Is It Transparent or Surveillant? The Effects of Personalized Advertising and Privacy Policy on Advertising Effectiveness

Consumers encounter personalized ads while online, some of which are excessively tailored and reflect consumers’ past online activities. This degree of personalization can feel invasive, prompting websites to provide their privacy policies. Across two studies, we explored the effects of online behavioral advertising (OBA) with transparent privacy policy on consumers’ evaluations of advertisements. In the first study, we hypothesized that an OBA campaign with a gain- or loss-framed transparent privacy policy would affect advertising effectiveness through perceived transparency and surveillance. Study 1 revealed that personalized advertising with a transparent privacy policy message can invoke both perceived transparency and surveillance, which have positive and negative relationships with advertising effectiveness, respectively. However, the anticipated gain and loss framing of privacy policy disclosure did not adjust the perceptions of transparency and surveillance. In Study 2, we explored the effects of personalized ads with anthropomorphic privacy policy messages on algorithmic awareness, as an underlying factor of personalization, to explain the mixed feelings. Results showed that anthropomorphic privacy policy messages moderated the effect of personalized ads on algorithmic awareness, leading to perceptions of transparency and surveillance. These findings emphasize the nuanced interplay between transparency messages and algorithmic awareness in shaping advertising effectiveness. Our data offer design insights for transparent messages that inform data collection and processing, aiming to improve the consumer experience in OBA.