Reports

Trade-offs in Online Advertising: Advertising Effectiveness and Annoyance Dynamics across the Purchase Funnel

Vilma Todri, Anindya Ghose, and Param Vir Singh, 2019, 19-126-08

Today, advertisers can control media scheduling and increase the frequency of individual-level display-advertising exposures to draw consumers' attention. But is this always a good idea? The popularity of ad-blocking software suggests not.

Advertisers know that display advertising can be effective in transitioning consumers further down the purchase funnel. The question is, when does display advertising cease to be effective and instead, become annoying, thus undermining the advertiser’s goals?

In this study, Vilma Todri, Anindya Ghose, and Param Vir Singh capture the trade-offs between effective and annoying display advertising. They investigate both the enduring impact of display advertising on consumers' purchase decisions and the potential of persistent display advertising to stimulate annoyance in consumers.

Their dataset was collected in collaboration with a major U.S. online media analytics platform, which handles the online campaign of an online retailer. From May to October 2014, the company ran paid search as well as display advertising campaigns across various websites. The dataset contained advertising exposures and user actions, such as direct visits to the advertiser's website and organic search-engine clicks.

Using a Hidden Markov Model, the authors examine the structural dynamics of the advertising effects by allowing these effects to be contingent on the latent state of the purchase funnel in which each consumer resides.

Importantly, they find that consumers at different stages of the purchase funnel exhibit considerably different tolerance for annoyance stimulation. For example, the threshold of annoyance in display-advertising exposures is about two times higher for consumers who reside in the Interest state compared to those in the Awareness state of the funnel path.

Further, the format of display advertisements (static vs. animated), the diversification of ad creatives, and consumer demographics moderate consumers' thresholds for annoyance elicitation.

Put into Practice

Digital advertisers should adapt their online display-advertising scheduling and optimize the frequency of individual-level exposures. They should take steps to reduce annoyance by limiting the exposure of consumers to excessive display advertising exposures in a certain time period; such frequency thresholds for annoyance stimulation are contingent on the state of the purchase funnel in which consumers reside. Also, advertisers can reduce consumer annoyance elicitation by diversifying the display ad creatives shown to consumers as well as by employing static, rather than animated, display ads.

Publishers and advertising networks should facilitate the granular tracking of advertising exposures at the consumer level and provide mechanisms that would allow advertisers to enforce a limit on the frequency of advertising exposures at the individual-consumer level during a certain time period.

Finally, it would be strategically meaningful for publishers and advertising networks to track subtle signals of consumer browsing behavior at a granular level, that can provide valuable insights into latent state of the augmented purchase funnel in which consumers reside, in order to optimize the frequency of display-advertising exposure to the customer’s stage in the purchase funnel and avoid consumer annoyance.

Vilma Todri is Assistant Professor of Information Systems & Operations Management, Goizueta Business School, Emory University. Anindya Ghose is the Heinz Riehl Chair Professor of Business, Stern School of Business, New York University. Param Vir Singh is Carnegie Bosch Chair, Director of PNC Center for Financial Services Innovation, and Professor of Business Technologies, David A Tepper School of Business, Carnegie Mellon University.

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