advertising strategies.

The study offers insights for Chief Marketing Officers and advertising platforms, emphasising the importance of understanding the trade-offs between privacy policies and advertising efficacy. It suggests that platforms carefully weigh the effects of their privacy measures on ad variety and consumer engagement. Although protecting consumer data is critical, ensuring these measures do not compromise advertising effectiveness is equally important.

Further, the research underscores the potential economic benefits of refining ad-serving policies to include advertisers’ bidding strategies and consumer preferences in ad slot allocations. It reveals the existence of two distinct consumer segments that differ in both baseline preferences and satiation levels in ad-clicking behaviour, suggesting more sophisticated ad-allocation policies that account for within-category satiation and cross-category spillover could prove more beneficial for platforms than strategies solely based on advertisers’ bids.

Lastly, the study sheds light on how platforms might adjust the reservation price in ad auctions to influence consumer behaviour through ad variety indirectly and how such adjustments could benefit the platform. Still, it might adversely affect both advertisers and consumers. Yao (Alex) comments on the study: “Our research highlights the intricate interplay between privacy policies and advertising effectiveness. As privacy concerns continue to influence the digital advertising landscape, both platforms and advertisers must navigate these challenges to optimise ad performance while safeguarding consumer interests.”

More information: Shijie Lu et al, Within-Category Satiation and Cross-Category Spillover in Multiproduct Advertising, Journal of Marketing. DOI: 10.1177/00222429241274727

Journal information: Journal of Marketing Provided by American Marketing Association