June 3, 2011, 4:46 PM

Personalized ads might carry less power than previously thought, an M.I.T study says

Retargeting depends as much on timing as on promoting the right products, researchers say.

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Showing online ads to consumers featuring specific products they browsed but did not buy may be a hot marketing trends, but a new study from the Massachusetts Institute of Technology casts doubt on the strength of so-called retargeted advertising.

The study, “When Does Retargeting Work?: Timing Information Specificity,” does not dismiss the effectiveness of retargeting. Instead, authors Anja Lambrecht, a professor at the London School of Business, and Catherine Tucker, a professor at M.I.T.’s Sloan School of Management, argue that retargeting works best when directed at consumers who have very specific ideas about what they want to buy and when they want to buy—or, in other words, consumers who have done more than simply view a product on an e-commerce site. “Surprisingly, we find that on average, messages with high information specificity are less effective than generic messages,” the authors write.

Retargeting generally works like this: A consumer visits an e-commerce site and views products or puts those products into the shopping cart but leaves them there. Thanks to cookies, the pieces of code that enable e-retailers to track consumer web browsing, the retailer, typically working with an ad network, can then offer up ads that reflect the specific browsing history when that consumer visits another web site. For instance, a consumer who browses summer dresses on an e-commerce site might see, even months later, ads for the specific browsed dress, or related products, on other web sites, on search engine results pages or in marketing e-mails.

The idea is to convert the online window shopper into a customer. Some retailers have reported success with retargeting; multichannel apparel retailer Charlotte Russe Holding Inc., for instance, recently said that retargeted display advertising is producing more revenue than paid search.

But the M.I.T. study, which involved a 21-day analysis of an unidentified online travel firm but no other e-commerce operators, suggests that such returns may not be obtainable for all retailers, depending on how specific their retargeted advertising is. The study notes a difference between what the authors call generic retargeting—in this case, ads containing generic messages related to travel, directed to consumers who had visited the travel firm’s site—and dynamic retargeting—ads that promote the specific products that a consumer had viewed on the travel  site.

Site visitors were randomly shown generic ads or more personalized ads that reflected specific browsed products. The travel firm and researchers tracked purchases made by all site visitors. The study found that consumers who saw the more personalized ads were less likely to buy a product on the same day they were shown the ad.  The probability of conversion for consumers who saw the generic ad was roughly 50% higher than for those who saw the specific ad, the study says.

Success of the ads seemed to turn on a consumer’s mindset, the report says. Merely lingering on a product page does not indicate as much of a willingness to buy as visiting a product review site. The study says that personalized ads become more effective when directed at consumers who had visited such review sites.

The report urges marketers to make better use of data that show a consumers’ browsing history to better fashion the timing of personalized ads, but also argues that such ads are not always suited to a consumer’s frame of mind. “To fully exploit the potential of digital marketing, firms should pay attention to how they can identify a consumer’s mindset and then target consumer with the type of information that they are most susceptible to at that time,” the report says.

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