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Does Personalized Advertising Boost Conversions? Here’s the Research-Based Answer

Posted by Jeremy Smith on Feb 19, 2019 11:16:43 AM

The latest rage in marketing is personalized advertising, a.k.a., retargeting. It has outstripped paid search and SEO as the most sought-after marketing technique around. It demonstrates the pinnacle of marketing technology, and allegedly the most advanced form of reengaging customers.

And, like just about anything in the digital marketing space, it’s hotly debated.

Some people cry “Wolf!” over the “invasion of privacy.” They glare at marketers who, they think, are rubbing their hands in sinister glee while stockpiling gigabytes of personalized data about their daily lives.

Marketers, on the other hand, are simply subscribing to “retargeting” services, not really knowing how it works or what it does, except that they’re racking up a heckuvalot more leads and conversions.

My question cuts right to the heart of the issue, past the debate and brouhaha, and into the issue that most marketers want to know: Does personalized advertising boost conversions?

What is the Value of Personalized Advertising?

First, let’s make sure we understand the whole point of the discussion. What exactly are we talking about here?

You may know it by the term “retargeting.” Retargeting, or personalized advertising, is a way for advertisers to recapture a customer who visits their site (but doesn’t buy anything).

Retargeting can track all kinds of user behavior using lightweight Javascript codes.

Perfect Audience describes it in three simple steps:

  1. You "cookie" visitors to your site with a tracking tag.

  2. Our platform "finds" your visitors across the web and serves your ads to them in real time.

  3. Your visitors click, return, and convert. You get more sales.

It’s now everywhere. Yep, even on your social media. Heck, even I’m helping my clients join the retargeting game.

Take social media for example. It’s no secret that Facebook knows you really well. You have disclosed your life to its digital heart, and it’s going to give you what it thinks you want.

That’s why those news feed links, “recommended games" and “sponsored” ads are so appealing. Can you tell what I’ve been browsing based on these ads?

facebook personalized ad

It’s the secret life of a conversion optimizer’s browsing history. (Except I’m not into King’s Road or Island Experiment. Not sure where those came from …)

Should you create personalized ads?

The whole idea of personalization strikes a lot of people as “kind of creepy.”

This is what Tania Lombrozo opined in her NPR article, “Why Personalized Internet Ads Are Kind Of Creepy.” She wrote, “It's not exactly sinister. But it is a little creepy.”

Call it sinister or call it creepy. Whatever it is, people respond negatively to any perceived intrusion of their conception of privacy.

1. It seems like an invasion of privacy.

A whopping 75% of customers say that “Collecting user information to personalize search results is not okay.” Whew!

Well, why not? The overwhelming majority of respondents cited privacy concerns as the main reason.

three-quarter of search users say collecting user information to personalize search results is not ok

(Image source)

Something about Big Brother, over-the-shoulder snooping, it’s all the same. People just are generally not okay with it.

two-thirds of interent users view online personalized advertising negetively

The paradox, as Forbes columnist Robert Hof adroitly points out, is that people actually want relevant search results. If tracking their behavior means relevant results, are they willing to make the sacrifice? You can’t have it both ways.

A Yahoo survey surfaced the same paradox. Sixty-five percent  of survey respondents wanted privacy, but they also wanted control over their personalization (58%).

85 percent of users wanted control over their personalization

(Image source)

Unfortunately, technology hasn’t quite caught up to the complex preferences of consumers yet. But some e-commerce sites are truly trying.

I occasionally see websites admit that they are using cookies.

cookies notification

I also recently found out that I can customize my Amazon preferences on personalized ads:

amazon personalized advertising preference

I generally know what I want and how to get it. But does it bother me if Amazon recommends a good book, a comfy set of ear buds, or a nice desk lamp? Naw, I don’t mind at all.

I’m willing to allow them to see what I’m doing, as long as I get what I want in return: Relevance.

There’s a perceived social trade off in the privacy vs. personalization debate. On the one hand, I have to give up something — my privacy. But in return, I get something — things I want, need and will be interested in.

When I analyze this exchange even closer, the tradeoff isn’t half bad. I’m being tracked, not by some 007 agent with a gun, but by bits of technology.

There is no individual personally interested in violating my privacy, tapping my phones, or bugging my house. There is simply technology that predicts my preferences and develops targeted ads.

The result is good for me, and good for the retargeting e-commerce site.

But here’s the real question — are personalized ads better for conversions?

I am genuinely interested in what people like — their preferences, druthers, passions, dislikes and overall temperament. But my real question gets to the heart of the issue for conversion optimizers the world over.

Do personalized ads improve conversions?

The simple answer is “yes.”

1. Personalized ads attract more attention and make ads easier to remember.

Let me walk you through the scientific reason for this. Researchers at the University of Cologne recently launched an in-depth scientific examination of the impact of personalized online advertising. The researchers, Kai Kaspar, Moritz Köster, Marco Rüth and Dr. Kai-Christoph Hamborg, used as their test subjects a group of subjects from the university.

The control group read web pages that included ads from companies and businesses that the students were assumed not to be familiar with. These were the untargeted ads.

Other students in the test group viewed the same web pages, with one significant difference: The ads were personalized, in that they included businesses for which the students had a known affinity.

The researchers were interested in finding out how much visual attention and recognition memory the students had for the various ads — personalized vs. non-personalized. They used eye-tracking data and follow-up questions to gain their information.

The results? There were two major takeaways, one for eye tracking and one for recognition memory:

  1. Subjects who were presented with personalized ads had much higher attention, as indicated by their eye tracking. The non-personalized ads, by contrast, got scant attention. In scientific statistical speak, the attention was “nonsignificant.”

  2. Subjects who viewed personalized ads had much better memory recall of the content of the ads. They recognized the images and slogans with far greater accuracy than the nonpersonalized ads.

The findings confirmed the researchers’ hypotheses, but they also gave them additional insights:

  • Personalized ads didn’t affect the subject’s exploration of the rest of the page. For instance, when subjects were asked to associate the news articles with the ads they saw on those articles, memory recall was limited. This finding probably means that personalization is effective regardless of the medium — i.e., ads on a news source vs. a blog article, etc. Researchers recorded that “Overall exploration of web pages and recognition of task-relevant information was not influenced” by personalized ads.

  • Subjects tend to look at ads in the following order: 1) picture, 2) logo, 3) slogan. Conversion optimizers should keep in mind that pictures are highly engaging, and they are the visual-cognitive clue as to the content of the ad. Second, the logo of the company is also important. The slogan comes last, but this does not mean it is any less important. Cognitive processing often clings to the most recently viewed item, which in this case would be the slogan. That slogan may be, in the viewer’s memory, easier to recall.

2. Personalized ads are more engaging.

Yahoo and Ipsos MediaCT surveyed 6,000 users aged 16-34. They were interested in finding how these users felt about and responded to personalized ads. Their survey group was representative of the U.S. online population.

consumer attitudes to personalized ads

(Image source)

The most prevalent response to personalized ads was that they were engaging. Engagement means that a customer is more willing to interact with the ad — i.e., click it, convert, purchase, etc. Engagement is far more significant than, say, “save me time.”

When a user becomes “engaged,” as personalized ads are intended to do, this places them firmly within the sales funnel.

3. Personalized ads have higher ROI than other advertising channels.

AdRoll obviously has a vested interest in the retargeting market. In their 2014 Industry Report, they surveyed over 1,000 responses and analyzed 11,000 advertisers with an total aggregate collection of 3.7 billion ad impressions monthly.

From this mound of data, several significant findings bubbled up:

  • Retargeting performs equal to or better than search (92% of advertisers agreed).

  • Retargeting performs equal to or better than email (91% of advertisers agreed).

  • Retargeting performs equal to or better than other display (92% of advertisers agreed).

There’s a real ROI in retargeting, which is probably why marketers are spending as much as 50% of their budget on retargeting.

If the ROI weren’t there, then these advertisers wouldn’t be throwing this kind of money into personalization.

AdRoll’s president laid it out for all to hear:

"Retargeting has become a must-have advertising channel for marketers with performance objectives. It solves a clear business problem by helping brands stay engaged with customers who demonstrate intent to purchase."

4. Personalized ads based on browsing behavior outperform other personalized ads.

Two researchers, one from MIT and one from London Business School, examined the retargeting results from an online travel agency. They learned that when personalized ads took into account a user’s browsing behavior they are far more effective in engaging users. The types of behavior cited in the research were “visiting review websites that suggest their product preferences have evolved.”

The findings place more power into the hands of the pro-personalized crowd, suggesting that the more data a personalized ad can use, the more effective the personalized ad becomes.

5. Personalized Ads convert 42% higher than nonpersonalized ads.

HubSpot’s study of 93,000 CTAs over 12 months backs up the hypothesis that personalization works. They analyzed a series of calls-to-action, and found higher conversion rates than those that lacked personalization.

targeted calls to action convert 42 percent more visitors into leads than untargeted CTA

6. Personalization plays into our psychological makeup, and our natural desire for control and customization.

Multiple psychology studies confirm the human’s desire for customization and control. This is essentially what retargeting is. We are able to customize the dynamic nature of our online environment to our preferences. We do, however, lose some control in the process.

It makes us feel good — being able to have a customized experience. Creating a customized environment, in turns, causes us to have a higher response rate to familiar stimuli and situations. Personalization has worked wonders in other arenas such as home design, education, and consumer products (e.g., monogramming). Why not use it for online advertising as well?

The psychology behind personalization is simple: We have a human need for personalization, and naturally crave the experience that comes from personalized environments.

Conclusion: Should you use personalized advertising?

The decision is now yours. Should you use personalized advertising? Is retargeting a smart move?

If you want more conversions, then yes. Personalized advertising simply works better.

Yahoo reminds us that “it’s all about balance.”

- Should you use personalized advertising

(Image source)

Patrick Albano, Yahoo’s VP of sales, distills it into two cogent sentences: “Personalization is simple: give the consumer more of what they care about and less of what they don’t. It’s about surfacing value for users and advertisers alike.”

Well of course it is. Everything in life is about balance, so that’s basically a cop-out answer. They are simply reminding us that consumers want trust and control.

Granted, but consumers also want relevant advertising. So, let’s do what we can to provide trust and control, while also delivering relevancy.

In other words, let's use personalized ads.



Topics: Conversion Optimization, personalization, Web Psychology

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