NEW YORK, NY – Frequent web users are likely familiar with the incessant prompts that give the option to accept cookie tracking as they surf the web. Recent polling shows that 42 percent regularly click to decline them. But reflexively declining cookies and online tracking may not be the best choice. New research from Columbia Business School reveals that when consumers decline web cookie tracking, they will continue to see advertisements, but those ads will be less aligned with their interests and advertisements will be repeated more frequently. Counter to popular understanding of the web, cookie tracking could be a service to consumers as well as businesses.
Columbia Business School Professors Kinshuk Jerath and Miklos Sarvary led a study, Consumer Privacy Choices and (Un)Targeted Advertising Along the Purchase Journey, that analyzed the existing advertisement ecosystem and found that -- counter to popular belief on cookie tracking -- it may be better for consumers to opt in. The study found that when consumers opt in to allowing companies to track their behaviors on the web, they will experience ads better aligned with their interests and they will avoid seeing repeat advertisements that lead to ad wear out. This is an important revelation not only for consumers, but also for policymakers who regulate consumer privacy.
The authors identify two considerations in data privacy: intrinsic and instrumental. Intrinsic is the belief that a consumer shouldn’t have to share their data because they don’t want to. Instrumental is the conviction that consumers shouldn’t have to share their data because a company could create a profile on them and manipulate their experience with that information. Consumers and policymakers are often motivated by the intrinsic dimension of consumer data privacy. If they considered the instrumental piece, they would find that a company having access to consumer data isn’t always nefarious. Companies can use cookie tracking to improve the consumer experience by ensuring they are not exposed to the same advertisement many times and by avoiding exposing them to advertisements not aligned with their interests.
Professors Jerath and Sarvary, along with coauthor Rutgers Business School Professor W. Jason Choi, developed a game theory model to analyze the advertisement ecosystem and develop conclusions on the effects of privacy regulations. They analyzed consumers in a two-period model in which the consumer first had a choice about ad frequency, and then about letting the ad network and advertiser track their online behavior.
Additional takeaways include:
- Companies having access to consumer data can be good: Declining cookies is a privacy choice that may result in ads that don’t interest consumers at all and can lead to lower satisfaction.
- Repeat ads can lead to ad wear out: If ad effectiveness is defined as changing consumer behavior, the research team found that it is not simply correlated with frequency. Companies should repeat an ad only if it is very effective, but they can only know this information if they have access to consumer cookies.
“Many consumers think that by opting out of cookie tracking, they will see less advertisements, but that isn’t the case,” said Miklos Sarvary, Carson Family Professor of Business and Co-Faculty Director of the Media and Technology Program at Columbia Business School. “On the contrary, consumers who opt out of cookie tracking will see more repeat ads and ads that are less aligned with their interests, which could lead to ad wear out. When a company can track a consumer’s cookies online, they can create a better experience for the buyer along their purchasing journey. Rather than assuming companies have bad intentions, we should consider that the better experience a customer has, the more advantageous it is for the company, so they don’t want to send the wrong ads to the wrong people.”
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.
About the researchers
Kinshuk Jerath is the Arthur F. Burns Chair of Free and Competitive Enterprise, Professor of Business in the Marketing division at Columbia Business School...Read more.
Miklos Sarvary is the Carson Family Professor of Business and the faculty lead for the Media and Technology Program at Columbia Business School. Miklos...Read more.