When does Retargeting Work? Information Specificity in Online Advertising

Abstract

Firms can now serve personalized recommendations to consumers who return to their website, based on their earlier browsing history on that website. At the same time, online advertising has greatly advanced in its use of external browsing data across the web to target internet ads. 'Dynamic Retargeting' integrates these two advances, by using information from earlier browsing on the firm's website to improve internet advertising content on external websites. Consumers who previously visited the firm's website when surfing the wider web, are shown ads that contain images of products they have looked at before on the firm's own website. To examine whether this is more effective than simply showing generic brand ads, we use data from a field experiment conducted by an online travel firm. We find, surprisingly, that dynamic retargeted ads are on average less effective than their generic equivalent. However, when consumers exhibit browsing behavior such as visiting review websites that suggests their product preferences have evolved, dynamic retargeted ads no longer underperform.

Keywords: online advertising, advertising effectiveness, retargeting, online consumer behavior, information specificity, consumer decision process

JEL Classification: M3, M31, M37